Taylor Wessing

The politics of housing – a shift toward renting

Question

If home ownership is not for everyone, how realistic a fix for the chronically undersupplied housing market is a new focus on delivering affordable rental homes – can the private rented sector really help the housing crisis?

Answer

Despite the last Conservative general election manifesto promising that "everyone who works hard should be able to own a home of their own", the recent white paper signals a step-down of the government’s ambitions. There is simply not enough housing stock in the country which is affordable to justify government's continued reliance on the simple model of home ownership. In the past decade, the poor and the young have been faced with rising rents and the realistic prospect of never actually owning their own home. In this context, the government’s white paper offers a pragmatic consideration of alternative models of housing provision and it concludes that there must be more emphasis on the availability of good-quality, privately rented homes; new large-scale housing which is purpose-built for market rent. And it offers to pool local government pension funds to support infrastructure projects, while energising the build to rent (BTR) sector, deregulating the housing association market and diversifying the model of shared ownership, all the while encouraging better behaviour toward tenants.

The emergent build to rent sector

The government has already supported the BTR model through the £3.5 billion Private Rented Housing Scheme and the £1 billion Build to Rent Fund. The working assumption is that with the right incentives for funders, institutional investment in BTR projects will drive up overall housing supply, thereby tackling the principal cause of the housing crisis and increasing choice and standards for people living in privately rented homes. Alongside encouraging funding, the government is attempting to speed up build time for BTR units, encouraging more modern methods of construction such as modular housing, for example.  

The proportion of households in the private rented sector with dependent children increased from 29% in 2003-04 to 37% in 2014-15. Traditionally, these renters are liable to suffer most from insecurity, with six or 12-month letting contracts making it difficult to obtain school places or save for new rental deposits, but the government is hoping that purpose-built market rentals have the potential to provide relatively stable accommodation. The white paper outlines two key proposals in support of more BTR developments.

Firstly, it aims to change the National Planning Policy Framework to enable local authorities to plan proactively for BTR where there is a need, and to make it easier for BTR developers to offer private rental homes instead of other types of affordable housing.

Secondly, it hopes to promote longer term family-friendly tenancies of three or more years for those tenants that want them.

The white paper sets out the government’s work with the National Housing Federation and the British Property Federation to encourage longer-term tenancies in private rental homes delivered by both housing associations and institutional investors. Although home ownership is out of reach for thousands in the United Kingdom, if the flexibility of renting can be combined with the stability and reassurance of longer residencies or suitable short term possibilities, for many, renting would be appealing for the long-term, as well as being a short-term option.

Housing associations

Housing Associations already build the majority of new affordable homes, in addition to an increasing number of homes for market rent and sale. The government proposes to set out (“in due course” is the phrase in the white paper) a rent policy for social housing landlords (housing associations and local authority landlords) for the period beyond 2020 in order to help them borrow against a more secure notion of future income. The government has also confirmed that the 1% rent reduction will remain in place in the period up to 2020.

Interestingly, the white paper also reiterates the government’s belief that housing associations belong in the private sector and discusses implementing various deregulatory measures in order to allow for their classification as private sector bodies. However, this proposal has been met with mixed reactions. The free market may be the right tool to revitalise the industry and create more affordable housing. On the other hand, many other European countries have already gone down this path and it hasn't always worked.

Germany is often held up as a model for social housing privatisation, but its public housing was sold to international investors and commercial banks. The sale and resale of the same properties on the market ended in a race for profits and an increase in housing prices. There are now a million fewer social dwellings than there were prior to privatisation.

Austria on the other hand has operated limited profit housing associations and given public subsidies to brick and mortar producers to stimulate construction. Today its public expenditure on housing is less than half that in the United Kingdom, subsidies and allowances included – while construction output is twice as high.

Rent to buy

England’s house price inflation has clearly had a direct impact on the rental sector. For the average couple in the private rented sector, rent takes up roughly half their gross income, which of course makes it harder to save for their own home. Recent surveys suggest that around half of all households in the private rented sector have no savings.

The 2016-21 Affordable Homes Programme was originally designed to focus on delivering shared ownership by inviting housing providers to apply for a share of a £7 billion pot to fund 135,000 shared ownership properties, 10,000 rent to buy homes and 8,000 affordable rent for supported housing builds across the programme as a whole. This was the government's way of encouraging greater involvement by the commercial housing sector in the delivery of shared ownership. However, its scope has been broadened through the relaxation of restrictions on funding. Providers can therefore benefit from government support while building a range of homes, including some for affordable rent. The rent to buy scheme, it is hoped, will help struggling households – it offers a discounted rent set at flexible levels to make it locally affordable and in turn allows renters to save for a deposit.

A fairer deal for renters?

The government's reliance on the rental sector must be assessed against a background where over four million households now rent their home from a private landlord, almost double the rental levels of 10 years ago. At the same time, the acute housing shortage has created opportunities for exploitation, insecurity and unfairness in parts of the private rented sector. The market has unfair lease terms, peculiar rental and administration fees, and a few landlords letting out overcrowded and unsafe properties. Homelessness is rising and the loss of a private sector tenancy is now cited by the Department for Communities and Local Government as the most common cause of homelessness.

The two main concerns for renters would appear to be affordability and security. By building more houses, the issue with affordability will hopefully improve, but renters still face upfront costs, including letting agents’ fees, over which they have no control. The white paper promises a consultation ahead of bringing forward legislation to ban such fees. The government has also committed to improve safety and standards in the private rented sector by implementing measures introduced in the Housing and Planning Act 2016, including banning orders to remove rogue landlords and agents, and enabling local councils to issue fines and prosecute. It remains to be seen whether these steps will be sufficient. While the focus is on building and funding more homes, we must all hope that they are actually ones we want to live in.

Thulasy Balendra is a second-year trainee solicitor at Taylor Wessing.

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