The Future of the Private Rented Sector Regulation and Reform Event November 2012
Agenda 08.00
Arrivals – breakfast served
08.25
Welcome – Jo Wilson, Director, Future of London
08.30
Chair’s introduction – Richard Parker, PWC
08.40
Speaker panel: Andrew Heywood, Independent housing consultant Ian Doolittle, Partner, Trowers and Hamlins Chris Norris, Head of Policy, Research and Public Affairs, National Landlords Association
09.15
Questions to panel and discussion
09.55
Chair’s summing up
10.00
Coffee and networking
10.15
Close.
The Future of the Private Rented Sector PwC
November 2012 Slide 2
The Future of the Private Rented Sector: Regulation and Reform Future of London 29 November 2012
Andrew Heywood Housing, Mortgage markets, Regulation, Governance, Europe • • • • •
Housing: finance, policy, low-cost homeownership. Mortgage markets: trends, opportunities, threats. Regulation: policy, practice, lenders, housing providers. Governance: effective decision making, strategy, audit. Europe: housing and mortgage markets, regulation. Andrew Heywood is an independent consultant specialising in the above areas and an associate of leading consultants Campbell Tickell. A visiting fellow of the Smith Institute, Andrew has written and spoken extensively on housing and lending issues. He is Editor of the journal Housing Finance International (www.housingfinance.org. Andrew was formerly Deputy Head of Policy at the Council of Mortgage Lenders. He has been at the centre of housing, housing finance and mortgage market developments for many years and has unrivalled contacts amongst policy makers, housing providers and lenders.
Andrew Heywood Consulting: a.heywood53@btinternet.com , 01440 730218/07929512057
Regulation and reform • The relationship between regulation and the Private Rented Sector (PRS) has always been uneasy. • There is always a balance to be struck between protecting tenants and promoting investment by landlords, institutions and lenders. • Landlords, like many small business people are put off by “red tape” and the costs of regulation. • Investors/lenders tend to want control over their investment.
Regulation and Reform 1918 1939 1981 2003 2009 2010 /10 /11 Owner occupiers
23%
32%
57.2%
70.9%
67.4%
66%
Social renters
1%
10%
31.7%
18.3%
17.0%
17.5%
Private renting
76%
58%
11.1%
11.0%
15.6%
16.5%
Regulation and Reform • The PRS shrank dramatically during most of the twentieth century reaching its nadir around 1988. • This was partly due to the rise in home ownership and social renting. • It was also due to over-regulation. • By 1988, the Rent Acts had achieved high levels of security of tenure and rent control.
Regulation and Reform • The Housing Act 1988 finally reversed the trajectory of regulation. • It allowed landlords to charge market rents. • It also brought in the Assured Shorthold Tenancy (AST) which allowed landlords to gain control of their properties on giving notice and made tenanted property more attractive to mortgage lenders.
Regulation and Reform • 1996 saw the introduction of the CML/ARLA Buy-to-let initiative. • Buy-to-let mortgages became widely available on competitive terms.
Regulation and Reform
• Source: CML
Regulation and Reform • Buy-to-let lenders require borrowers to let properties under an AST so that they can gain control of their security if the borrower defaults. • Some (but not all) investors have analogous but not identical concerns.
Regulation and Reform • For over twenty years successive governments left the PRS largely unregulated • In 2008 Dr. Julie Rugg published the Rugg Review The Private Rented Sector: its contribution and potential. • Rugg came out against further major regulatory initiatives and gave the PRS, including smaller landlords a reasonably clean bill of health. • The English Housing Survey consistently puts tenant satisfaction with landlords higher in the PRS than in in social rented sector.
Regulation and Reform So what has changed? • The perception that home ownership is falling and the PRS will be the main beneficiary has become quite general. • This carries a perception that the PRS must be able to provide longer-term homes, homes for families and cater for a broader age range. • As buy-to-let lending has fallen since 2007 there has been increased desire to attract institutional/corporate investment into the PRS • Currently (November 2012) the CLG Committee is undertaking an inquiry into the PRS.
Regulation and Reform • Only 7.7% of PRS tenants are 65 or over compared to 29.5% of social renters. • 50% of PRS tenants are 34 or under compared to 20% of social renters. • 45.3% of PRS tenants are married or cohabiting compared to 33.4% of social renters. • 39.5% of PRS tenants have been in their properties for less than a year compared to 8.4% of social renters.
Regulation and Reform The PRS is by no means totally unregulated: • Tenancy deposits regulated under Housing Act 2004. • Houses in Multiple Occupation licensed under the 2004 Act also. • The Act also gives local authority discretionary licensing powers and additional licensing powers.
Regulation and Reform PRS regulation: • Tenants have been protected as “consumers” under the Unfair Terms in Consumer Contract Regulations (UTCCRs) since a court case in 2004. (This is overseen by the OFT) • The Mortgage Repossessions (Tenant Protection) Act 2010 protects “unauthorised tenants” when borrower landlords are repossessed.
