Renters (Reform) Bill

Earl of Lytton Excerpts

2nd reading
Wednesday 15th May 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, it is a pleasure to speak in this debate. I have interests to declare as a chartered surveyor and a small-scale private rented sector landlord, both of some 50-plus years’ standing.

I welcome the Bill, which contains much good, for no other reason than that I hope it consolidates the good and prevents a small proportion of bad actors from providing a reason for criticism and discord. I thank the Minister for her willingness to engage, although I remind her that I sent her a list of questions beforehand that are not covered in what I have to say, and I hope she will be able to answer them.

The test will be whether the Bill results in more choice, supply and competition, with better outcomes for renters, while providing a balance of flexibility, opportunity and returns for lessors. The Minister said much about existing standards by landlords but nothing about ensuring good behaviour by tenants, and I suggest that we need both. There would be little purpose in giving renters a better deal if overall supply failed to grow or even shrank, so a polarised critique of supply side is rather unhelpful.

Current PRS market dynamics are opaque at best; the statistics are not sufficiently granular to enable cause or immediate effect to be established. Recent research by Savills, generally considered a reliable sector source, shows a modest but potentially significant decline in rental stock, but the reasons remain unclear. Some suggest that highly geared buy-to-let investors are put off by poor returns due to higher interest rates and fiscal changes. Even the Bank of England, in its note on that subsector, admits that it cannot definitively establish cause and effect. There are too many variations in circumstances and aspirations to reach a pan-sector conclusion.

I am particularly interested in an excellent piece on right to buy in the latest House magazine by the noble Lord, Lord Bird. I know of no focused research into lessor views other than that of the CLA, of which I am a member, and that only in the rural context, where it suggests that its member lessors are spooked. Poor yields and higher risks discourage new entrants—that must be obvious—and it is safe to say that the private rented sector, with its costs of entry, exit and interim returns, competes with other investment opportunities here at home or anywhere else in the world. There is nothing special that mandates investor participation in the PRS or that it must match unmet need for a place to live. The impact assessment suggests a ready replacement of departing lessors, but without evidence or research into that—and I find none—I conclude that the policy enters unknown territory. So far, not so good.

It is a common ground here that there are currently large numbers of people wanting to rent and far too few available properties. It is likely demand is rising because of severe social housing shortages, and because getting on the housing ladder has become so expensive—this despite those already having mortgages and in occupation having lower debt servicing costs compared with equivalent rental payments. However, I must say at this point that that is a bit like comparing apples and pears. More broadly, I consider that this is due to other government policies impacting on a sector that has become more volatile over the years. Such policies are characterised by the word “buy”—right to buy, help to buy, buy to let—and other fiscal prompts and exhortations to build, build, build, which cannot keep up. Stoking demand which necessitates housebuilding rates never achieved without council housebuilding—a point made by the noble Lord, Lord Adonis—is at best unwise. Relying on affordable housing on the back of market sales while selling off existing social housing at a discount is equally questionable, however popular that might be.

Near where I live, new market housing totally unaffordable to the locals is being offered to Far East buyers. We need a new model altogether for providing housing that the nation can afford, and to take some of the heat out of the PRS demand sector. My fear is that we are tinkering with the fallout from much bigger historic decisions about commoditisation of the roof over one’s head, stretching back to the Thatcher era. We have little or no idea what the effects of this Bill will be. The intention seems simply to accommodate demand. On supply, for which it has obvious implications, if it does not foster an increase then the policy will simply fail.

In turning to some of the Bill’s specific provisions, I will keep clear of the Section 21 question for a moment but simply remind your Lordships that the exit route under the Housing Act 1988 from the 25-year impasse of rent control and security of tenure created in the 1960s was to free up and revitalise the PRS through something called a shorthold tenancy. Superimposing longer-term aspirations of some renters on an essentially short-term model designed to give mobility both of occupation and investor finance may be a tactical error. Proper provision should be made in parallel for longer-term lettings. Measures which now make things less flexible inevitably alter supply-side dynamics. Demanding higher levels of competence and compliance raises fears of added cost and risk. These may increase rents, as we have already heard, especially if quality improves and/or the numbers of available properties, or of lessors, shrink.

