The Essential Ingredients for a Successful Private Rental Sector in the UK
The Private Rental Sector (PRS) is a vital component of the UK housing market, accommodating a diverse range of tenants, from students and young professionals to families and older adults. It offers flexibility for those who may not wish, or be able, to participate in homeownership or social housing. But what ingredients make a successful PRS?
What ingredients are necessary to produce a thriving Private Rental Sector?
I’ve picked out a few key ingredients that I believe makes a successful PRS. I've also looked at where the UK currently stands with each of them to try and see where improvements are required.
Lets start with, what I believe, are the three absolute essentials:
Tenant Demand
Tenant demand is one of the key driving forces in the PRS. Factors influencing tenant demand can include population growth, changes in household composition, economic conditions, and shifts in societal norms.
Fluctuations in other housing sectors also play a role. A sluggish property market or high entry barriers to homeownership can push more people into rentals, thereby increasing tenant demand. Therefore, ensuring the PRS can adapt to these changing demands is crucial for its success.
At this point in time, I think we can safely say that there is a tick in the box for Tenant Demand.
Landlord Supply
The availability of rental properties, or landlord supply, is just as critical. This can be affected by various factors, including property prices, rental yield, tax regulations, and legislative changes.
Let’s be honest, the Government have done their level best to dissuade new landlords into the market and to persuade existing landlords to sell up.
With 11 housing ministers since 2010, there has been no continuity at all. Alterations to the tax relief on buy-to-let mortgage interest, stricter regulatory requirements, a stamp duty premium on second homes/investment properties to name but a few policies that have disincentivised landlords from investing in rental properties, thereby reducing the supply.
The PRS thrives when it can attract and retain landlords, who feel it's worthwhile to invest in rental properties and, at the moment, the incentives are not there. A cross in the box for Landlord Supply.
New Build Homes
The construction of new build homes plays a crucial role in addressing supply-demand dynamics I have just talked about.
In recent years, the UK has faced a shortage of affordable housing, a factor that has had a knock-on effect on the PRS. The lack of new build homes can exacerbate this situation, putting upward pressure on rental prices and making it harder for individuals to find suitable accommodation.
It's worth noting that not all new build homes need to be for sale. Build-to-rent (BTR) developments, where new properties are constructed specifically for renting, can also contribute to the supply in the PRS. These developments can offer high-quality, purpose-built rental accommodation and are often managed professionally, offering tenants a better rental experience.
The problem is is that the last time the Government's 300,000 new homes to be built in a year target was hit was back in the 60’s.
Another cross in the box for New Homes Supply.
Affordability
Rents are the highest that they have ever been, often pricing tenants out of the market to rent the type of property that they need.
Market forces have the greatest influence on rental prices - i.e. the three ingredients I have mentioned above. Policy interventions, such as rent controls, have been used in the past to maintain affordability. Scotland currently has a a temporary cap on rent increases for private tenancies. The cap is set at 3% and is expected to stay in place until at least 30 September 2023.
The Rent Act 1977 was the last piece of legislation in England and Wales to place limits on how much landlords could raise rents. However, it was substantially repealed by the Housing Act 1988.
The current government have long been against rent controls and the Labour government have now has ditched a pledge to control surging rents if it wins the next general election – nine months after endorsing the policy.
The only method, it seems, of controlling rent affordability, is to get control of the market forces that influence it. Cross in the box for Affordability.
Proper Landlords
The next ingredient for me are 'proper' landlords. I couldn’t think of a better word than 'proper' so I hope you know what I mean.
Encouraging proper or professional landlordism will result in more efficient, ethical, and proactive property management. I’m not just referring to those landlords who treat buy to let as their main business or career – I mean any landlord who owns a rental property.
Proper landlords are more likely to keep their properties up-to-date, understand the rights and needs of their tenants, and conform to regulatory standards.
There are still 'rogue' landlords out there. The daily news articles about fines and penalties show that. However, one of the proposals in the upcoming Renters Reform Bill – to which I’ll be referring to a lot – is that landlords must register both themselves and their properties on a national database before they can let their property.