Regulation and Reform PRS regulation: • The FSA (soon to be Bank of England) has responsibility for prudential regulation of buyto-let lending. • Though consumer (FSA) mortgage regulation does not currently extend to buy-to-let lending this is likely to change under a forthcoming EU mortgages directive.
Regulation and Reform Some big questions: • Is there a groundswell of demand for further regulation from tenants or landlords? • How would lenders and institutional investors react to further regulation?- particularly in relation to rents and security of tenure? • Does the social rented sector experience suggest that further regulation is the answer? • Would further regulation deter landlords from investing/remaining in the sector? (HMO experience?)
Regulation and Reform
Thank you! Andrew Heywood Consulting 01440 730218/a.heywood53@btinternet.com
November 2012
Private Rented Sector: regulation and reform The law – help or hindrance? Ian Doolittle ———— Pioneering ———— Bahrain ———— Construction ———— Public sector ———— Energy ———— Real estate ———— London ———— Tax ———— IT ———— Dubai ———— Manchester Connecting ———— Knowledge ———— Pragmatic ———— Malaysia ———— Exeter ———— Thought leadership ———— Housing ———— Agile ———— Creative ———— Connecting ———— Private equity — Local government ———— Manchester ———— Environment ———— Focused ———— Islamic finance ———— Projects ———— Abu Dhabi ———— Corporate finance ———— Passionate ———— —— Employment ———— Regulation ———— Procurement ———— Expertise ———— Specialist ———— Planning ———— Investment ———— Committed ———— Delivery ———— IT ———— ——— IP ———— Corporate ———— Infrastructure ———— Cairo ———— Development ———— Private wealth ———— Oman ———— Governance ———— Birmingham ———— Corporate finance —— Dynamic ———— Pensions ———— Dispute resolution ———— Insight ———— Banking and finance ———— Arbitration ———— Diverse ———— Regeneration ———— Care ———— Communication
Current position ● Assured tenancy ‘regulation’ ● Rents – s.13 HA 1988 ● Tenure – Schedule 2 HA 1988 ● The assured shorthold tenancy contract – s.21 HA 1988 ● Licensing and other controls
Pressure for reform? ● Rugg – “directions of travel” ● Coalition Government – no enthusiasm for change ● Montague – stability is key ● Labour – in Government and Opposition ● cf Shelter / Crisis
Professional views/reports on regulation ● Law Commission ● LGA ● CIH ● GLA – on-going ● LSE and CCHPR
The effect of regulation? Reduced regulation
No radical change
Increased regulation
Source: “The Private Rented Sector in the New Century – a comparative approach” CCHPR (Sep 2012)
Ireland
France
Switzerland
Netherlands
Sweden
Germany Norway Finland
-10%
Spain
England
0%
Denmark
Change in Sector
10%
Country
Housing associations as PRS landlords
● RPs and market rents ● Charitable status – investment ● Subsidiary/JV structures ● Properties – development and/or acquisition?
Conclusion – a lawyer’s view ● The wider picture – renting/owner-occupation ● Law reform – a blunt instrument ● Regulatory reform – real/imagined concerns ● Reassure RPs?
Contact Ian Doolittle Partner d +44 (0)20 7423 8415 e idoolittle@trowers.com
Trowers & Hamlins LLP has taken all reasonable precautions to ensure that information contained in this document is accurate, but stresses that the content is not intended to be legally comprehensive. Trowers & Hamlins LLP recommends that no action be taken on matters covered in this document without taking full legal advice. Š Copyright Trowers & Hamlins LLP – November 2012 – All Rights Reserved. This document remains the property of Trowers & Hamlins LLP. No part of this document may be reproduced in any format without the express written consent of Trowers & Hamlins LLP.
National Landlords Association
Regulation of the PRS in England Chris Norris Head of Policy, Public Affairs & research
29 November 2012
www.landlords.org.uk
The PRS Today Private Rented Sector:
PRS Specific Legislation:
-
3.63 million households
-
Protection from Eviction Act 1977
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17.5 per cent of housing
-
Landlord & Tenant Act 1985
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Avg. 1.24 million PRS households moving every year
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Housing Act 1988
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Housing Act 1996
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Housing Act 2004
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68% of new households formed in the PRS (275,000 households)
www.landlords.org.uk
Resulting in...
www.landlords.org.uk
With a little more detail...
www.landlords.org.uk
Regulation in Practice The Basics:
The Challenges:
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-
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Flexible tenure Balance of security Responsibility to provide decent & safe accommodation Licensing of ‘higher-risk’ properties Requirement to protect deposits Requirement to defer to Courts
Criminals Ignorance High demand & low supply Low expectations Low engagement Barriers to enforcement ‘Them & Us’ mentality
www.landlords.org.uk
A landlord’s view
www.landlords.org.uk