On the exceptions in the Bill, I note the points made by the CLA that carving out an exemption for agricultural and forestry workers fails to address the wider diversified rural business need, where parks, gardens, hotels, food processing and the like also involve providing staff with accommodation. Dealing with the normal turnover in staff housing needs has to be considered further.

A promise that Section 8 terminations will not be caught up in a severely underresourced court system— I am grateful to other noble Lords who have pointed this out—does not remove the suggestion of a process less certain and more contestable, protracted and costly. In the market, you cannot achieve vacant possession value if there is a tenant in place as it prevents immediate occupation by a purchaser. For a lessor intending to sell, this can impede choice of the moment to enter the market—a market characterised by seasonal fluctuations, with political and financial sector volatility. It is how markets work and how investors react.

As to blanket bans, I totally accept that unfair discrimination is completely unconscionable. A prudent lessor who already has responsibility for checking a renter is entitled to be in the UK—which I always thought to be a UK Border Force task until this Government decreed otherwise—should not object to complying with standards many already observe, or to acting with proper probity. These are likely no more onerous than the scrutiny that they themselves apply to would-be renters. However, I would venture to suggest that deliberate misrepresentations by either party to the other should have consequences, and merit access either way—from a landlord or a tenant point of view—to dispute resolution.

The renter should be no less fit for purpose and conduct than the lessor and the description of the property. Logically, the renter’s net income should be sufficient to pay the rent and outgoings and meet living expenses, as a minimum. After all, if the renter subsequently finds that they cannot afford the heating costs, the property and the renter’s health are both at risk. I remind your Lordships that the majority of PRS lessors are not big corporates but, as we have heard, private individuals who are just as entitled to the reasonable use and enjoyment of their assets as the renter is to quiet enjoyment of a residence that may or may not be their only home. Professionally, over the years, I have encountered both poor renters and rubbish landlords.

On decent homes, I agree with the principle although I have yet to see a revised standard. Arguably, quite a lot of PRS properties are of older construction and may be difficult to upgrade to anywhere near modern thermal standards. If this becomes a fitness issue, there will be failed properties that become uneconomic to rent and will go on to the freehold sale market. The Bill is silent, however, on what happens if a property cannot be upgraded without the tenant moving out. That needs clarification.

I accept some of the generality of the claim that terminations of tenancies are a major source of homelessness, but it rather overlooks the practice of local authorities insisting on an eviction order before acting by stepping in themselves, thus exacerbating an already difficult situation and making even reasonable lessors look like ogres. I hope the Bill will improve that, but if the view is that it is the role of the PRS to underwrite social support and be a safety net for those who would otherwise be homeless, then that needs a better and upfront justification.

There is provision for possession on grounds of redevelopment, but I am unsure what this means in practice. If a lessor has a project substantially to convert, remodel or otherwise carry out major works—it might be a developer assembling a site—with a view to eventual sale or re-letting but in the meantime decides they wish to let short term, do the Government consider that reasonable or would they rather that such properties were held vacant? It is a waste of a resource if you cannot let short term.

That is where I have concerns about the elimination of the fixed-term lease. It quite obviously suits lots of people if they are on secondment or whatever it happens to be—they may be away on a job or know that something is going to happen—that they can enter into a fixed-term contract. It is perfectly legitimate for a renter to decide they want only that. What is it about adults that we cannot trust them to freely contract in a market environment? I find that really strange. Clearly, there must be some safeguards against misuse, but I really do not see what the problem is. I would like to know what would happen to a sublet flat in a block requiring a decant for fire safety remediation, a matter that I have raised on many occasions in this House. Will frustration of that renter’s contract apply?

Other noble Lords have said that the private rented sector has a fundamental and pivotal role in housing provision. Much ultimately depends on whether there is political consensus on the measures in the Bill or whether the Opposition would wish to go further. It is unlikely that the availability of homes to rent will be improved until this is settled, possibly at some stage after the next general election. Much doubt and uncertainty are generated by this political fog. If there is an identifiable, serious decline in the availability of homes to rent, that will be a significant part of the reason. The language we use, therefore, has considerable significance for how things turn out.