Friday, 27 June 2014

PRS - A political hot potato

The private rental sector (PRS) is in danger of becoming as hot a political potato as the EU.

Labour currently has no intention of a referendum on EU membership while Ukip has driven the Tories to despair with its relentless campaign to abandon the EU - and a referendum policy as a populist idea.

But what could be more populist than introducing controls for the PRS, driven by the urge to do highly visible things such as ending letting agents’ fees, which Labour has failed to push through before the General Election in May 2015 but which it promises will be on its agenda, along with three year tenancy terms and fixed rents?

Rent caps in places of high property values are one of the biggest fears that could drive the PRS into terminal decline. Yields become ever smaller as rents are constrained during periods of strong capital growth. Many owners would find it more beneficial to cash in and invest the money somewhere more sensible. Even a bank deposit account with three per cent interest could be better than renting at two per cent yield with all the accompanying risks of repairs, dilapidations, and the costs of regaining possession when yesterday’s dream tenant becomes tomorrow’s nightmare as their economic circumstances change.

Figures from ARLA show that 17 per cent of landlords are expected to sell one or all of their properties in the next 12 months, the highest proportion since 2008. The same source also revealed 59 per cent of lettings agents are reporting more would-be tenants than properties available. Just as the PRS needs to retain landlords, many are plotting their escape route to reap the benefits of the property price surge.

When you talk to lawyers and owners of high end properties in London’s prime quarters it becomes apparent that what interests buyers more is long term capital growth than short term low yield income. Buy to let is out, buy to reap substantial profit could well be coming in if it’s not here already.

Rent caps across the country are unrealistic because there are so many regional variations in property prices and therefore what seems like a fair return on investment. Are we to return to the days of the regional Rent Tribunals as the first avenue of escape for tenants served with notice to quit? The Tribunals, chaired by lawyers, could fix rents as well as deflect a notice to quit and were readily accessible to tenants with some savvy and no lawyer.

With commentators predicting that in very short time there will be more private sector renters than owners, restrictions on landlords and lettings agents could be as good for Ed Miliband as the right to buy council houses turned out for Margaret Thatcher.

Longer tenancies are also a real issue. A tenant who seems heaven-sent on day one could be the tenant from hell by month seven but then it would be too late to serve notice so easily. Employers, who see their staff and assess their performance every day, get four times the trial period it’s proposed to give landlords even though contact with the tenant is frequently non-existent and, at best, sporadic. Three year tenancies by default with a six month trial period will be seen as too risky to be realistic by many landlords. What is designed to protect tenants could actually reduce their chances of finding a home in the first place if availability shrinks. Rents would then rise because the cap is intended to be assessed through market conditions.

Lettings agents’ fees are another conundrum. It’s wrong, it’s said, for agents to charge for referencing or administration such as the inventory but under current plans landlords, and their agents by default, will soon be responsible for checking the immigration status of tenants and their right to live and work in the UK. This would need to apply to every tenant, with a birth certificate and some form of photographic identification to be safe even for those claiming UK birth and lifelong residence. Let to the wrong person and there’s a £3,000 penalty. If that person is working without the right to do so the penalties are stiffer still. When a tenant with the right to live in the UK arrives on the doorstep and it then transpires they don’t have the right to the employment they are using to pay the rent what does the landlord do - allow the tenancy because there’s no right to deny it and then report the tenant for paying the rent?

Someone has to fund the lettings agent’s time in processing all this as Civil Service substitutes because few landlords will want to undertake the task. If there are no fees for tenants, only for landlords, then rents will have to rise to cover the cost. But when the rent is capped, how can the cost of fees be applied?

There is too much fag packet planning and not enough real thought going into all this regardless of which political party happens to be having another bright idea today. Everyone is agreed on the importance of the PRS, everyone agrees it could be fairer all round, but who is going to sit down and work it all out as a policy and not a series of knee-jerk responses to the latest comment article?

Lisa Simon, 
Head of Residential Lettings
T: 020 7518 3234 

No comments: