Tenant Fees Bill (Third sitting)

Daniel Zeichner Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 7th June 2018 Public Bill Committees

[Melanie Onn]

It is a pleasure to serve under your chairmanship this afternoon, Mr Sharma, and to join the Minister in debating a Bill in our present roles for the first time. I am sure that it will be a suitably memorable occasion.

The private rented sector is the fastest growing sector of the housing market. The number of private renters is predicted to grow by 24% by 2021, which means that one in four households will be renting rather than in owner occupation in three years, according to a report on the PropertyWire website last June. PropertyWire says that property rental

“has doubled in the last 10 years or so, and it is expected to continue to grow to 5.79 million households while 68% of renters still expect to be living in the rental sector in three years’ time, according to the latest tenant survey from real estate firm Knight Frank.”

PropertyWire also says:

“The report says that growth of the PRS has been spurred by conditions both in the housing and labour markets. Younger workers especially are taking advantage of the increased flexibility of renting as a tenure which allows moving between locations without any of the costs associated with buying or selling a property.”

It is clear, therefore, that far from being a nation of homeowners, we are shifting towards being a nation of renters, with about 4.7 million people renting their homes—some by choice, and some because there is no other choice. We must make absolutely sure that regulation of the sector is fit for purpose in the 21st century.

[Daniel Zeichner (Cambridge) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Sharma. The future that my hon. Friend describes has already come to pass in many parts of the country. At least a quarter of properties in Cambridge are now in the private rented sector. The Bill is welcome in many ways, but I worry that it will not necessarily keep up with the changing business models emerging in many places. There is a tendency for landlords to find new and imaginative solutions. Does my hon. Friend worry, as I do, that some internet platforms and so on could provide avenues for people to get around the Bill?

[Melanie Onn]

That is an important point in considering the sector, which I will deal with later in my comments.

The Minister must be alive to ensuring that the Bill is future-proofed. We have heard evidence this week about online providers of landlord services who offer a much more flexible service to their clients—very different from that provided by the traditional estate agent and letting agent sector. The Bill must be right for the future, because the sector is fast-moving and swelling to meet housing needs that the state is currently not providing for in either type or scale. The needs of tenants must have a stronger role than in the past.

It is right that the clause sets out everything that a landlord must not do in relation to tenants, but it is sad that we have to be here prescribing rules to deal with those landlords who have not treated their tenants well. The Government have sought to limit the potential for a loophole where landlords simply require prohibited payments to be made to a third party. The clause sets the expectations that the Government have of landlords and attempts to deal with the relative position of power that landlords have held over tenants, whether that has always been fully recognised or not, to bring about an overdue rebalancing.

The Opposition recognise that the Government have previously taken steps to ensure that bad landlords have nowhere to hide. There will be a record of landlords who continue to flout rules on the quality of housing or overcrowding and of those who have certain criminal convictions. While it is slightly off topic, I cannot miss the opportunity to ask the Government to take steps to make that register more widely available so that tenants’ choice is made part of the country’s housing availability process.

As we heard in evidence this morning, an increasing number of tenants have for too long found themselves with the smallest of bargaining chips in their relationship with their landlord. On Second Reading, I talked about the inherent difficulty of the situation, with landlords, often seeing their property as an asset on which to secure returns, set against the needs of tenants who, in the absence of being able to secure ownership, wish to make their house their home.

The Government have made an exception to prohibition, including contracts for utilities and communications services, which is why I asked the Minister the questions I did with some interest. I understand that utility and communication services may be in place at the start of a tenancy. Indeed, some purpose-built to-let properties have all amenities covered, with free wi-fi provided to entire blocks, as an incentive or assistance to tenants, and as one less thing to worry about, with landlords not wanting to have their tenants wait around for engineers to arrive—or not, as the case may be—and deal with installations. However, is it not the case that the contracts that landlords have adopted for their properties may sometimes not provide the best value—for example, where prepayment meters are used or the tariff is at a general level—resulting in excessively high bills? That could come as a surprise to some tenants.

Prepayment meters are particularly common at the lower end of the housing market, and they bring their own problems. Once the equipment is in place, it is difficult to change provider. There can be charges for removals—no longer, I accept, from the big six—and if the account is in deficit, customers cannot swap between providers, let alone move to a billing system for their energy needs. That is important because, as the PropertyWire report goes on to explain, there is growth in the private rented sector at the more economic end of the housing scale at a time when the sector as a whole is changing.

