Labour’s reforms of the private rented sector would appease “generation rent”, but have potentially unforeseen ramifications for the sector as a whole. The BPF applauds the party’s recognition of the importance of the PRS and its commitment to improving it, but is wary of the potentially harmful impact of some of the proposed policies.
First, there is the prospect of rent controls. It is not really clear yet what Labour is proposing, but that uncertainty in itself is unhelpful to investment. The mere whiff of state intervention will put off some investors. I think the party is already finding out that rent setting is a bit like Hydra – you cut the head off one issue and two grow in its place.
The party has said that rents will be set initially to market, but capped at average market rents during a three-year tenancy. Investors will want to know whether they are allowed to use another benchmark, such as CPI or RPI, rather than average market rents? What happens when these indices ?are rising and average market rents are falling – do they have to reduce rents? Is the opening market rent a floor or not? What is the definition of a particular market? What is the average? Mean or median?
Many large-scale professional landlords already encourage longer tenancies and small or non-existent letting fees to tenants as part of their package in order to distinguish themselves from the wider buy-to-let market. These operators will strive to work with Labour’s agenda but will still want clarity, and sooner rather than later. They will also want to know that they can gain possession of their property easily. If the aim was to make three-year tenancies work, having a rent cap was unnecessary. Existing unfair contract laws and rent tribunals would have protected tenants.
Encouraging the delivery of the PRS would also help to tackle the “ghost homes” problem that Labour leader Ed Miliband would like to address. All new developments in London that were returned to the rental market last year experienced high tenant demand. Councils being encouraged to provide more rental homes is a more sustainable solution for filling homes than introducing a £60,000 fine on developers, which have little control over who does or does not occupy the property they have sold.
The proposed increase in the levy that councils can charge for empty homes also demands closer examination. We need to look at why the current levy is not being implemented. Eight London councils, including Hammersmith & Fulham, Westminster and Kensington & Chelsea, are not charging the levy. Why not work out why these councils are not charging this levy before changing how it works?
There is widespread recognition of the fact that we need to build more homes and cross-party support for a strong and sustainable PRS and the important role it has to play in solving the housing crisis. What we need to see now is all parties committing to making this a reality.
Ian Fletcher is director of policy (real estate) at the British Property Federation
