Private Renting: We’re in the business of providing homes, just like you
The private rented sector has come in for some stick lately, but it’s currently meeting housing needs other tenures are failing to address. Changes to taxation, however, are threatening the business model and undermining its ability to deliver, argue the two main trade bodies. By Mark Cantrell
A thick skin is a must for private landlords, you might think, especially given the private rented sector has taken a lot of flak lately, but while criticisms can be rebuffed, it’s a little harder to fend off attacks on one’s livelihood.
Over the last 10-15 years, the sector has grown considerably; it has overtaken social housing provision as the second largest tenure, and is chasing on the heels of home ownership. But this shift in fortunes has not come without a certain degree of vitriol aimed at private landlords.
Some of this vitriol may be well deserved – no tenure is a paragon of virtue, after all – but there is certainly a sense that private renting is being used as something of a whipping boy for the faults of others. Private landlords may not be under siege in quite the same way, or intensity, as the social sector, but they’ve certainly come under fire.
Criticism has inspired policy. Over the last 18 months or so, private landlords have seen their mortgage interest rate relief axed; the sector has seen the imposition of a 3% surcharge on Stamp Duty for buy-to-let purchases; and the former Chancellor of the Exchequer George Osborne offered landlords a further twist of the knife, when he exempted the sector from cuts to Capital Gains Tax.
The private rented sector is certainly feeling hard done by, after all that; a sense that it’s been used as something of a scapegoat. And it’s not just landlord representatives saying this. Jeremy Blackburn, head of UK policy at RICS, recently said: “The private rented sector became a scapegoat under the previous Prime Minister, and because of that it suffered.”
This matters because, as RICS warned, the private rented sector, for all its recent growth, is in no position to cope with the rising demand that will be placed upon it, as social housing continues to decline, and home ownership continues to become ever-more unaffordable. Around 1.8 million new rental homes will be needed by 2025, RICS said, but recent policy changes will dampen private landlords’ enthusiasm, as much as their ability, to rise to the challenge.
The “economics of private renting have been dramatically rewritten over the past year”, said Richard Lambert, chief executive of the National Landlords Association (NLA). His counterpart at the Residential Landlords Association (RLA), Andrew Goodacre, concurs: it’s “changing the business model of the buy-to-let sector” he said.
“The impact we’re seeing is a huge loss of confidence,” said Lambert. The NLA conducts a regular tracker survey of member sentiment and its most recent one recorded the lowest figure it had ever seen – only 39% were confident of the future for their business. By all accounts, sentiment was ticking along quite nicely – until the Chancellor fired off his taxation salvo.
“[The surveys] ran fairly consistently from about early 2013 to the second quarter of last year in the mid-60% and then it plunged to the low 50s, high 40s, and it just kept going down over the past year,” Lambert added. “Effectively, it is now below the lowest point after the financial crash. So in effect two speeches from George Osborne last year had the same effect on landlord confidence as the financial crash of 2008/2009.”
Landlords are “working through the changes” he said and adapting to these new financial operating conditions, but the net consequences will see some sell-up and exit the market, while others will downsize their portfolios. It is also expected to see investment decisions deferred – and rents pushed up to cover the added costs.
“All of this affects the supply side,” Lambert said. “It doesn’t alter the fact that there is a continued and rising demand for private rented property. Even with the Help to Buy scheme people cannot get into owner occupation in the way they could 10 years ago. It is very difficult to get into social housing because there’s such a limited amount.
“So the growth of the private rented sector has, basically, taken up the slack between the other two tenures and is providing housing for people. That demand continues but essentially we don’t have enough supply. We need more properties built. We need them to come onto the market in a way that people can actually access them. If landlords are not investing, then where’s that coming from?”
Part of the private rented sector’s woes, Lambert suggests, comes down to policymakers not taking the time to gain a holistic understanding of the business.
“Nobody in Government really takes the time and trouble to get a deep understanding of how the private rented sector works from both sides,” he said. “Most people appreciate how it works from the consumer side, from the tenant perspective, because most people at some time in their lives have been tenants. Few people understand what it’s like from the suppliers’ side, and get a grasp of how the economics work, how the business processes work, what the issues are.”
The private rented sector tends to be viewed as a “monolith” too, which again doesn’t help matters. “The private rented sector is a massive web of complex interactions, of different tenant types, property types, areas, markets, the huge swathes of regulation,” said Lambert. It’s a very complex area and it does take time and effort to get a real understanding of it. Certainly, we find at political and governmental level the grasp is partial.”
In this view, the Government – and perhaps by inference, many of the sector’s critics outside Westminster and Whitehall – have to recognise that the private rented sector has a role to play – and that it is a business – and that policy, therefore, must seek to balance the needs of landlords, agents and tenants.
The business theme was also picked up by the RLA’s Goodacre.
“We have to be prepared to accept that responsible landlords are operating as small businesses in many ways. It’s not recognised as that by the taxman necessarily, but it really is,” he said. “If you’ve got a portfolio of five, six or more properties, then you’re talking about a small enterprise. All these tax changes, and not just tax changes – we’ve got upcoming things like energy efficiency requirements by 2018 – it almost feels like the private rented sector, despite what it has achieved in the last few years, despite providing homes for more and more people – and good quality homes – is being held a scapegoat for the housing crisis.”
And not just a scapegoat, he added – but “almost a cash cow”.
“There’s not a lot of general sympathy held towards landlords. I understand that,” he said. “They’re not a sympathetic bunch of people necessarily, and it’s hard to feel sorry for landlords because they’ve got the temerity to invest money in more than one property, in the eyes of many people. So it’s easy to raise taxes against landlords knowing there won’t be a huge amount of public uproar or even political uproar about it.”
Maybe so, but others are left to pick up the bill for a politician’s quick bite out of the sector. Again, in the RLA’s exploration of its members’ sentiment, the organisation is finding that tax changes, stamp duty surcharge and the like, is taking its toll. A recent survey found that 31% are considering leaving the sector, 58% are thinking about cutting back on investment, and 66% are considering rent increases to meet the extra costs.
“If it’s about homeownership, about encouraging people onto the ladder, well causing inflationary pressure on their outgoings in terms of rental prices and costs will make it harder for them to save [for a deposit], so it seems counterproductive,” said Goodacre. “The danger is that if there is a churn of landlords, a lack of investment or reduced investment because of these tax and regulation changes, then the people hardest hit will be those renting the properties in the first place.”
Cameron and Osborne have since left the building, of course, so quite what Theresa May’s Government will bring to the table, only time can tell. Both Lambert and Goodacre concede there have been some ‘interesting noises’ emerging from the current administration. But these noises are a far cry from rescinding policies they argue are damaging to the private rented sector’s business model.
“We are hopeful that the new regime will generally listen and recognise that the private rented sector landlord has an important role to play in providing homes, and indeed in the economy of the country,” Goodacre said.
However, as it is, he worries that the legacies of the old regime might provoke an exodus of professional landlords from the sector, costing it skills, and altering its nature and outlook in the years ahead. “That would be a shame,” said Goodacre. “People talk about professionalism in the sector and the need to adhere to regulations and standards, well that comes with the more professional landlord.”
Sympathy for private landlords may be in short supply, as Goodacre intimated, but whether or not they are more sinned against than sinners, the rise of the private rented sector is a testament to the failings – whether by deliberate design or unfortunate happenstance – of the social rent and owner occupation tenures.
Simply put, we haven’t built enough homes for decades, whatever the tenure, as most industry figures agree. Instead, we have deliberately set about reducing the availability of genuinely low-cost social housing, and somehow all the efforts to boost levels of home ownership have simply pushed the dream ever further out of reach for many.
Regardless of what anyone might think of private landlords, they can’t really be blamed for that one – all they have done is fill a gap. As it is, when it comes to some of the criticisms aimed at the private rented sector, stones and glass houses spring to mind.
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Private renting in profile
- 19% of all households were private renters in 2014-15, equating to 4.3 million households
- The sector increased from 11% in 2004-05 to 18% in 2012-13, and then again to 19% in 2014-15. Between 1994-95 and 2004-05, the sector increased at a more leisurely pace from 10% to 11%
- In 2014-15, 70% of private renters were aged under 45, compared with 25% of owner occupiers and 36% of social renters
- Between 1994-95 and 2014-15, the proportion of private renters aged 25-54 went up from 56% to 72%. The proportions of younger (16-24) and older (55+) private renters went down
- 76% of private renters had lived at their current home for less than five years in 2014-15, compared to 20% of owner occupiers and 39% of social tenants
- On average, private renters had lived at their current address for four years. By contrast, social renters had lived at their current address for 11.4 years, and owner occupiers for an average of 17.5 years
- In 2014-15, 27% of private renters were one-person households, down from 38% in 1994-95
- In 2014-15, 23% of private renting households were couples with dependent children, up from 16% in 1994-95
- The proportion of lone parents with dependent children has also increased, from 7% to 13% between 1994-95 and 2014-15
- In 2014-15, 65% of private renters were satisfied with their current tenure, compared to 98% of owner occupiers and 82% of social renters
- However, satisfaction among private renters has increased since 2004-05, when 48% were satisfied
- In 2014, 28% of private renters (1.2 million households) lived in properties that were non-decent. In 2006, when the private rented sector was smaller, 47% (1.1 million households) lived in homes that were non-decent
- Compared to other tenures, the private rented sector has a higher rate of non-decent homes. In 2014, 18% of owner-occupiers and 14% of social tenants lived in non-decent homes
(Source: English Housing Survey, Private Rented Sector Report 2014-15, July 2016)
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- Most landlords are aged between 55 and 64 (35%) followed by 45 to 54 (27%)
- 52% of landlords had a mortgage on their own home while 41% owned outright
- More landlords were working full time (26%) than were retired (24%) or self employed (19%). Only 16% classified themselves as full time landlords
- 35% chose to become a landlord through borrowing money, such as buy-to-let
- 41% describe themselves as specialising in letting to families
- Most landlords had been providing homes for over 10 years (56%)
- Most tenants are aged between 25 and 34 (44%), followed by the 35 to 44 age group (32%)
- 74% of tenants are in full time employment
- 63% of landlords let to tenants with at least one child
- 86% of landlords have a good relationship with their tenant
- 82% of landlords say their tenants pay their rent on time
- 28% have experience tenants going into two months or more of rent arrears in the past 12 months
- Out of those that tried to evict a tenant, 49% said it was because of rent arrears
- Portfolio sizes are widely spread from one to more than 21, with 28% of landlords owning two to three properties, followed by 21% who own six to 10 properties
- 35% of landlords let a two-bedroom property to one family
- The South East is the most popular region for landlords, with 20% letting property there
- 21% of landlords have not diversified their portfolio across different regions
- 54% of landlords let out unfurnished properties
- 36% say they allow tenants to have pets
- Only 1% of landlords say they allow sub-letting
- 6% of landlords say their rental income does not meet their expenditure
- 39% of landlords say the rental income they receive meets less than 79% of their costs
- 37% of landlords think rents can be “reasonably raised” by 1% to 3% in the next year
- 56% of landlords plan to increase their rents in the next 12 months. The main reason given was changes to mortgage interest relief (36%)
- The average rent is £855 a month
- The current average tenancy period is three years
(Source: Landlord Investment, Finance & Tax Report 2016, Residential Landlords Association)
This article first appeared in the October/November 2016 print edition of Housing magazine