Whither The PRS?

Another excellent thought leadership piece on the role of the PRS copied from LinkedIn and written by legal expert, David Smith asking what is the role of the PRS / where does it fit / is the law appropriate to manage it followed by my own thoughts on how to answer some of these questions. 

David's Piece "Whither The PRS?"

One of the questions that seems to be critical to me at the moment is "what is the private rented sector for?" It is also a question that lacks solid answers but it is fundamental to where we go from here.

The problem is that the Private Rented Sector (PRS) has frequently been asked to be all things to all people. And, worse still, it has kept trying to live up to this billing.

There are really multiple different incarnations of the PRS, all of which are trying to co-exist:

• There is the ordinary dwelling sector. This is mainly catering to those looking for a temporary home, those who are saving to buy a home of their own, and those who cannot actually afford a property;
• There is the HMO sector, primarily catering to those who cannot afford a rental home, so a combination of young professionals and those on benefits or in lower-paid jobs;
• There is the student sector comprised of large purpose-built blocks and smaller HMOs;
• There is the Build to Rent sector, offering higher-end properties, mainly in cities and aimed at young professionals;
• There is the benefits sector, letting purely to those on state benefits; and
• There is the high-value sector, letting very high end properties to wealthy individuals who either don't wish to buy or who are looking for the property they want.

These are just my categorisations. Others might create more categories and some of these categories are themselves pretty contradictory in that they include two or more groups with quite different needs.

Over time more and more people from different groups have been pushed into the PRS. However, the legal structure involved, the Housing Act 1988 has stayed much the same. In an attempt to deal with the problems caused by all these different uses there have been various bits of additional regulation grafted on. These include property licensing, deposit protection and more. And we will soon have the Renters' Rights Bill as well. This is not to say that these change are not good, some of them are. But part of the reason they have been needed has been the attempt to fit so many entirely different (and unsuitable) uses into one model.

A great example of this is the debate over Local Housing Allowance. One of the key objections to this is that it is the government putting money into the pockets of private landlords. But that is nonsensical. The government subsidises lots of different sectors, and many of them make a lot of money out of it. The government always has a choice about this. The railways are a key example of this. The government privatised railways and many of the companies involved made a lot of money. The government has now exercised a choice to re-nationalise them. The government can make the same choice over people on LHA. They can be housed in the PRS at the prevailing rate or they can be housed in social housing. For that though you need to have that housing available.

A lot of other similar issues about different models trying to fit in the same structure can be identified. Large student landlords provide a lot of accommodation, but only in larger university cities where there is a critical mass, and HMO landlords are vital for lots of other students. The RRB sort of recognises this by creating a much larger PBSA exemption than has previously existed. BTR is a huge provider of housing, but again mostly in cities. Smaller landlords provide a lot of accommodation in smaller areas. There is also a lot of great work done by landlords, but there is also a lot of really poor quality accommodation which the current enforcement structures are poorly equipped to tackle. The sector is highly integrated in all parts of the economy but it has also become very complex and diverse due to the wide range of needs. So trying to make changes is fraught with risk because for any bit you improve, there is a risk that some other critical function is fatally undermined. A lot has been said about the Renters' Rights Bill in this regard.

And this is the issue. There has been underinvestment in all types of housing provision and on the infrastructure necessary to allow people to live and work in different parts of the country. This has led to more and more people being compressed into the South-East and seeking to obtain a home. The PRS has been both the beneficiary and the loser in this process. Some landlords have done very well out of their investments, although in many cases these were their pensions, but the sector has also been increasingly attacked as a result of that process and accused of "depriving" other, presumably more worthy, individuals of housing. But this is shooting at the wrong target. Landlords have been providing housing to people who needed it. The shortage of housing is the fault of central and local government and its failure to plan properly for future housing need.

It is positive that the new Labour government is doing its best to make improvements in available housing stock and infrastructure. Adding more social housing will take pressure off the PRS by moving tenant groups, who were always ill-suited for the sector into other accommodation that better meets their needs. Revising the legislation was also needed, but revising it to protect vulnerable tenants largely misses the point that many of those people should never have been in the PRS at all.

