Private rented homes – the key to avoiding a full-blown Oxford housing crisis.

Everyone has an opinion about what’s wrong with the private rented sector (PRS)…some have informed opinions, others seem ill-informed.  Few take time to consider the role played by PRS in the wider property market.  How important is the PRS to the UK housing market?

In 2003, according to data from Shelter, the PRS was 2.55m homes or 11.9% of total UK housing.  By 2014 it had grown to 4.59m or 19.7% of the total UK housing market.  To put that into perspective in 2014 total new building created 112,400 homes or less than half the annual growth of the PRS.  In 2014, the PRS provided 14% more homes than social housing owned by local authorities and housing associations combined!

This goes to show that the PRS is a massively important source of housing supply.  By early 2015 the UK had 5.4m households who relied on the PRS, and according to PwC that is set to rise to a massive 7.2m by 2025 – an increase of one-third. In 2014, 2m private landlords owned and let 4.6m homes.  Based on the same ratio of ownership, an additional 783,000 landlords are needed by 2025 if the demand forecast by PwC is to be serviced effectively.

In 2014, the UK’s private landlords banked £14.2bn.  With demand set to increase by one-third, it is no coincidence that the Exchequer has imposed a stamp duty surcharge on 2^nd homes.

The stats show that our ‘beloved’ politicians are right to want to ingratiate themselves with tenants – they are a large block of voters and one that is growing rapidly in number.  But, the nation needs new and existing landlords to keep investing, or there will be a genuine housing crisis that the public sector has no hope of addressing.  Tenants will not thank politicians for undermining the supply of affordable good quality rental properties.

How does Oxford compare to these national statistics?

In Oxford, according to the 2011 census the PRS accounts for 28% of the total housing stock.  If student households are stripped-out, the PRS still accounts for 26%, meaning it is more significant in our City than is the case nationally.  In Oxford, just 47% of households own their own home vs. a national average of 63% and 21% live in social rented housing vs 18% nationally. 

These statistics are not a surprise in one of the countries least affordable cities.  New build supply is historically weak in Oxford and is a major constraint for both first-time buyers and down-sizers increasing demand for rented homes, and locking-up the housing market respectively.  Over the 4 years to 2015 less than 1,000 net new homes were added to the city an average of just 247 homes per annum or less than 1% per annum. 

Even if this changes materially, the PRS remains strategically important to the City.  Between the census years of 2001 and 2011, the PRS grew by 45% dwarfing the growth of other forms of tenure.  Without a massive increase in new supply, demand pressures will continue to grow making a stable, high-quality PRS critical to avoid a full-blown housing crisis in Oxford.

It appears to me as if Oxford City Council recognises this picture and is focussed on improving standards through licencing of shared houses, and by encouraging landlords and their agents to raise standards.  Inevitably this is increasing costs, but it is a positive, productive policy that raises standards across the City and one which most landlords will respond to positively.

Why is it that Parliament seems to have it in for landlords?

I can understand why the Government and the Bank of England are concerned to ensure mortgage debt remains affordable as interest rates rise to long-term trend norms.  New mortgage lending rules for buy to let are sensible, and make the whole sector more resilient.

However, other changes seem poorly considered and motivated by pure politics rather than any genuine appreciation of the Housing market and the importance of a stable PRS over the years to come.  Too many landlords feel that they are being demonised, and are choosing to stop future investment with others simply divesting altogether.  In some parts of the country the PRS is shrinking at the very time it needs to grow to buy time for a massive expansion of new building.

The political shift towards populism is in danger of disrupting this strategically important sector of the UK’s housing market.  Politicians need to recognise that anti-landlord policy has gone too far.  By all means, rid the sector of rogue landlords, work with professional agents and landlords to raise standards, make client money protection mandatory, make private rented homes safer and encourage higher environmental standards.  But, it is time to stop discouraging new investment and increasing landlord taxes. The vast majority of landlords provide good-quality homes which are badly needed as demand continues to grow.

National and Oxford housing market struggling

Property sales were down by a fifth across the UK during March, and down by 29% in London.

New Land Registry data paints a gloomy picture of the market, showing that the number of transactions completed in March across the UK fell 20.3% annually to 73,977.

The biggest falls were in London where sales were down 29% to 6,180, and in the south-west with a 24% decline to 6,640.

