The party’s housing working group has looked at the laws around the private rented sector. We had a choice of whether we regulate: no private landlords, or some private landlords or all private landlords. The party’s housing working group rejected the deregulation option. But we didn’t reach agreement on whether we should regulate some landlords, targeting landlords with more vulnerable tenants, or regulate all 1 million private landlords. It will be for conference to decide.
Large houses in multiple occupation (HMO), e.g. student houses, have always been regulated because HMO tenants have always been seen to be at a greater risk of harm. The Housing Act 2004 increased the regulation introducing licensing which covers both the state of the property and the ability of the landlord to manage the property. The Housing Act 2004 also enabled councils to introduce targeted licensing (Selective or Additional licensing) but only in areas subject to anti-social behaviour or low housing demand.
I favour improving the existing system of targeted licensing. It is overseen by local councils and in various ways tries to target rogue landlords and protect the more vulnerable tenant. At the moment too many local authorities are not fully aware of their existing legal options. Those who are aware find their hands are tied because of the strict criteria for Selective and Additional licensing. Liberal Democrats in Bath want to introduce Additional licensing in areas but are having to go to considerable expense to prove they fit the criteria. Option A in the Decent Homes for all paper would free councils to introduce Selective/Additional licensing where they felt it was needed.
Option B in the Decent Homes for all paper proposes total regulation. According to the English Housing Survey there are 3.62 million or 17% of households are living in the private rented sector and 1 million landlords. Even if Option B excludes lodgers, it’s a lot of people and buildings to inspect. Councils have found one inspector can license about 30 properties in a year, so you can imagine the army of inspectors needed. The fees for the registration under Option B are described as modest and the scheme would be self funding. This raises the question of how modest will the property inspections be, will they even occur and how will the costs of administration be met.
I am a housing solicitor. I have spent the last 17 working in housing for both landlords and tenants. I train for Shelter, the Chartered Institute of Housing and Central Law Training. I have rented for 8 years with 6 different landlords. Although it is not a scientific survey I can confidently say bad landlords are in a tiny minority. A national scheme, applicable to all 1.5 million landlords – seems to me to be an infringement of the Liberal Democrats’ commitment to localism, and it could be a costly burden for councils: they would be forced to regulate large numbers of landlords who have never caused any problems, taking the pressure off the bad landlords. This wouldn’t help the most vulnerable and might end up in fewer properties being let. If we are the party of localism, we should trust our councillors and free up councils to extend the licensing schemes further, let local councils decide what is best for them, if the councils do nothing then go for state intervention.
* Emily Davey is the Membership Secretary of Kingston Liberal Democrats. She has previously stood for Parliament four times.
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32 Comments
I think it’d be interesting to see what powers councils currently have and how they’re used, before we try to decide whether to increase (or decrease) them. I know my experience with private landlords has been generally negative – I’m massively out of pocket in my new place due to the landlady failing to sort out a cockroach infestation we were promised would be dealt with before we moved in, and my prior landlord had no interest in maintaining gas or electrical safety or even stopping the ceiling falling in.
It might be that all that’s called for is informing tenants what their rights are and what the council can do for them.
Landlords already have universal regulation for quite a few things, from gas safety to EPCs to deposit protection, not to mention valuation for council tax and the majority of local authorities already offer voluntary accreditation schemes so it shouldn’t be a massive bureaucratic nightmare to integrate all these into a proper national scheme.
The benefits of a national scheme for tenants are quite significant in terms of providing better information to make good renting choices and force the minority of landlords who are below standard to raise their game.
If you make it very hard for many of the better landlords surely there is a risk that they just wont bother and you will decrease the supply of private rental housing even further?
“If you make it very hard for many of the better landlords surely there is a risk that they just wont bother and you will decrease the supply of private rental housing even further?”
The only way the supply of housing will decrease is if the landlord decides to demolish the house! If you increase the costs for landlords then house prices fall (the landlords can’t pass the cost on to the tenants given they’re already extracting the maximum amount of money from thm). House price falls are obviously a good thing as it gives people greater choice as to whether they want to rent or buy.
@Dave Page
Presumably the provision of cockroaches wasn’t part of the tenancy agreement, in which case it is interfering with your quite enjoyment of the property and you can legitimately withhold your rent.
