Thursday, October 29, 2009

Where next for the Private Rented Sector?

At the recent CLT Conference I attended, there was an excellent talk by Professor Martin Partington OBE (former Law Commissioner) on possible future developments in the Private Rented Sector (PRS). I set out below a very condensed version of his notes (with his permission).

He started by saying that the PRS is now a key feature of the housing market and one which the government needs to encourage. He looked briefly at the prospect of large scale investment in the sector (most private sector landlords have only a few properties) such as the Kick Start delivery initiative, and concluded that it remains to see if these actually result in any developments, although it could happen.

The Rugg Review
Turning to the Rugg Review, this was commissioned by the government after the Law Commission (under Professor Partington) had spent several years carrying out an extensive consultation and research exercise in the same areas. Needless to say, there is a strong suspicion among many that the Rugg Review was commissioned because the Law Commission’s report did not say what the government wanted!

The Rugg Review recommendations can be summarised as follows:

  • A ‘light touch’ licensing system for landlords and mandatory regulation for agents
  • A new independent complaints and redress system for consumers
  • Tax changes to encourage good landlords, and changes to stamp duty to help them buy more properties
  • Look at ways to see how PRS can help lower income families, including support for landlords willing to house vulnerable people
  • Local Authorities taking steps to better understand the sector and do more to support good landlords, tackle bad ones, and promote tenants rights
The Law Commission was disappointed that it decided against the legal changes recommended in its reports, but it seems that the Rugg approach reflected more closely what government officials were thinking.

The Government’s Response
This was published in May 2009 and was discussed on this blog here. The issues which it looks as if the government will want to take forward are:
  • The National Register of Landlords
  • A requirement on landlords to provide a tenancy agreement
  • The compulsory licensing of letting agents, and
  • The raising of the AST threshold limit to £100,000.
The report confirmed that the government are not proposing to implement the Law Commission’s proposed legal changes (note – this recommended two simple tenancy types – one for the PRS and one for social landlords - to replace the current plethora of tenancy types, which many find very confusing) as it could lead to too much upheaval in the market.

However Professor Partington does not agree with this view. In his opinion, for the PRS to achieve its full potential, it is essential that there be a much closer analysis of how the PRS and the social rented sector interact. The Law Commission’s recommendations would have allowed for this.

‘Light touch’ regulation
After its mammoth consultation exercise, the Law Commission did not feel that mandatory self regulation would be appropriate plus it was likely to prove too expensive. However the Government have become attached to the idea of a Landlords’ Register.

The governments paper though, does not appear to address the key question of whether ‘light touch’ licensing will actually be effective in driving out bad landlords. The Law Commission had come to the conclusion that any licensing scheme would either be ineffective or not light touch. This is why they recommended instead, a program of self regulation via landlords associations’ and local authorities working together to promote accreditation and standards.

Tenancy agreements
However Professor Partington was happier with the conclusions on tenancy agreements. The question here however is whether:

1. There will be minimum standards set, allowing individuals to draft their own agreements, based on these standards, or

2. Whether prescribed model agreements will be set out in legislation, which landlords can add clauses to, to reflect individual circumstances.

He suspects the latter, and does not think that the first option would work.

Licensing of letting agents
There is a large body of opinion in favour of this and it is likely that the government will do this, although the paper is short on detail. We will have to see what happens.

Although it looks as if the government are going to do something, it is not entirely clear what this will be. The Conservatives however, in their recent Green Paper have indicated that they will (if they get into power) conduct a review of the PRS to see how it can play an enhanced role in the housing market.

Maybe this indicates that the Conservatives are unhappy with the approach taken both by the Law Commission and the Rugg Review and are looking for a further review to justify a different approach.

(With thanks to Professor Partington for allowing me to use his notes for this post.)

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