Overall sales in England were down 21.8% to 58,203 on a yearly basis.

The Land Registry data also shows house prices growing at the slowest rate since August 2013, up 3% annually in May to £226,351, a slowdown from the 3.5% annual growth recorded in April.

The largest annual growth was in the east midlands, with prices up 6.3% to £190,216 on average.

London saw the steepest annual fall with average prices down 0.4% to £478,853.

In Oxford transaction volumes are a further 4% down year on year to 2,839 and prices are up just 2% compared to the same period 12 months ago at an average of £421,522.

It seems to me that lower demand is forcing vendors to be more realistic with prices because there are fewer buyers who are prepared to shrug off economic and political uncertainty.  Many Oxford homes are selling only following a price reduction as vendors realign their asking price to a more sensible level, or are completing at a discount on the asking price.

MandatoryElectical Safety Checks for all private rented properties

The Government has announced they will introduce a mandatory requirement for landlords in the private rented sector to ensure electrical installations are inspected every five years. This is part of plans to drive up standards across the PRS and reduce deaths, injuries and fires caused by electrical faults.

While NALS fully supports the introduction of these checks to keep tenants safe, this is another measure from Government that will need to be enforced to be effective. We look forward to seeing more detail on the plans. You can read the full announcement from Secretary of State for Communities, Rt Hon James Brokenshire MP.

As many of you will know Martin & Co predicted this move and has been working with landlords to roll-out electrical safety across our managed portfolio.

More Government meddling on the horizon

Why the Government thinks its interventions in the UK lettings market will be any more successful than its Brexit negotiations is beyond me!  But apparently, it knows best, and will save the day for the many millions of voters who rent their home.

The latest proposal is to mandate 3-year tenancies so that tenants have greater security.  I should make clear up-front, I have nothing against longer tenancy terms, provided that tenants and landlords have equal ability to trigger termination clauses should their own situations change.  In the post-tenant-fee world, the fewer relets a landlord has to navigate the better.  It is at the point of relet that a landlord’s risk is highest, and it is likely to be the point at which applicants will be freer to change their minds loading cost and uncertainty onto the landlord.

Given this is my view, surely I should be supportive of the Government’s policy?  Well, no.  3-year assured shorthold tenancies (AST) can already be agreed.  Many landlords would jump at a tenant requesting a longer-term, and they are completely free to do so already.  Only where the landlord is uncertain about her/his plans for the property would it be seen negatively.  But, how often does a tenant ask for a 3-year term?  In my experience in my own letting agency, almost never.  Is that because they don’t know they could?  Or is it because they want to retain maximum flexibility?

It is current good practice when a tenant or a landlord requests a break clause, for that clause to be ‘mutual’ i.e. applying the legal practice of fairness and balance, it provides each contracting party the flexibility to terminate.  The only time that may not be the case relates to an agreement where the tenant pays rent in advance for several months and where there is a second payment date during the term of the contract e.g. 6-months advanced rent up-front and a further 6-months midway through the tenancy.  In that situation, it is possible that there would be a break clause that only applies to the landlord, protecting their position in the event that further rent was not paid.

The Government is proposing mandated 3-year terms for AST agreements, with break clauses that can be triggered ONLY by the tenant. That will discourage landlords from agreeing to partial advanced rent agreements as it will force them to rely on serving Section 8 notices on non-paying tenants to regain possession of their property – effectively removing the accelerated possession process currently available following the triggering of a termination clause and serving a Section 21 notice.

Many tenants rely on payment of advanced rent to secure a property, particularly where they are unable to pass credit and referencing procedures due to a lack of evidence of ability to afford the rent, or where they are unable to provide a suitable guarantor.

It is also a worrying precedent that the Government is advocating contractual terms which move away from the principle of mutuality, balance, and fairness. It appears that Landlords are less deserving of legal protection than their tenants - I can’t remember a time when a Conservative government was advocating such restrictive social policy, suggesting the centre-ground of UK politics is now firmly left of centre.

Should this misjudged policy be enacted, I believe it will have further consequences for the supply of good-quality rented homes.  Tying-up available rented homes for longer and reducing the absolute number of homes on the market, as good landlords feel that there are easier, less onerous ways for them to invest.  In the meantime, first and second-time buyers will still be excluded from the market by the massive deposits required to access mortgage funds.