If find the idea that bad landlords are a minority laughable. Almost everyone I know who rents, or has rented, has had negative experiences with landlords. They may not be terrible but they are poor, and they hold the power card in the relationship. I’ve known people who had their tenancy terminated because they complained that the shower wasn’t working and this kind of behaviour is far from unusual.
What is needed is not regular inspections but protection for tenants who complain. Where a complaint is upheld, tenants should receive substantial guarantees and protection from having their tenancy ended. More generally, we need to reform our rental markets so that they provide stability for tenants instead of the current six month rolling affair.
@Steve: “If you increase the costs for landlords then house prices fall (the landlords can’t pass the cost on to the tenants given they’re already extracting the maximum amount of money from thm).”
That’s incorrect, Steve. The landlord can always pass the costs on to the tenant because the supply of housing is limited and is already below the level of demand. @Jack is right that “they hold the power card in the relationship” – the inevitable result of a planning system that prevents competitive development.
An example of how the government intervention has unintended consequences is “the current six month rolling affair” that Jack refers to. This is the result of the government’s standard six month assured short-hold tenancy. In surveys, most landlords say that they would prefer long tenancies over short ones (because the transaction costs are lower, trust higher etc.) but they tend to reach for the government’s standard tenancy agreement by default.
So while it is true that “House price falls are obviously a good thing as it gives people greater choice as to whether they want to rent or buy”, the only way to decrease house prices is to increase supply (or reduce demand, but I’ll leave “demand management” to the socialists).
I don’t share @Jack’s belief that most private landlords are poor, and I don’t think that satisfaction surveys bear that out. Of course a lot of people complain, but a lot of people complain about a lot of things – it doesn’t prove that the service is bad by any objective standard. Of course there are many abuses – Jack’s example of the terminated tenancy is a good example – the the best way of eliminating bad practice is to tilt the balance of power back to the buyer by increasing competition/supply in the housing market.
Tom Papworth
“That’s incorrect, Steve. The landlord can always pass the costs on to the tenant because the supply of housing is limited and is already below the level of demand. ”
Wow. Looks like an introduction to economics is needed:
1. There’s no such thing as demand being below or above the level of supply. Demand is always in equilibrium with supply. The quantity of a product demanded is a multi-variable function that is conventionally plotted as a function of just one of those variables: price. The same with supply. The current transaction level and price is thus always at equilbrium at the intersection of the two functions (although just because they’re at equilibrium doesn’t mean the price is at the right economic level – large deviations occur due to participants in the market speculating, mis-evaluating the worth of something, etc).
2. The land component of rents and house prices is almost completely inelastic due to planning restrictions & land availability – House purchase price and rents are therefore highly sensitive to changes in demand and insensitive to changes in supply (supply here defined as the total housing stock/residential land availability rather than the current land up for sale). As we saw during the credit bubble, house prices rose dramatically in response to increased lending (demand) and rents remained flat in real terms (people pay their rents with their wages, not borrowed money, so demand for renting remained almost completely flat – yields fell dramatically as a result).
3. Neither of the above changes the fact that in a competitive market landlords are already charging the tenant as much as the market can bear. Part of the market rent covers the land value and part of it covers the improvement to the land (the house), so landlords can charge more than if land was freely available but that does not mean to say they can pass on their increased costs to tenants. If they could then why aren’t they doing so at the moment? If it was possible then I could demand my tenant pays twice as much – I can’t of course because he’ll simply move to another landlord’s house.
Steve,
The current transaction level and price may very well be at equilibrium at any given point, but if an increase in demand is not met by an increase in supply, then over time the price will rise – as it has done, in real terms, over the past 30 years. Housing in the UK is shocking expensive and individuals are forced to put up with small, low quality accommodation, and trying to brush that under the carpet with a definition plucked from your revision notes isn’t going to help anybody.
The mistake you make is assuming that the supply side is fixed: “The land component of rents and house prices is almost completely inelastic due to planning restrictions & land availability”. The key phrase here is “due to planning restrictions”. The UK has some of the most bureaucratic and restrictive planning laws in the world, and as such we have built far fewer new homes per head of population than most of our statistical and geographical neighbours.