This also leaves us looking at an uncertain future which nobody wants to really consider. If the government builds the housing in the quantity needed then there will be more social housing. However, a revised legislative regime may reduce the interest of some in living in a home they own and a move to long-term renting may become more common in the UK, as it is in many other European countries.

So where should the PRS fit in? What types of tenant should it be housing? And what types of landlord and property are best suited to those tenants? These are not just questions for today, but for five and ten years in the future. We need to design the future PRS now, based on what we project will be needed and then work out how we get to that outcome. That will mean changes in landlords and tenants in the PRS but it is only with this kind of planning that we can set out a planning, land use, and regulatory regime that works for the widest range of landlords and tenants.

I do not pretend to have answers to these questions. Hopefully some clever people can make some suggestions in the comments! 

See the original here:  (27) Whither the PRS? | LinkedIn

My Answer

David,  You hit the nail on the head about tenants who should not be housed in the PRS – 95% of the problems I see stem from this, the other 5% relate to landlords who do not understand their responsibility or lack any respect for their tenants – and to be fair, many of these house many of those, if you know what I mean.

Sadly, George Osborne's S24 changes – so hated by landlords – were an attempt to stem the rapidly increasing money supply driven by rapid growth in the national debt. His logic was that BTL was growing too fast due to the easy available of 'new debt' and very appealing owing to low interest rates, so if he could curb that he would take the heat out of the sector and start to get the growth in debt at a macro level under control. His logic was good and you could argue that too many people with too little capital were jumping in, which was fuelling house price growth and starving other asset classes of investment.

What he failed to consider that with his parallel austerity measures, local authorities accelerated the shift from providing social housing due to the ready availability of homes in the private sector, so as the pressure on the PRS built up, the option of falling back to the social sector no longer existed (in 1979 social housing accounted for around 33% of housing, a high after the mass destruction and homelessness caused by WWII and it has declined at an accelerating rate to something like 16% today).

Looking back it is easy to see how we got here and your observations about the unsuitability of current legal structures are valid, the challenge going forward is to produce that '2050 strategy' and then to outline the steps that will get us there. For me, and this is a personal view, there are a number of essential components:

• The construction industry needs to reskill and modernise, today it is inefficient and expensive
• The cartel of large builders which lobbies so effectively needs to be broken, a 25-year plan which recession proofs the industry will go some way to allowing the smaller challengers to survive and compete
• Concepts of home ownership need to change, properties need to come with a duty to maintain. I see so many near derelict properties in conservation areas and wonder what the point is – surely conservation is not solely about resisting uPVC windows
• We need to find a way to house those who need support outside of what is currently the PRS without creating ghettos
• The Planning system definitely needs a root and branch renewal, it takes years for developments to get to the point where they start (and many do not) and this adds significant costs
• Houses need to be built with a 75-year life expectancy and current Building Regs need to be driving for 'Passivhaus' standards. Builders will scream about the cost, but what is the point of a new build estate with 200 gas boilers which may need to be replaced within a decade (I can name 3 such developments within 5 miles of where I sit)
• Some of the compliance tools like HHSRS and EPCs are not fit for purpose and the electricity and fire regs are increasingly either written or interpreted by persons who could not be more risk averse – there is a balance and we do not have it today, a 3 bed HMO is not Grenfell.
• Affordable housing does not exist. The only way to offer housing below market rates is to subsidise it which uses taxpayers money – better to reduce the cost of land (for example, let local authorities 'keep' 50% of the land value increase of any planning permission granted) or have a land value tax to discourage land banking
• I suggest that all of the above coupled would depress the prices of older houses, reducing the need for 'affordable' or 'housing benefit' but it does depend on a considerable number of new build completions during the period.
• And on the legal changes? I leave that question to others better qualified but a housing court and arbitration process similar to that offered in the employment space by ACAS would surely be a good start.

What did I miss? What would you say differently?