I think we are heading for a tick in the box for Proper Landlords.
Quality Rental Accommodation
Quality and safety of accommodation is also at the heart of a successful PRS. This means properties should not only be well-maintained but also meet a decent standard for the health and safety of tenants.
We already have a couple of standards that should be adhered to by landlords – FFHH (Fit for Human Habitation) HHSRS (Housing Health and Safety Rating System). However, the problem is that local authorities don’t seem to have the resources to police these properly and tenants are often been reluctant to complain of poor standards for fear of receiving a Section 21 notice through their door evicting them. I’ll come onto that in a minute.
The Decent Homes Standard is a legal standard which regulates housing provided by the social housing sector. However, it is laid out in the Renters Reform Bill that this standard will be applied to the PRS in the future.
The government are also bringing in stricter (EPC) regulations to improve the energy efficiency of rental properties. However, these are not yet law and they have to find a balance so as to not force more landlords to sell because of the costs required to hit the standards.
The government do seem to be introducing more new 'standards' to raise the quality of accommodation. So, on that basis alone, it's a tentative tick in the box for Quality of Accommodation.
Stable Legal Framework
A clear, fair, and enforceable legal framework is essential to strike a balance between the rights and obligations of landlords and tenants.
A thriving PRS should incorporate regulations that protect tenants from eviction without proper cause and provide mechanisms for settling disputes.
Simultaneously, they should safeguard landlords against property damage, rent arrears and anti social behaviour as well allow swift possession should the decision be taken to sell the property or move into it.
I feel that the recent announcement in the Renters Reform Bill to abolish Section 21 evictions and the extended powers of the Section 8 eviction process in England and Wales is an example of how legislation can adapt and, hopefully, foster a healthier PRS environment.
I’m not going to discuss the abolition of Section 21 here, as that is a topic in itself, however, what I will say is that the success of the proposed changes rely completely on a robust, efficient and effective court process – something that I am yet to be convinced of.
At this moment in time, a Stable Legal Framework is a cross in the box for me.
Robust Rental Market Data
Having robust data on rental prices, property conditions, tenant demographics, and market trends is crucial information for everyone in the PRS to make informed decisions. These include the powers that be who make policy decisions, landlords who create investment strategies and tenants who live within the rental sector.
Reliable data helps identify issues and challenges in the PRS, allowing for more effective interventions.
With that being the case, it’s a tick in the box for that availability of Robust Rental Market Data, but it’s one huge cross for how the authorities translate this data into policy decisions.
Access to Dispute Resolution
Disputes between agents, landlords and tenants are almost inevitable. Hence, access to efficient, fair, and timely dispute resolution mechanisms can mitigate potential conflict and promote trust in the sector.
Whilst there is a current legal requirement for letting agents to be a member of a property redress scheme, there is no such requirement for a self managing landlord to be a member of something similar.
Again, the Renters Reform Bill does include a landlords redress scheme clause in it so, on that basis, another positive tick for Access to Dispute Resolution.
Long-term Tenancies
Longer tenancies can offer benefits to both landlords and tenants, including security of income and tenure, better tenant-landlord relationships, and improved care of properties. Policies that incentivise or enforce longer-term tenancies can contribute significantly to a thriving PRS.
It was not too long ago that the government were thinking of bringing in 3 year tenancies. Roll on a couple of years and the Renters Reform Bill has Assured Shorthold Tenancies being abolished in favour of a Periodic tenancy with no fixed term.
So much for policies that can incentivise longer term tenancies.
I’m not convinced that a straightforward periodic tenancy from day one will contribute to a thriving PRS. This is a cross for me.
In conclusion, a successful private rental sector in the UK requires a comprehensive blend of effective regulation, high-quality accommodation, affordability, professional management, robust data, efficient dispute resolution, tenant support, and fit for purpose tenancies.
By focusing on these ingredients, we can work towards a PRS that not only houses a significant proportion of the population but also contributes to the wellbeing of individuals and communities across the UK.