As for the suggestion that “in a competitive market landlords are already charging the tenant as much as the market can bear”, this assumes firstly that it is a competitive market (not competitive enough, due to the monopoly that existing landlords enjoy due to the above-mentioned planning constraints) and secondly that “the market can bear” no more. In fact, as demand for housing is inelastic, prices can rise substantially (as rental prices have in the recent years), forcing individuals to either curtail discretionary spending (i.e. spending on goods for which demand is elastic) or downsize (cramming people into ever smaller houses).
“In fact, as demand for housing is inelastic, prices can rise substantially (as rental prices have in the recent years), forcing individuals to either curtail discretionary spending (i.e. spending on goods for which demand is elastic) or downsize (cramming people into ever smaller houses).”
Rental prices have not risen substantially in recent years – house prices have, as a result of big shifts in the demand curve (its elasticity isn’t relevant to this mechanism) due to the credit bubble and bailouts of the bad lenders and debtors. If supply had increased in response to this artificial demand in the way you suggest then we would be in a similar situation to Ireland, with a vast excess of new-build housing standing empty.
People are cramming in to smaller houses but that is a result of the bad distribution of housing stock – it’s because house prices were artificially inflated by the credit bubble, transferring wealth from the younger generations to the older generations who, very often, remain living in their 3/4 bed houses long after their kids have moved out. It’s also because of the bailouts of the reckless and feckless and the taxpayer guarantees for the building industry’s one way bet – they are the private sector! – give them money!
We need proper taxation of land to sort this out, but we also need a proper understanding of how we arrived here and not a denial of the City and government’s role in articially inflating and propping up uneconomic house prices.
I think economists need a lesson in real life.
In real life, landlords pass costs on to tenants if they can possibly do so,
“In real life, landlords pass costs on to tenants if they can possibly do so,”
Yes, I agree. The key word being ‘if’. Given that landlords will put up their rents if they can, then they can’t put them up any further if their costs increase. You’ve just proved it.
In real life, car sellers charge as much as they possibly can
In real life, food retailers charge as much as they possibly can
In real life, energy cmpanies charge as much as they possibly can
…
Everyone charges as much as they can, and everyone passes on costs as soon as they can. So it’silly to claim that landlords are special beasts who somehow can’t pass the costs on that they want to pass on. They can, and they do.
Real life beats economics every time!
“In real life, car sellers charge as much as they possibly can”, etc
Yes they do (As I’ve already stated). Are you deliberately being obtuse Richard?
The difference between landlords (this includes owner-occupiers who effectively rent to themselves) and ice-cream vendors is that the ice-cream vendors can pass on a price rise by selling less ice-cream. If landlords costs increase, and they all want to increase the rents to cover it, then a large proportion of the housing stock would have to cease being used because the tenants can no longer afford it resulting in lots of people sleeping on the streets at the same time as there being lots of empty houses. The landlords with the empty houses wouldn’t be receiving an income, so they wouldn’t be receiving any of the rent, let alone the increase. Can you please take the effort to understand why this situation wouldn’t occur, unlike with ice-creams:
Ice-cream volumes can drop easily to accommodate a price increase. The 20 million houses in the UK can’t suddenly decrease in number to accommodate a rise in rental price forced by the landlords, without millions of houses being left empty. It is because residential land supply is inelastic that landlords cannot pass on increases in costs – hence house prices fall in response to landlords increased costs. There is, however, an artificial scarcity of housing stock (and land) created by hoarding by people who don’t use it – e.g. developers with land banks and widows living in mansions. Land taxation would sort the problem out. Why the widow should be able to deprive a family from using the land more effectively at no cost to herself is beyond me.
Just to labour the point:
If ice-cream sellers want to increase the price of ice-cream by 20% then they may only be able to sell 70% of the volume of ice-creams they did previously. 30% of the buyers are no longer willing or able to buy the ice-cream.
If landlords want to increase the price of renting a house by 20% then only 70% of tenants might be willing or able to meet the rental demand, thus leaving 30% of houses unoccupied, which isn’t much use for the landlords with the empty properties or the 30% of tenants who now have to sleep rough. In reality, those 30% of landlords won’t want to leave their houses empty and will therefore undercut the landlords that are trying to increase the rental price. The net effect is no change in price, given that the housing supply is perfectly inelastic. Landlords cannot pass on their costs to the tenant when the housing stock is inelastic and the population is static. They can charge more if the population increases, thus increasing the average iccupancy. For example, if the population and average number of people per house increases by 5% then they can charge 5% more. This is why the ‘shortage’ of housing caused by the population increasing faster than the housing stock (by less than 5%) is no where near sufficient to explain the massive rise in house prices since the mid 1990s. It isn’t a supply issue – it is artificial demand in the form of the private sector credit bubble and public sector bailout of the private sector bubble burst.
There’s a housing shortage in some areas, Steve. And there’s more than one type of house. So tenants have a choice and landlords do too. It’s a normal market just like the market for confectionery – some will buy Belgian while others buy Cadbury’s. And if Belgian go up, more will buy Cadbury’s.
Look, you’re arguing against yourself here. I shall highlight the critical points:
“As much as they can” is guaranteed to be a lower number than “as much as they want to” – on the basis of greed if nothing else.
Implicit in your statement is the concept that there is an actual limit to what costs can possibly be passed on to tenants, and that this is limiting the amount landlords can charge to less than the amount they would like to charge.
Economics here is studying what that actual limit is, and what factors affect it. There’s no mystical “real life” outside the box.
Returning to the subject of the post, since nobody else seems interested in it:
Why would we inspect them all? Surely it would be more practical to go with an inspect-on-complaint approach, where properties are bonded rather than licensed.
It is not necessary to overregulate this sector.
There are good tenants and bad tenants and the same applies to Landlords, I am a Landlord and try to be very fair with the tenants and probaby am too trusting ,as a result, over the last 3 years I ve suffered a massive amount of finacial loss due to bad tenants and them causing damage to the property, rent arrears etc, much more than the deposits held!
The other infuriating issue for landlords is where Housing benefit is paid to tenants and they pocket the money and don’t pay the rent! The legal process to obtain possesion is protracted and weighted very heavily against the landlord even when tenants are clearly in the wrong…even when possesion is eventually granted after 6-8 weeks it can take another 6 weeks + before the landlord gets their property back.
Many of the rentals at the moment are offered by People who are accidental landlords and who cannot sell their homes and many are just getting taken for a ride by tenants who unfortunately lpay the system…..if we go down the road of more regulation a lot of people…(Liberal democrat supporters included )will feel that they are getting no support for their involvement in a very important sector!
There are two sides to every story and I hope this gives a bit of balance to the discussion because, yes I do accept there are some very bad landlords too but the legislation is already in place to deal with these. Let’s have fair play please and an end to the unthinking bashing of landlords as this will only drive these voters into Tory hands!
Emily, I’d like to e-mail you on a more detailed point around this. We’ve met and talked at confernece a few times, but you may well not remember! could you contact me please on [email protected]
Economics is the study of one aspect of real life. Unfortunately, economists have not yet done enough studying, and haven’t understiood much. As indeed the present economic crisis demonstrates for all but blind economists to see.
I wonder if I can move from the extensive discussion of the economics of housing in these comments to the issue raised by the original op-ed, whose author favoured freeing councils to use selective or additional licensing if required in their locality. My wife and I own a house which can accommodate up to four lodgers (the house is not divided, so any failure of pest control, fire safety or keeping the house wind and watertight would affect us all including us wicked landlords), and have applied for HMO approval; the conditions imposed would involve fire doors everywhere, which our then tenants disagreed with, and external modifications to a listed building just in case someone went over the existing balcony railing, which our then tenants thought unnecessary given its actual height. We chose not to implement these conditions but reduce the number of lodgers below the number at which licensing was required, thus reducing rented accommodation in the town. The regulations in their present form appear not to differentiate between houses or flats with live-in landlords and those without, yet the risks to the landlord are clearly different and will affect landlord behaviour. Including the freedom to make this distinction among the freedoms Emily Davey proposes to give Councils seems to me the liberal way forward, targeting real problems and not adopting a blanket approach. More effective legal remedies against errant landlords, as suggested in the comment thread to try and redress the power imbalance, would also be a good idea, but might need Councils to have the power to take action in the light of tenant complaints.
