The long-awaited Renter Reform Bill was finally introduced in Parliament in May, but is it really good news for tenants? Several agencies have already reported in recent weeks that it’s going to be a very tough summer for tenants in a highly competitive market, but that market is likely to get even tougher for tenants in the long-term if the government’s plan to reform the private sector rented sector come to fruition. The Renter Reform Bill, which was expanded on in a white paper published last year, certainly has its merit for tenants, and there are several aspects of it that are arguably beneficial for the wider lettings industry and worth exploring, but it has caused consternation among many landlords and could see many more choosing to sell off their portfolios, reducing supply of housing in the lettings market which is already in short volume.
The ongoing issue of stock is one that affects both the sales and lettings sides of the market, two sides of the same coin so to speak, but what has not improved is supply in both these markets, with ebbs and flows depending on market conditions. The announcement of the Bill has closely coincided both with the looming mortgage crisis and the subsequent announcement from Chancellor Jeremy Hunt and the Treasury a few weeks ago that UK bank have agreed on at least a 12-month freeze on repossessions for borrowers falling behind on payments. While help for those in financial distress should certainly be encouraged albeit not to the extent that it distorts market realities, the timing of both of these measures feels inescapably political as we near an election year, which does raise questions about the long-term impact of both on the industry.
In the case of the Renter Reform Bill, while in may be popular among tenants, they might not feel that way in the near-distant future if the measures do not receive the proper scrutiny and careful evaluation on their impact on the industry. The government has often been accused of failing to listen to the industry, offering panacea remarks rather than prudent collaboration, and there is a significant risk that the same well-trodden path of political indifference may be taking place again, where they win the battle with tenants but lose the war with landlords.
A challenging time for lettings
It’s entirely reasonable to consider ways to improve the health of the lettings sector, but it should always remain true that this requires a balance between the needs of landlords and tenants, one cannot exist without the other in this mutually beneficially relationship. That said, certain macroeconomic factors are combining with the ongoing imbalance between supply and demand to create some rather uncomfortable and uncertain conditions for landlords and tenants alike.
The latest Rental Market Report from Zoopla revealed that rental affordability is the worst it’s been for a decade in seven of the 12 regions and countries of the UK, with average rent in the UK growing faster than earnings for the last 21 months, since October 2021, now accounting for 28.3% of pre-tax earnings against a 10-year average of 27%. With the supply of homes available for rent somewhere in the range of 20-40% below pre-pandemic levels in most regions, there is a strong need to keep landlords happy to remain in the market and avoid a sell-off of portfolios.
Certainly, the most recent Landlord Confidence Index from the NRLA covering Q1 found that, while that has been a small rebound in landlord confidence over Q4 2022, fewer than 10% of landlords said that they were now more optimistic about their business than they were in Q4. Worse still, the number of landlords looking to sell over the next 12 months increased to 37%, a 2% increase on the previous quarter which becomes worse when you see it compared to the low of 23% recorded in Q2/Q3 2021.
This low confidence is due to a range of macroeconomic conditions that having debilitating effects on the market, affecting landlords, tenants and homeowners alike. The rise in interest and mortgage rates in-turn have knock-on effects on the stability of the market. For landlords in particular, the increase in costs combined with ongoing regulatory change only compounds their concerns.
The government has made some efforts to assist with initiatives like the recently expired Green Home Grants scheme and the recently announced Great British Insulation Scheme. But otherwise there has been little support for landlords in way of policies or announcements that would help provide clarity about what upgrades will help.
Another potential challenge for landlords is that consumers are increasingly becoming more environmentally conscious and concerned for their carbon footprint. Research from Leaders Romans Group found that almost three quarters (70%) of respondents would like their property to be more eco-friendly, with two-thirds (66%) revealing that they would choose a property with eco-friendly features over one without. Landlords should certainly take heed of these findings given tenant demand for eco-friendly features. Sustainability expectations are already factored into material information on property listings where it’s already a legal requirement that the EPC rating for a property should be disclosed on the listing, unless exempt.
While it could be argued that many tenants are less concerned with a property’s EPC rating when held up against the rent they’re paying, if tenants are forced to pay increasingly high – and for many ‘eyewatering’ – bills for gas and electricity, that cost balance will start to shift. It undeniably leaves a difficult choice for landlords as higher interest rates and cost of living pressures only add to the challenge of meeting the costs of upgrading their properties. And while the government will reportedly cap the maximum spend per property at £10,000 (irrespective of whether or not the C rating is achieved, landlords still face a collective bill of £45 billion to meet the minimum requirements.
Is now the time for reform?
Bringing it back now to the Renters Reform Bill, I cannot help but feel the timing is quite suspect ahead of an election year, and without proper scrutiny and engagement with landlords, risks pushing more of them out of the market, in turn worsening the supply issue for tenants and pushing up rents further in an already heated sector, will ultimately harm the very people that the Bill is intended to protect. The abolishment of Section 21 “no fault evictions” may offer renters more security, and indeed could be a be a popular vote winner among tenants, but it carries several risks for them as well, particularly in the short term as evictions are likely to spike ahead of the regulations coming into force – the law of unintended consequences suggests that landlords may find a way around this in any case by finding legal (though perhaps undesirable) ways to encourage tenants to move on. Additionally, there’s also the increasing likelihood (and its certainly one reflected by the rise in negative sentiment) that more landlords will choose to exit the market ahead of the changes.
In the long term it could lead to landlords becoming more risk averse in choosing tenants, particularly if they only have Section 8 grounds of possession to rely on. And while it’s true that the Bill includes provision to introduce more comprehensive possession grounds so landlords can still recover their property, I would wager that this will not offset the drop in confidence fuelled by the abolishment of Section 21. Another aspect of the Bill that remains under consultation is the possibility of applying the Decent Homes Standard (DHS) to the private rented sector; combined with the changes to EPC regulations and you see a pattern of increasing costs hitting landlords in the foreseeable future as they work to adjust their properties to comply with regulations.
The Bill certainly goes further than these points mentioned, and many of them are in principle good to ensure that tenants receive adequate protections and homes of a good standard, but as I mentioned at the beginning, the proposals feel somewhat like a cure in search of a disease, while avoiding the elephant in the room that is the wider housing market issues requiring a more robust political and industry answer to address. But people don’t want panaceas, and while some may argue that the Bill should be even tougher, some agents are at least arguing for more support for tenants through closer government engagement with landlords, acknowledging their stakeholder role in the industry beyond merely a provider of services.
We all know that more must be done to improve the health of the sector, and to balance out the dynamics of supply and demand in the face of numerous challenges, but regulatory changes are only putting a plaster on wounds while allowing the deeper issues to go unaddressed. Still, timing is everything in politics, and the timing of this Bill in the absence of other (potentially more politically sensitive) housing needs that should be given attention does make me wonder who really stands to gain at the end of this road, because it seems unlikely that landlords nor tenants will be its beneficiaries in its current state.