The future of the housing market: the private rented sector
(Westminster Social Policy Forum - 10 December 2013)
A hand-drawn poster at the recent "Made Possible By Squatting" art exhibition in Dock Street, London E1. Poster is anti-copyright, photo copyright Matt Salusbury
THE TITLE of the gig was actually "The future of the housing market: Help to Buy, property supply and the private rented sector", with the private rented sector (PRS in the latest jargon) tacked on the end. Westminster Social Policy Forum gigs, at an address in Whitehall, and their reports will cost you between £20 and £90 each.
There were developers aplenty, the representatives of private tenants were very thin on the ground. (Yes, there was someone big from Capita, formerly with government and now with Capita via the revolving door.)
Trowers and Hamlins in the Westminster Village
The organisers had Tower Hamlets Council down as the rather charmingly Medieval-sounding "Trowers and Hamlins", and elsewhere as "Towers and Hamlets". I didn't realise the "Westminster Village" mentality extended to not being able to name other boroughs in inner London!
I was there as the "reporting press", which means I got in for free. The press are supposed to be neutral in these matters, but I'm afraid I came over as rather losing it with my questions/comments.
This wasn't a spur of the moment thing, I actually went with the intention of doing a rant, having been to some forums already where they could go on and on about the private rented sector without mentioning the elephants in the room – the rents are too high, private tenants effectively how no rights at all in the current market conditions, they face retaliationary evictions as well.
And – my rant continued – the letting agent sector has gone rogue, and hasn't this sudden housing shortage go a teeny weeny bit to do with selling of the social housing stock via the Right to Buy for council house tenants over the past forty-odd years. (Recently suspended in Scotland for new council house tenants, with Scottish local councils allowed to suspend it for new tenants, which some have already done, so it is possible. Not that it's even on the agenda here.)
I was expecting a pretty poor debate or none at all, which basically what happened. There were loads of people from central government (Dept. for Local Govt and Communities, DWP, etc. as well as the Scottish Govt.) The England and Wales Govt. people seemed to echo what I've heard local councillors in my own borough of Haringey say a lot recently – the private rented sector is all fine and hunky dory, and indeed there should be more of it. (More and more local authorities are becoming commercial property developers in joint ventures rather than continuing to build council houses.)
We need to talk about money
The private rented sector being fab is now official policy, I was somewhat shocked to find out. No mention is made of the level of the rents, of course. It seems to be a very British discussion in which nobody wants to talk about money or actually name figures for rents that people have to pay.
The government people didn't want to discuss how high the rents were in the private rented sector at all, and were content to announce some forthcoming initiatives to protect private tenants from "rogue landlords," seemingly unaware or unbothered by the fact that the whole private rented sector, in London at least, has gone rogue. It's not the actions of a few bad apples anymore, it's an all-pervasive malaise across the market.
The developers and landlord representatives seemed to have a more honest take on the situation. Chris Norris of the National Landlord's Association, in response to the bit of my rant about Londoners going into debt to pay arbitrary letting agents fees every time they moved, said "the government have missed a trick" with its recent – very limited – regulations on letting agents to be brought into force in April. (The Scottish Government has banned letting agent fees, Katherine Sacks Jones of housing charity Crisis reminded us.)
One consultant who advises developers (private sector and social), said he's been on Shelter's "How long will it take you to save for a deposit on a house?" web tool, impersonating a 20-year-old hoping to by "a two-bed in Streatham", only to be told that his imaginary younger self would be able to put a deposit on a house when they were 44. This was Jerry Gilber, a partner with Ark Housing Consultancy speaking. Like a lot of the developers and landlords present, he seemed to have a much more realistic take on the unsustainability of the housing market than a government locked in to "free market is best" ideology.
Jerry said "the supply of affordable rented housing has dropped, the government has got to accept it needs some kind of subsidy – even in form of free land." He also warned that with the end of quantitative easing (printing money) on the horizon, for currently rather comfortable mortgage payers, "half a point on the interest rate is an increase on 10 per cent on what you have to pay back."
Step in and do affordable housing - homeowners
And did I really hear Paula Higgins, chief executive of the Homeowners Alliance (an organisation that sounds like it would represent small "c" conservative curtain-twitchers anxious about the effect of Romanians moving in next door on their property prices) call for the public sector to step in and do affordable housing? Yes I did.
Generally depressing though the event was, there were some interesting developments, some positive. Mark Pawsey MP, who's on the Local Govt Select Committee, confirmed to me that his Committee had in a report recommended offering longer tenancies and limiting rent increases (See here - Chapter 5). Not something you hear about on the news, and evidence that even if government are wedded to the invisible hand of the unrestricted free market, some parliamentarians are at least talking about putting some kind a brake on market forces.
Kick the doors off
And Lord Best, a housing association chair, said he'd been on one of the "dawn raids" by Newham Council, who are very big on licensing of all private rented accommodation in their borough. He described how the Newham licensing people are accompanied by police, UKBA, and HMRC officials as well, because so many landlords are "not paying tax" (about a third, according to Exaro).
While Newham so far have "not got a warrant to kick the doors off" dodgy private rented accommodation, Lord Best says they're working on it, they had two cases in court at the time of writing, seeking to get the power to go back and kick off two doors in particular. As the guy from Hawaii 5-0 would say, "Book 'em, Danno!"
In a less arse-kicking corner of the private rented sector, Andrew Baddeley-Chappell, head of policy and governance (mortgages) at the Nationwide, confirmed to me that the mortgage lender had become the first one (and as far as I'm aware still the only one) to end that traditional restriction on buy-to-let-mortgages, the condition that tenancies could only be for six months, or at the very most a year.