Having spent some years as a property agent acting on behalf of landlords(ie, property owners not living in the property being rented) my experience was that few tenants were problematic, as long as the rules were plain and the rent payment was set up properly(whether dependent on benefits or not). Yes there was the occasional rogue tenant, and I reckon I made two bad judgements in ten years. The problem, almost always, was with the landlord! I would approach them about work/repairs needing doing and they assumed I was making it up/ that the tenant had caused the ‘damage’, and seemed to expect that the rent should go straight to their account and be their ‘profit’. Most were greedy and could only see the £££s.
The discussion, above, about supply and demand misses the point, this isn’t ice-cream or second-hand cars, it isn’t that simple, property transactions depend upon the availability of money first, not the availability of property(if the right money is there then the property will be). Builders depend on someone having the money to pay for the extension, or the mortgage to buy the new-build house, if the market demand is there then the developer can borrow the project funding to build the development. He will only build if there is a reasonable prospect of making a profit, until there is then the land will stay in the ‘land bank’. Few developers now actually have their own ‘land bank’, it remains ‘designated’ by the local planning authority, with the developer having a retainer in place. LVT on land with a planning permission might have an effect on getting things moving, but the idea that you can blame council planners for slowing the housing market is laughable. The developable land is available, designated or planning permissions in place, in many areas, but it won’t get built until someone has the money to pay the builder to build it.
If you increase the costs for landlords to the point where the investment isn’t worth the worry involved, then they will sell, but as very little is selling at the moment….
The crime at present is the sheer numbers of empty properties, of all types, just held as an investment with no intention of it being occupied, that is where LVT would be very useful. LVT being payable would reduce the value of the investment and induce the sale of the property at a lower price, and would also detract from property’s current role an investment vehicle.
Nothing about the housing market is simple, there are too many variables, but yes there needs to be better control of landlords (owners with domestic lodgers need no regulation), but there also needs to be better controls of Agents, and the corrupt triangle of Lender/Agent/Solicitor needs to be barred too.
Emily if you want more detail or further comment, please get in touch.
Emily,
I applaud your thoughful article and work with the party’s housing group. Like Peter commenting above, I have spent some time as a property agent and retained membership of the National Association of Estare Agents for a number of years. My experience was that Landlords often relied on managing agents for advice and assistance in complying with safety standards and letting regulations and it is on this basis that I would favour targeted licensing overseen by local councils.
There are very few problems encountered with tenanted accommodation managed by established local agents with a professional reputation to consider and registration of agents can be easily implemented.
Properties let by private landlords through managing agents represent less of a risk than those managed directly by individual ownwers. Higher value properties rented to well-heeled professionals represent little risk. It is at the lower end of the private rented market where attention must be focused and standards improved. A blanket approch as against targeted licensing will very likely overstretch local council resources with little additional benefit to be gained..
Thank you for all your comments. Dave Page you mention that you have cockroaches have you tried Environmental Health under the Housing Act 2004 they can inspect your property and order the landlord to do the work if they fail to they end up in the magistrates court with a conviction if they try to evict you they still have to do the work. You do not need a solicitor just phone up Environmental health and ask them about the Housing Health and Safety Rating system and inspections. This leads on to Andrew Suffield’s point why not just have inspections when people complain. We have that system already any tenant can ask Environmental Health to inspect their property any councillor can also trigger an inspection. The beauty of the scheme is that the tenant does not have to pay anything and secondly if the inspection results in an Improvement Notice or Prohibition Order not only can it be enforced through the magistrates court but it ends up as a charge on the local land charges register so when a purchaser does a search on the property they find it and if they purchase are also liable for it. If the landlord evicts the tenant they are still liable. Empty properties can be subject to Improvement Notices and Prohibition Orders.
Sadly the Housing Health and Rating System is not a widely used area. When I tried training some tenants’ solicitors about it they told me they did not want to know about it because there was no money to be made in it and therefore they did not tell their clients about it. Under option B the companies covering the deposit schemes would send out standard information to tenants about their rights.