With prepayment meters, it is not the tenant but the landlord who is the customer, but the tenant is tethered to the landlord’s choice of how their energy will be supplied, and those on low incomes or benefits are stuck with the most expensive method of energy bill payment. The Bill says—I paraphrase—that a landlord must not require a person to enter into a contract with a third party in connection with their tenancy, but that does not apply if the contract is for the provision of a utility to the tenant, or for the provision of communication services. For prepayment meters, the tenant is not required to enter into a contract—they have absolutely no choice in the matter. Worse than that, they are unlikely to ever have a choice in the matter so long as they reside in that property. They will remain tied into something that has been paternalistically decided for them.

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[Rishi Sunak]

It is a great pleasure to embark on my first Bill Committee with the hon. Member for Great Grimsby and I look forward to going through it with her. I will try to keep this on point and address the specific issues that she raised.

First, on utilities and the provision thereof, some of her comments will be well directed at the energy price cap legislation that is working its way through Parliament. I am sure she will engage in that process. With regard to this Bill and this specific clause, I say to her that that process is something that any tenant would likely follow as part of their deliberations about which kind of property to rent, in the same way as I would imagine tenants decide whether a property has good mobile signal, any broadband available, what kind of energy is available, and so on. Those are all things a tenant will have awareness of in advance of making a decision with regard to the suitability of that particular property for their circumstances.

[Daniel Zeichner]

I would ask the Minister to think a little—I have examples in my own area—not about properties at the lower end of the market, but about new properties where there are shared heating schemes. I am not as convinced as he is that people moving into those properties are fully aware of the scale of charges they may face. There are disputes going on currently around this, because people do not necessarily understand and in some cases they feel that they are not fair or reasonable. I wonder whether he would consider inserting at some point a reasonableness test, because just passing on the charges without people necessarily understanding what they are when they enter into that agreement in the beginning, as I say, has created problems, which I am aware of.

[Rishi Sunak]

That is something that we are certainly looking at exploring in the guidance that is being developed in conjunction with various consumer rights groups, particularly around the “How to rent” guide, ensuring that potential tenants are aware of the things that they should be asking, which ought to be relatively common sense. As I said, there will be explicit notice in that guidance around the things that tenants should make themselves aware of. Those are the types of questions they should be asking to ensure that they have full sight of what that particular property and tenancy will mean for them.

--- Later in debate ---

[Sarah Jones]

I will shortly make the case that in some cases people will end up paying more money as a result of the Bill as it currently stands.

So a cap of six weeks’ rent will not make a difference to the vast majority of private renters, and it does not send a message to tenants that this Government want to improve things for them. I would like the Minister to explain his thinking on that.

In areas with higher housing costs, such as London, a six-week deposit based on median rents will see private renters needing to fork out £2,000. Therefore, amendment 7, in keeping with the advice from various experts, seeks to make this part of the Bill more impactful by setting a three-week cap. That would save tenants £575 compared with the Government’s proposals, rising to £928 in London.

I come to my second main point. We have established that, as it stands, this schedule will be fairly ineffective, but in fact it is in danger of making things worse. To emphasise the lack of impact that it will have in its current form, we can again look at the Government’s own impact assessment. It claims that a cap of six weeks’ rent will result in

“money being available to tenants to spend, leading to wider economic benefits.”

The impact assessment estimates that 1.4 million households moving home in the private rented sector in year one will pay £12 million less in deposits than they do currently. If that benefit is spread across all those households, the average saving is £8.50 per household, which would not be a massive boost to the economy.

The original briefing for the Queen’s Speech indicated an intention to cap deposits at four weeks—that is really important. The Financial Times was among publications that reported that

“deposits that tenants leave with landlords or their letting agents will be capped at no more than one month’s rent.”

When the draft Bill came out in May 2018, groups such as the National Landlords Association and the Association of Residential Letting Agents claimed victory in pushing the cap back to six weeks. A National Landlords Association newsletter stated:

“The Government had initially proposed in the consultation to cap security deposits at no more than 4 weeks’ rent. From the beginning of the process, the NLA has been actively campaigning around raising the cap to 6 weeks. This was outlined when…CEO of the NLA…met with the Minister of State for Housing and Planning…in September and pressed him to rethink the level of this cap.”

Perhaps the Minister can explain what arguments the Government took into account when deciding to amend their plans for a four-week cap, and why they did not listen to the evidence given by Shelter, Citizens Advice and others that a lower cap was the only way to effectively tackle the hardship faced by many private renters. Indeed, why did the Minister not listen to the views of tenants themselves?

On Second Reading, the Secretary of State gave various arguments in defence of a six-week cap, but I am afraid that none of them stands up to scrutiny. He argued that a cap of six weeks’ rent will give landlords greater flexibility to accept higher-risk tenants, such as those with pets, but analysis conducted by MHCLG as part of its impact assessment did not find a link between the level of deposit and the riskiness of the tenant. As landlords told us earlier this week, a better system for higher-risk tenants might be to allow an exception to the cap in specific cases, such as pets.

The Government have also argued that a six-week cap will address concerns about tenants leaving without paying their final month’s rent. Experts have argued that that is a rare occurrence, and just this morning, we heard that only 2% of tenants used their deposit as their final month’s rent. The important role played by the deposit protection scheme means that there are already means by which we can resolve disputes.

The Housing Secretary rightly pointed out the need to ensure a balance between financial security for landlords and affordability for tenants, but the data we have on deposits suggests that the proposals are skewed in favour of landlords. Deposit protection scheme data suggests that on average, since 2007, tenants have received more than 75% of their deposit value back. In more than half of cases, tenants receive their deposit back in full, with no deductions. Of course, landlords need the security of knowing that they can recoup costs if needed, and there should be a deterrent for tenants who might otherwise leave properties in a bad state, but the numbers suggest that a much lower-value deposit would still allow landlords to recoup any legitimate costs at the end of a tenancy.

The amount of the deposit could be halved and landlords would still have an ample amount to cover the average deduction. If the average deposit is £1,000, with people paying back a quarter on average, that means landlords receive back £250 on average. If the deposit was halved to £500, they would still have enough for that average to be returned. The majority of the deposit would still be returned to the tenant in most cases, but it would also leave room for a bigger than average deduction if necessary.

Importantly, the Housing Secretary argued that the six-week cap was not a recommendation, despite repeated warnings on Second Reading that it may be interpreted as such and become the norm. The inherent seal of approval of a Government cap could result in landlords thinking it was okay and normal to raise deposits to that six-week level. That is relevant in the context of other fees being restricted by the Bill.

The potential backfiring of the Bill could mean that an average deposit of 4.8 weeks across the country suddenly jumped to six weeks, which would cost tenants hundreds of pounds in extra deposit fees and completely negate the benefit of the main part of the Bill, which bans letting fees. The Government estimate the average cost of letting fees to be between £200 and £300. If the most common deposit of four weeks became six, based on average rents, Londoners would pay £500 more on their deposits, which means that the net impact of the Bill on renters would be negative.

[Daniel Zeichner]

My hon. Friend is making an excellent speech, but she has a tendency, as all London MPs do, to constantly refer to London, which I entirely understand. I suggest that she looks a bit further up the country to an area such as mine, which displays similar attributes to London. There are always different views on exactly what average rents are, but something like £1,000 to £1,200 is typical in my city. She is making an important point about what the Bill could lead to for young people such as those looking to rent in Cambridge, which they have to do because they are completely priced out of purchasing property. They would have to have about £1,500 or £1,600 up front. That would have a significant effect on one of the economic powerhouses of the country. Will the Minister bear that in mind? If six weeks’ rent becomes the norm, that will have importance not only ethically but for the effectiveness of our economy in difficult times.

[Sarah Jones]

My hon. Friend makes an excellent observation, and I take his point completely. There are many parts of the country where the rental market is pressurised and prices are prohibitively high, so the impact would be the same as it is in London. He is right.

There is precedent for the Government setting a figure that becomes the norm, whether it is a cap or a floor. In many cases such a precedent has been created, and that could occur here. That price level is given inherent Government approval for those on the other side of the deal, who say, “This is what the Government say we can charge”. There are two obvious examples, one a cap and one a floor: tuition fees and the minimum wage respectively. We are all aware of how universities raised their fees to the maximum of £9,000 as soon as they could, despite claims that there would be price competition. Likewise, when the minimum wage was introduced, it was said that it would be an absolute floor but, sadly, for many workers it has become the norm.

If we are trying to make things better for private renters, which I am sure the Minister is, we should not be settling for the status quo, nor should we be considering something that may make the situation worse. We should be the leaders we were elected to be and change the Bill. To reiterate our argument for a three-week cap, if the most common deposit is now four weeks’ rent and the average amount returned is more than 75% of the deposit value, reducing the cap to three weeks would still leave more than enough room to give landlords financial protection while at the same time bringing real benefits to tenants.