Renters (Reform) Bill

Lord Truscott Excerpts

2nd reading
Wednesday 15th May 2024 Lords Chamber

[Lord Truscott (Non-Afl)]

My Lords, I declare an interest as a landlord of almost 30 years and before that as a renter in the private rented sector, so I have seen the private rented sector from both sides of the fence. It has been a long time coming, but this Bill is welcome. I support the creation of an ombudsman for the private rented sector and the application of a decent homes standard. There are some rogue landlords and action needs to be taken against them. The fact is that 81% of private renters are satisfied, according to the English Housing Survey.

Some seek to blame the current housing crisis on landlords, but I think that is a little unfair. The issue with rising rents and lack of supply is a failure of government housing policy over a long period, a point that the noble Lord, Lord Frost, mentioned earlier. His Majesty’s Government have repeatedly failed to meet their housing targets of 300,000 new homes per year—a point made by the noble Lord. As the noble Lord, Lord Best, pointed out in the recent debate on affordable housing, an estimated additional 90,000 social rented homes need to be built every year, partly to offset the 1.5 million social homes sold under the right to buy. The Government are nowhere near to achieving this.

It is also estimated that an additional 50,000 private rented homes are needed to help fill the gap, yet that does not look feasible. It is undeniable that renters are having a tough time, with sharply increasing rents. While I wholeheartedly agree that tenants’ rights should be protected, let us also look at this from the landlords’ perspective so that we have a balanced debate.

We must be wary of unintended consequences—a point referred to by the noble Baronesses, Lady Pinnock and Lady Warwick of Undercliffe. I am reminded, in that context, of a documentary that I saw about Chairman Mao’s response when told that sparrows were damaging China’s crops. He ordered all sparrows to be killed—millions of them. The next year, locusts, which were previously kept in check by the sparrows, destroyed all the crops, leading to the great Chinese famine of 1958 to 1962 that killed up to 30 million people. The documentary was a brilliant piece of anti- communist propaganda, but it showed in colours how policies must be properly thought through.

Due to the macroeconomic climate, landlords are being seriously squeezed. Some 1.7 million landlords have buy-to-let mortgages, and some face a tripling or quadrupling of their mortgage interest because of interest rate hikes. Over the last year, the number of landlords defaulting on their mortgages has doubled. Landlord profits are at their lowest for 14 years. According to recent research, approximately one-third of landlords plan to retire or exit the buy-to-let market altogether, and over a quarter are considering selling more than one rental property. There are some new entrants to the market, but these are not enough to meet private rental demand.

This crisis in the PRS has been building for years and can be dated back to the then Chancellor George Osborne’s decision in 2015 to end mortgage tax relief. As a result, the private rented sector, unlike any other business, is taxed on turnover rather than profit. Some saw this as the City’s attempt to destroy the PRS as a viable and rival form of investment. However, the PRS survived during buoyant times, but it is now in serious trouble. In parts of the country, investing in rental property just does not add up. Capital values are so high, and rentals so relatively low, that the return on capital, even without a mortgage, is less than 2%. The noble Lord, Lord Etherton, referred to most landlords owning only one or two properties: they are, in a way, small-scale investors, but the returns for many of them are very low. With tax and voids, a landlord may end up paying a tenant to rent from them in parts of the country. It is simply better to put the money in a bank. Even those with properties bought many years ago, with no mortgage, would be better off putting their money elsewhere.

One former Housing Minister told me that, if landlords sold off their properties, it would be good for the market and first-time buyers. Landlords generally do not want to sell off their properties, but some will have to in the current circumstances. Others will move their properties to Airbnb or similar ultra-short-let platforms, which make better returns for landlords but result in fewer long-term homes for residents and less student accommodation in cities and resorts. These ultra-short lets create a growing black hole of lost long-term rental property, including a growing black market in the rental sector. The headline in yesterday’s Evening Standard summed it up: “London’s Airbnb Wild West: capital ‘hollowed out’ by short-term lets eroding the private rental market”.

In some blocks of flats in the capital, 90% of the flats are Airbnb or similar ultra-short lets. Last year in London, between July and September alone, 455,000 stays were booked in short-term lets. It was found that more than a fifth had previously been long lets—so you can see the shift away from long lets to ultra-short-term lets. That means fewer homes available for London residents, and fewer B&B and hotel bookings. It reduces the supply of long-term lets, pushes up rents and forces tenants out to the suburbs and beyond.

The same is happening in many of our cities and resorts. If we want to provide more long-term rentals, Airbnb and other ultra-short let platforms need to be properly regulated and restricted. Incidentally, that is why I support the amendment to the Bill which provides for tenants to stay for at least six months initially. Purely short-term tenancies would be a disaster. Most banks require six-month minimum tenancies to lend in the first place. Long-term tenancies should be allowed when all parties agree—in that sense, I also agree with the noble Lord, Lord Frost. This can provide more security, not less, for both parties.

Regulation of the private rented sector is welcome to rein in poor landlords—of course it is. According to Foxtons, there are already over 150 pieces of legislation governing letting a property. When a landlord lets a property, they have to ensure there is an annual gas safety certificate, a portable electric appliance certificate and an energy performance certificate. In addition to the letting agent’s letting fees, often payable in advance, the landlord has to pay a tenancy paperwork charge, a professional cleaning charge, charges for tenant reference checks and tenant right-to-rent checks, and an annual TDS deposit check charge. Then there are insurance and service charges, which the landlord pays—plus they need to make good any damage or wear and tear to the flat not covered by the deposit or insurance. This can all come to several thousand pounds or more. The idea that this could happen every couple of months would simply mean landlords would further increase rents to cover this and repeated voids.

HMRC is currently piloting quarterly returns for landlords, who normally have just one or two flats as their pension, as I mentioned. This fails to take into account the nature of letting: many costs are up-front in the first few months, and then there can be a period of a couple of quarters of full rental, followed by a later period of voids and no rent. Landlords will potentially be changing tax brackets every quarter and chasing tax refunds at the end of the financial year.

While I am in favour of an ombudsman scheme and property portal, I am concerned that the fee for this would be yet another burden on landlords. Similarly, some local authorities are charging landlords to license their rental properties, which can result in landlords becoming local authority milch cows and increasing rents for tenants. In the light of all the reforms in the Bill to bring the PRS up to standard, which I welcome, selective licensing should be abolished.

With the right to request a pet, I hope that the Minister will reconfirm that, where these are banned under the lease or accepted at the discretion of the RTM or RMC, this will be maintained. Dogs can be a nuisance, particularly in blocks of flats, and even dangerous; we have seen a dramatic increase in dog attacks across the country.

On Section 21 no-fault evictions, I agree that these should go, but only when courts are ready. Landlords must have the ability to sell their property, move back into it or deal with significant rent arrears or anti-social behaviour in a timely manner. As the Law Society mentioned,

“without investment for housing, legal aid and the courts, the bill will not achieve its aims and may lead to an increase in backlogs and landlords and tenants alike will be unable to enforce their legal rights”.

I welcome that the Housing Minister in the other place said the Government were taking significant steps to ensure that the county court system would be ready to deal with the expected rise in possession-related caseload once Section 21 had been abolished.

His Majesty’s Government are investing £1.2 million in His Majesty’s Courts and Tribunals Service to deliver a better end-to-end online possession process. But I ask the Minister a question that a lot of noble Lords have asked: when will this system be ready and up and running? It is clearly of crucial importance.

There will be much to discuss as the Bill progresses. I suggest that we focus on the practical application of the Bill and avoid unintended consequences. Some have argued that, instead of sorting out the housing sector and focusing on providing more affordable homes, we should instead try to shore up renters at the expense of landlords. For example, there is the idea of a rent cap. That is fine, but will His Majesty’s Government or local authorities cap mortgages, service charges, and insurance and maintenance costs? If landlords default on their mortgages or are otherwise driven from the housing market, there will no security for tenants at all.

In the past, rises in capital values have enabled landlords to subsidise tenants, but this is not the case today. In Scotland, rent controls have not worked out well. Scotland has the shortest time for rental listings in the UK: properties are listed for just 15 days on average before being snapped up. There is an acute shortage of long-term rentals.

We need to make homes affordable again, by building and providing more homes, stemming the massive rise in ultra-short lets, and making home purchases attainable once more, especially for young people. I take the point made by the right reverend Prelate the Bishop of Chelmsford about the housing plight of young people. In its remit, the Bank of England should consider the state of the economy as a whole, not just the rate of inflation, and never forget the aspirations of British people to be part of our property-owning democracy.