On empty properties there are thousands of them and there are ways of councils bringing them back into use but it is a long drawn out proceedure which Mr Pickles is trying to make more difficult. Norwich has got a super scheme Kent has formed a consortium of district councils and is tackling them. the other t
Peter you mention me getting in contact but i do not have your details other than Peter and a very small photo.
sorry somehow I was cut off mid sentence I was going to say empty council houses are a scandle the Evening Standard estaimated there were about 5000 I did some FOI requests of london councils and found 100s some councils had no idea how much work was needed to bring them into use others had properties with comparatively little work required to bring them into use. This is excluding properties awaiting demolition.
What is preventing them being used? Is it the lack of money or the failing of the Decent Homes? It is time this problem was addressed. I think that the situation still is not being taken seriously, a home is one of the most important things to have.
This all depends what we are trying to achieve. For me, I want to ensure that all tenants have somewhere reasonably safe, secure and energy efficient to live. Licensing seems to be a good way of approaching this.
Should we be licensing landlords, or should we be licensing individual houses as fit for rental? When there’s a landlord with numerous houses in varying condition this makes a difference, as a landlord losing his license over the condition of one house would result in the loss of several houses from the rental market.
Licensing the individual houses is costly, but if those costs are borne by the landlord then taxpayers shouldn’t be out of pocket. The licensing conditions need to be transparent and shouldn’t result in alterations to the house that are against the will of the tenants (which is happening with HMOs in Oxford).
On top of licensing, the housing motion proposes creating a new Use Class in the planning system for private rented accommodation. This is a whole different kettle of fish and I’m very worried about it. The housing policy working group may call it ‘private rented accommodation’, but tenants have a different term for it: ‘home’. We live, sleep, eat, wash and relax in our rented homes just like homeowners and social tenants, so on principle it’s wrong to distinguish private tenants from anyone else. In practice, the reason this Use Class is being proposed is so that local authorities can reduce the amount of private tenants living in an area, which will reduce supply and push rents up even higher.
I’m hoping I can get a separate vote to remove private rented accommodation from the Use Class part of the housing motion and I hope conference reps will help bring it down.
As someone who lives in area where there is a lot of rented accommodation (but owning my own place) I would say the sector needs regulation. Private landlords are immensely advantaged by the short term tenancy lease but seem to bear little responsibility. Would it be acceptable for a pub landlord to tell the police “don’t come to me about my noisy customers – address it directly with them”? or “Don’t hassle me about the rubbish outside my premises – hassle my customers”? That is what a landlord told me when I was having ongoing issues with a tenant of his. The problem is that in cases where the tenants are only in place for months the landlords have the long term stake in the community . I do exclude from this situations where tenants are in place long term and so have the same interest in the area as owner occupiers. If you don’t regulate then the standard all too easily goes to the lowest common denominator when supply is so inelastic.
“Would it be acceptable for a pub landlord to tell the police “don’t come to me about my noisy customers – address it directly with them”?”
Of course it’s acceptable. The noisy customers are responsible for their own behaviour, not the landlord.
“Don’t hassle me about the rubbish outside my premises – hassle my customers”?
Ditto. Why should the landlord be punished for the anti-social behaviour of people who happen to be his business customers? It is the people responsible for the bad behaviour that need to be addressed.
Helen Dudden – selective licensing is not wide spread because it is restricted to areas with anti social behaviour and/or low housing demand. You can find parts of the country with lincensing ie Northern areas where there is lower housing demand.
Tim Longman – what you need is a management order the law is already in place. Where landlords are not managing their properties ie letting them cause ASB then the council can step in and manage the property accept the rents deduct the costs of management and give the remainder to the private landlord if they don’t own their own council housing any more they can out source it. Have a chat to your council and refer to the Housing Act 2004 and Management Orders.
@Tim, I don’t think you can compare housing with pubs like this. Whereas pubs are certainly an important community asset, they are in the end recreational, whereas everybody needs a roof over their heads.
Problem tenants are certainly an issue, but given they need somewhere to live, having them live somewhere else only moves the problem rather than solves it. Part of the answer (as you elude to) is a longer-term tenancy model than the standard short-holds of 6 to 12 months provided by the 1988 Housing Act. That is win-win for the tenant and the surrounding community.