Nationwide buy-to-let mortgages can be for three years now. Andrew said the biggest risk they face by putting the tenancy up to three years is not the landlord getting burnt, but the tenant getting burnt. Increasingly, tenants are forced to put up to a year's rent (or even more) upfront to beat other offers and get the flat, and if they do that and the landlord does a runner, the tenant is screwed, and so is the mortgage lender.
It's a London thing
Kate Faulkener of Designs of Property had a lot of interesting data on the property market. First of all, the absolutely desperate market conditions private tenants face in the capital seem to be a London thing. Outside London – particularly in cities in the Midlands and up North – there is an acute shortage of accommodation, but that's because the landlords can't make any money out of it. Some have been putting up "provincial" rents so that these are edging up to the level they were in 2008, when landlords had to slash them, but they can't put them up anymore. Rents are 2.2 per cent below what they were in 2012 in Belfast.
What would be needed before out of London landlords could raise rents to beyond break-even point would be for wages to go up (not down, as they are at the moment).
Kate also said that in the UK, "40 per cent of our wealth in property" and "over 60 per cent of houses up to June were bought with cash."
It seems also that the old chestnut beloved of politicians of all stripes, "hardworking families", are shrinking. The average household is getting smaller, but houses for smaller "hardworking families" (and cat-owning singletons doing as little work as they can get away with, like myself, and also older "downsizers") aren’t getting built. Everyone's desperate to sell you a two-bed property, it seems. As Richard Fagg of developers Bouygues, says, "land prices mean you can't build bungalows, you have to go for density."
Planning policy (Peter Taylor of developers DLA Piper pointed out that in a big development, planning law mean you'd have to build a few bungalows among all the two-beds that fewer people want.
Kate Faulkener warned that those older "downsizers" will be entering the market in big numbers soon, and can elbow aside the first-time buyers with a chain buy offering cash, and lots of it, for that little property they want to downsize into. "People trading down will be half the market soon," she predicts. And she warns downsizers are likely to distort the market, so that the sort of properties they like – "the three beds will become as desirable, and therefore as expensive, as the four and five beds."
Meanwhile, all this Help to Buy stuff to encourage buyers – including first time buyers – to buy houses will hit another snag no one's thought of. Kate notes that now that have hefty student loans to pay off, "the young already have one big debt, they don't want to get another one in the form of a mortgage."
Other interesting data that came out were: the proportion of rented accommodation as part of total housing stock is now moving up to 16-18 per cent, largely driven by the buy-to-let mortgage market. Rachel Fisher of the National Housing Association said that every five minutes, someone turns to the government for Housing Benefit, and Chris Norris of the National Landlords Association said of his corner of the sector (landlords with typically ten or fewer properties), "on average one in three tenants have Housing Benefit."
ONE THOUSAND SEVEN HUNDRED POUNDS!
Mark Pawsey MP noted there was "an issue at the lower end of the market" where people "are unable to pay private rental" and held up an example of best practice in the private rented sector the - £125m deal for the Stratford Halo development, build under the government-subsidised Build to Let scheme. Details of the deal include "mutually agreed rent increases over time."
Oh dear, would that be the same Stratford Halo development that had an impromptu housewarming party by private tenant activists protesting at its government subsidy for building but at a distinctly subsidy-free flavoured rent of £1,700 a month for a two-bed flat?
Just as the Homeowners Association lady called on the public sector to do social housing, so Chris Norris of the National Landlords Association sounded positively Socialist compared to the government's free market fundamentalism. Chris said there is a "debate about whether the private rented sector quality of product is high enough," with lots of money "going into provision but not into investment and upkeep." And "enforcement isn't up to par… We need to regulate tenure, we need to regulate prices." He also questioned whether the usual two-month notice tenure "is fit for purpose – for families" and concluded that with "such an inbalance between supply and demand, the market isn't functioning for consumers."
Expectations incredibly low
Katherine Sacks Jones, head of policy and campaigns at Crisis, quoted the English Housing Survey as indicating that "a third of people had been there [in their private tenancies] for less than a year. She added that "one in four homelessness acceptances [Councils giving people emergency accommodation]" are "due to the ending of short-term tenancy" (the landlord evicting them for whatever reason, under current housing law they don't really need one.) "The private rented sector is a cause of homelessness," she concluded. A big Crisis survey on people's experiences of the private rented sector is due out in mid-February. An initial finding is that in the private rented sector, "people's expectations are incredibly low."
Hackney Council is launching a "Council-run lettings agency" that's starting soon, with the aim of taking the management (or lack of it) off the small landlords, and to "try an increase supply in Hackney," announced Councillor Karen Alcock, Hackney Council's cabinet member for property and housing policy.
She also said that the incentives the Council used to offer landlords to make their properties available to rent for people on their housing waiting list (often temporarily) "aren't attractive enough" to landlords anymore, because
"landlords can flip their tenancies every six months… increase rent by hundreds of pounds."
Bigger and Better
Mark Hitchen of the "Expanding the Private Rented Sector" bit of the Department of Local Government and Communities outlined vision for a bright future driven by free market ideology. He was, indeed, distinctly keener on the invisible hand of the market than the landlords and homeowners associations and developers. It was, he said, the Government's "ambition" to make private renting a positive form of housing, to make "private rented" Bigger and Better by "raising standards, tackling rogue landlords", against whom tenants will be protected through a forthcoming Tenant Package. There will be more from Local Govt. & Communities next year (2014) on "longer tenancies," Mark expects this will be driven by "market forces". Oh dear!