PRS, ready for reform?

The Private Rented Sector (PRS) has a future but there are issues with it.

07 Aug 2018
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Assured shorthold tenancies (ASTs), by far the most popular form of tenure, enable a landlord to recover possession at the end of the tenancy for no reason provided 2 months' notice is given. With the balance of power in this sense firmly in favour of the landlord and given how the PRS has doubled since the Housing Act 1988 introduced ASTs (from 9% of households in England renting privately in 1988 compared to 20%, according to the English Housing Survey), it is high time for an overhaul.

The Government clearly agrees. On July 2nd the Secretary of State for Communities, James Brokenshire, announced plans to lengthen the minimum term for assured shorthold tenancies to 3 years with a 6 month break, to help provide renters with a measure of security.But the National Landlords Association responded saying that only 4 out of 10 tenants actually want longer contracts.Their research apparently found that although 40% of tenants want longer tenancies, 40% do not.

To date, we have seen papering over cracks but no significant action. Some key and, at times, radical proposals are being brought to the Government's attention:

Tenant Fees Bill

Government concern is reflected in the Tenant Fees Bill, which is currently before Parliament . The Bill bans landlords and their agents from requiring tenants and licensees in the PRS to make payments to the landlord, the agent or a third party as a condition of granting, renewing or continuing a tenancy with the exception of payments relating to rent, tenancy deposits, holding deposits and tenant default fees (such as replacing a lost key or late rent payment fine).

Following on from the Tenant Fees Bill in England and with very similar provisions, Renting Homes (Fees etc.) (Wales) Bill was introduced on 11 June 2018 in an attempt to make the PRS in Wales fairer and ensure consistency.We have yet to see how effective it will be.

A New Generational Contract

This recent report by the Intergenerational Commission, chaired by Conservative politician David Willetts, received much media attention for its proposal that a £10,000 "citizen's inheritance" should be given to 25 year olds at the cost of £7 billion a year. However, little attention has been given to the proposals for the residential private rented sector which could have a significant impact.

Some of these proposals include introducing:

  1. Indeterminate tenancies (lettings without a fixed term) as the sole form of private rental contract available with a "sensible" set of break clauses allowing a landlord to repossess with a minimum of 3 months' notice, for example if they wish to sellthe property or if the rent is not paid;

  2. Light touch rent stabilisation so that new tenants would have their annual rent rises limited to a maximum of CPR inflation for 3 years, after which a rent review can be undertaken;

  3. A new housing tribunal system to adjudicate possession applications and challenge rent rises; and

The requirement for all private rented sector landlords to register with their local authority so that landlords can be removed in the event of serious breaches.

Some of these recommendations resonate with the Labour Party's "Secure Homes for All" manifesto, which includes policies such as introducing controls on rent rises by an inflation cap, making new three-year tenancies the norm, banning letting fees, introducing new minimum standards and new consumer rights for renters.

Cross party political will may enable these major changes to be made sooner than would normally be expected.

The HK view

Reform is needed to secure the future of the PRS and give more security for tenants. The proposals being put forward appear to be re introducing a Rent Act type regime under which there is security of tenure for certain tenants and the Fair Rent system, fixing the rent at its registration value and requiring the landlord to apply to the Rent Officer to increase the rent.

Our concern is that many of the recent proposals are again too onerous on landlords. They could result in property prices falling, the reluctance of private housebuilders to build and an exodus from the PRS market. These effects would be compounded by recent tax changes and interest rate rises when/if they materialise.

Overhauling the PRS to ensure its future should be about balancing the bargaining power between landlords and tenants, not about completely shifting the status quo.


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