Myth-busting the private rental sector

The prevailing focus on home ownership and social housing has left the private rented sector somewhat unexplored by policy-makers, allowing false impression to flourish. Now the Rugg Review intends to put paid to any ‘here be dragons’ assumptions.
Mark Cantrell reports

The mythology that tends to surround private rented accommodation might have fed the imaginations of novelists and television sit-com writers over the years, but it’s not very helpful for those tasked with comprehending and managing the tenure.

Myths commonly have some basis in underlying reality, of course, however tenuous the link. So when it comes to horror stories of bad landlords, decrepit properties, or other stigmas, there are inevitably the few rogues who tarnish the majority, but those myths - fuelled by the guilty few or not - are no sound basis for making reasoned judgements.

So the Rugg Review into private sector renting came as a welcome endeavour to shed some light into this neglected section of the nation’s housing scenery, beginning the process of filling in the map with some serious mythbusting exploration.

The move towards evidence-based approaches to the private rented sector was particularly welcome as a watershed moment for the National Landlords Association (NLA), as was the report’s acknowledgement of the contribution small landlords make to the country’s housing mix.

“The rhetoric has gone and myths have been dispelled,” said chairman David Salusbury. “The review is clear about the positive elements within the private rented sector and also where the sector faces challenges in raising standards and the wider social contribution landlords could make.”

The British Property Federation (BPF), however, said that it would have liked to see a greater emphasis on institutional investment, implying steps towards some degree of consolidation in the sector, rather than it’s current ‘cottage industry’ flavour. The organisation urged the government to take steps to foster a “branded” rented housing sector along the lines of those in Germany and the USA.

“It has been a long-standing desire of the BPF to see greater investment in the rented sector from cash-rich institutions like pension or life funds,” said Ian Fletcher, director for residential policy. “[The report] makes a strong case for the need to grow the sector in general. The methods it proposes is revision to stamp duty and capital gains tax and amendments to the current real estate investment trust regime.

“Although we are disappointed that the value of institutional investment has not been fully recognised, we welcome any proposals to reduce the burden of these measures on landlords which will enable corporate and institutional investors to grow their residential portfolios.”

The independent 178-page report was researched and written by Dr Julie Rugg and David Rhodes of the University of York’s Centre for Housing Policy. Published last month, it was commissioned by the Department of Communities and Local Government, first of all to gain a clearer perception of the sector, but also to provide a launchpad to find ways to better support the sector for both tenants and landlords alike.

“The private rented sector plays a really important role in the housing market. Many of us have rented a house at some stage of our lives and it’s crucial that we have a high quality sector that works well for both landlords and tenants and encourages mobility,” said housing minister Margaret Beckett, welcoming the “comprehensive and authoritative” report.

The mobility issue was a crucial concern for the Centre for Cities, with growth of the sector considered a key aspect in helping this. Director Dermot Finch said: “We know from our own research that cities - particularly fast-growing cities like Bristol and Cambridge - urgently need more high quality private-rented housing to support their labour markets. Most of all, a bigger private-rented sector would boost worker mobility - which will be key as the recession and job losses bite.”

Growing the sector, of course, will only add to the urgency of the need to create a framework to ensure it can operate to best outcome for renters and landlords, a task that will be all the harder given the complexity and diversity of the tenure, and the often contradictory requirements of those in private rented accommodation. For some, the tenure’s strengths will be for others a weakness. So it goes; life is never easily pinned down by regulatory requirements.

As the report found, 21 per cent of private renters had been living at their current address for five or more years. However, ‘churn’ in the sector is high, reflecting the short-term nature of many of the uses of the sector: 40 per cent of the sector’s households had been living at their current address for less than 12 months.

“Many people will have some experience of renting privately during the course of their lives,” Rugg and Rhodes wrote. “Private renting offers a multitude of roles in housing biographies across the whole social spectrum, serving as a first port of call for new households, a ‘bolthole’ when housing circumstances change, a stopping-off point as people change jobs and move house, and - for many households - a long-term home.”

‘Churn’, as the report puts it, is one of those factors than can be disconcerting for those contemplating the sector. Private rental does have something of a reputation as an itinerant tenure. This conjures up the perception of a rootless, unsettled existence - of being ‘gypsies without a caravan’ as it were - that can undermine social cohesion if nothing else.

Like many myths, as the report indicates, it has a bearing in fact, but it also fails to present the full and true picture. The ‘churn’ is a measure
of the complexity and diversity of the tenure, a product of individual’s lifestyle preferences, or life stages, rather than simply a case of circumstances that keep them on the move. Some enjoy the mobility, others regard it as par for the course - students for instance. Many people, however, find a stable and comfortable home in the private rented sector.

One of the measures Rugg raised to help improve the sector was the concept of ‘light touch licensing’ for landlords and mandatory regulation for letting agents to provide greater protection for both landlords and tenants. On the ‘light touch licensing’, the NLA was somewhat unconvinced. The organisation said that further examination of the issue was needed to determine how the model might work in practice. There is no quick-fix solution, it warned.

Salusbury added: “Appropriate, focused and effective regulation of the sector is vital and supported by the NLA as a means of raising standards, improving the management of properties and cracking down on ‘rogue operators’. The review’s recommendations about licensing will need careful consideration, but the NLA has a major role to play in the development of PRS policy.”

Opinion is, understandably, divided, but Rugg and Rhodes have made an all important and broadly welcomed first step towards nurturing the tenure in the months and years to come. There’s a lot of work to do, but the door is open for those who want to step through and see what opportunities await beyond it.

As Rugg herself said: “We want to move to a new agenda for the private rented sector that looks to establish policy that works with the strengths of the sector. We hope the review has signalled the Government’s intention to seek a better working relationship with the sector. We now have a much stronger evidence base, and the opportunity to frame more informed policy. It will be interesting to see what happens next.”

Indeed. So watch this space, and keep an eye out for dragons.