A fair deal for tenants and landlords

Published on Housing, Wealth and Debt

For a government that emphasises rights and responsibilities, housing seems to have been left out. The government’s largest investment in housing – housing benefit – requires landlords to do nothing for their share of the £20 billion. Regardless of the quality of the home they let or the management they provide, the amount of housing benefit they get remains the same. Attaching conditions to housing benefit to change landlord behaviour is tricky because it’s the individual who is entitled to the benefit. The same is not true of the £7 billion that landlords claim annually in tax relief which is also provided on a no strings attached basis. A new report from the Resolution Foundation and the Chartered Institute of Housing argues that, with one in five UK households now living in private rent, creating incentives for landlords to raise their game by making part of this tax relief conditional on improving performance should be a priority.

The private rented sector has grown rapidly over the last 20 years and has now overtaken social renting as the second most common way in which families in the UK live. As it has grown, it has also changed in nature. It is housing more families with children, more households on low to middle incomes and a large number of the under 35s. Far fewer private renters are now passing through on their way to home ownership. Many will be long-term renters. However, private renters get a worse deal than those who own or rent socially. Homes in the private rented sector are older than homes that are owned or socially rented. One in five still doesn’t have central heating and many lack good insulation, making them more expensive to heat. On top of that, the majority of landlords own only one or two properties rather than being in the lettings business. In this context, tenants can be an inconvenient by-product of an investment decision.

The government’s current approach to improving standards for private renters rests with competition. It is investing in the development of a new type of rented product which is large scale, purpose-built and professionally managed, with the intention that this will drive up standards across the market. Government support for build to rent is important but it will take years for this new product to influence the wider buy-to-let market and in high demand areas, its impact will always be limited. Labour, on the other hand, is proposing greater regulation of rent increases and tenancy length. Regulation tends to be a blunt instrument in a sector comprised of many sub-markets and is heavily reliant on well-funded enforcement to work at all. There is also a risk that greater regulation will drive away much-needed new investment as it did in the past.

With competition and regulation each having its own limitations, incentives have the potential to bridge the gap. Central to making incentives work would be to create a national accreditation standard to which landlords would have to commit in order to qualify for the incentive. This doesn’t need the creation of a whole new bureaucracy, simply the harmonisation of existing schemes so that a landlord accredited through one scheme is operating at the same standard as one accredited through another. Accredited landlords would then be eligible for more favourable tax relief than those who remain unaccredited and this could be designed to be cost neutral to the Treasury. For example, accredited landlords would be able to deduct their full costs for tax purposes, as all landlords currently can, while unaccredited landlords would only be allowed to deduct a portion of their costs, creating a strong incentive to get accredited.

There is no reason to assume that the private rented sector is not going to continue to grow at the pace it has.  Large numbers of people have been shut out of home ownership for the long-term and social housing is increasingly targeted at the most vulnerable. This creates a case for action to ensure that private renting offers a fair deal to those who now rely on it for their long term home but necessitates an approach that works with the nature of the sector. Incentives on top of a streamlined minimum floor of legislation offer the best way forward.