The government’s proposing to empower local authorities to evict council house tenants who earn in excess of £100,000, but what does it mean for the private-rented sector? Lorna Blackwood of theNegotiator magazine investigates.
The government’s announcement earlier this month that it proposes to empower local authorities to evict council property tenants earning in excess of £100,000 will be a much-needed boost to nervousbuy-to-let investors. Since a cap on Local Housing Allowance was introduced in April, private landlords with social tenants have been concerned about rent arrears.
Private landlords have played an increasingly important role in providing accommodation to housing benefit recipients in the UK, but a number are now reducing the number of properties they let to benefit recipients because, they claim, they cannot afford to reduce their rents to absorb reductions in housing benefit. Will an injection of cash-rich council evictees to the private rental sector help fill the gap and boost letting agency profits in the process?
The government believes there are 6,000 people earning upwards of £100,000 but still living in council properties. With council housewaiting lists topping two million, the plan is to evict these tenants, giving those most in need a home.
Reaction
The announcement has received a mixed reaction from agents. Many applaud the idea, accepting that social housing is a scarce resource, whichshould be a priority for those who really need it. John Taylor, chief executive officer at Middlesex-based Orchard & Shipman, welcomes the news, but is unclear how local authorities will evict tenants.“Judging need is always problematic. However, the focus of attention should be on the issue of the depleted stock of socialhousing. Councils need to decide who is provided access to available homes; this is a decision that requires local consideration as to what is best for their community.”
LikeTaylor, many professionals are concerned with the bureaucracy of implementing the new legislation. At a time when local authorities are facing deep budget cuts, it is unclear where the resources to police such a scheme will come from. One agent described the situation as a “bureaucratic nightmare.”
Paul Weller, managing director of Sussex-based lettings firm, Leaders,agrees. However, he embraces the end of council homes for life.“Entitlement to a council house should be based on need and circumstances, which could change over a person’s lifetime. A council home for life is an antiquated approach and unsustainable in the modern world.”
Lackof stock
But even if tenants can be successfully evicted, a fundamental problem remains within the private rental sector - a shortage of quality stock. According to the latest figures from the Royal Institution of Chartered Surveyors, most regions across the UK are facing an imbalance between supply and demand.
Then there’s the issue of affordability. Soaring inflation and the rocketing cost of living, combined with the difficulty in obtaining a mortgage is increasing dependency on the private rented sector, which has in turn pushed rents even higher.
London has seen the largest increases, a situation which is expected to worsen. There are real concerns for young renters in the capital, for example, where there is the largest disparity between market rents and council rents and a greater shortage of affordable housing. RICS’survey revealed that rents in some areas of London have risen so sharply that previously affordable homes are now unattainable for many.
However, new figures out from West London-based Douglas & Gordon sugges tthat rising rents are not deterring prospective tenants. In fact, the agency reports a growing appetite for rental property in the capital, with numbers of people applying to rent soaring by 50% from April to May. This is creating multiple bids on properties and helping the best rental accommodation to achieve in excess of the asking rental price. Eager tenants are securing the sought-after properties by offering longer tenancies, larger deposits or paying for six months or more upfront.
But it’s not just London. John Hards, co-managing director of Countrywide Residential Lettings, confirms there is still a high level of demand for rental properties across the country. He says,“Our research in the first quarter of the year uncovered that on average, there are five tenants vying for each available rental property in the private sector, so the market remains buoyant for landlords and investors.”
Other agents would also like to see more available property across their branches, as many of them have less now than they’ve had historically. This is accentuated more in certain geographical pockets.
Solution
Some agents are looking to changes in the economy to correct the rental market. Ian Wilson, managing director of national lettings franchise Martin & Co, believes interest rates will start to rise next year and quickly. “Currently, there are a lot of properties left empty,where owner occupiers are on very low mortgage payments, so can afford to pay them without having to rent out the property. But with rates rising quickly, this will bring reluctant landlords back into the letting market, forced to rent out properties.”
But many agents are worried that the quantity of legislation landlords have to comply with is deterring some would-be investors. One bugbear for Weller is the new Houses in Multiple Occupation planning laws.“Landlords now have to apply for planning consent from their local authority to let a property as an HMO. This will lead to landlords avoiding letting properties to sharers and therefore reducing the amount of housing stock available to people who can’t afford aplace on their own.”
Financing also needs to be addressed. Lenders need to make more reasonable-priced finance available to landlords. Many potential investors are being put off the private rented sector by the cost of borrowing, and some are choosing to invest in just one property with cash, rather than several properties using finance. It is no surprise that 48% of landlords who bought property in the past year were cashbuyers. Investors are not willing to expand portfolios when buy-to-let mortgages include prohibitive upfront fees. This is not helping the supply shortage.
With such expensive lending criteria, lenders also need to be made more accountable when they repossess rented properties. In this situation,Weller would like to see lenders keep properties occupied where possible. “Properties have been gradually emptied of their tenants, so that the bank has vacant possession and then sit empty while they wait for the best time to sell them. This means there are hundreds of properties sitting empty that could be rented out and hundreds of people losing their rented homes through no fault of their own. This is an issue that needs to be addressed.”
But others feel it will need government intervention to tackle the housing supply crisis. Taylor believes that the government needs to ensure access is provided to well-managed homes in the private rental sector, something that has long since been an issue in the UK. “In order to bring more stock to the rental market, there must be a more strategic approach taken to pursuing new investment in new build and bringing existing stock into beneficial use. I am interested to know the government’s response to working with partners to encourage institutional investment in providing homes at varying rent levels to ensure those looking to rent property can access it.”
Thisarticle originally appeared in the Negotiator magazine.