Opinion: does Michael Gove know something we don’t?

It would seem that successive Tory government’s have waged an ongoing and progressively more vicious war on buy-to-let landlords, but this latest layer of legislation goes much further.

Yes, this latest iteration, and one that’s before Parliament right now, is the Renter’s Reform Bill which will effectively throws out the 35-year old concept of the “Shorthold Tenancy”, introduced by the Conservative’s Thatcher Government back in 1988.

The Shorthold Tenancy transformed private residential letting in the UK. It removed what was then a much diminished rental market, one that was hamstrung by rent controls and lifelong security of tenure. Landlords had abandoned renting in their droves, and those that hadn’t just allowed their properties to decay. That’s because the return on their investment didn’t justify throwing good money after bad, sinking more money into what had become a “white elephant” investment.

The Shorthold Tenancy removed the risk: it revolutionised the market and put a rocket under it. Landlords could (1) charge a market rent and keep it in-line with the market over time, and (2) they could get their property back, guaranteed. They could remove a bad tenant, albeit with a 6 month delay, using the relatively easy and sure method of the Section 21 process.

Revenge evictions

Enter the Michael Gove’s Renter’s Reform Bill, a Bill which he thinks will improve the tenant’s lot, give them security of tenure and prevent the so called revenge eviction, one that is prompted by landlords receiving complaints from their tenants.

Anyone who understands the lettings industry knows that this type of revenge eviction is a minority event, less that 1 or 2 per cent of evictions are for this reason. Responsible landlords use the Section 21 process very sparingly because they want to keep good tenants. By far the majority of Section 21 evictions are for rent arrears, followed by anti-social behaviour.

Landlords on the whole do not evict good tenants. Tenants who pay their rent on time and look after the property. That’s all landlords are after, and they will go through hell and high water to keep these tenants in their property.

Unfortunately, the so called revenge eviction hits the headlines: the housing charities have used the power of the media to scare the living daylights out of the Government into its abolition, promised now for over four years. There are far more tenants than there are landlords, and the general public will always favour the welfare of tenants over them. At the end of the day it’s a matter of votes.

The reforms in this new Bill threaten to worsen an already serious housing crisis where renters can’t find the homes they need at reasonable prices. It threatens to kill-off the private investor, the final nail in buy-to-let’s coffin.

Tory MP’s concerns

It’s not just landlords who are concerned. Even Tory MPs fear that is will lead to an even more serious housing crisis, forcing more landlords to sell up and more tenants unable to find accommodation they can afford.

The Daily Telegraph reports that “there are growing concerns in the Conservative party that the Government has gone too far in its war on landlords and second homeowners. The renters’ reform bill, due to go before Parliament this week, will abolish ‘no-fault’ evictions and introduce rolling tenancies. It will also prevent landlords from turning away tenants with pets or those on benefits.”

As concerns mount over the Bill more and more landlords who are aware of the coming changes are voting with their feet, they are leaving the industry in anticipation of what’s to come and while they can still get their properties back at will. This Bill really does threaten a mass buy-to-let exodus

The Bill will introduce what will be the biggest change in private renting since 1988 and it’s a very radical one too, swinging the industry clock back towards the rigid controls of the Rent Act (Regulated Tenancy) period that existed before that date.

As rents reach the £1,000 per calendar month level outside of London for the first time, tenants are already facing surging costs, while landlords, in turn, squeezed by successive tax increases, are being hit with rapidly rising mortgage rates. Not only are profit margins tight, in some cases they are non-existent, and the ever increasing regulations make life far harder for the average buy-to-let landlord.

The opposition’s plans

Meanwhile Labour’s shadow housing secretary Lisa Nandy (levelling up) wants these reforms to be implemented as soon as possible and she promises that a labour government would go even further with its own reforms of the private rented sector. This will include longer notice periods, giving tenants freedom to make alterations to the property, a harsher homes standard and it probably means some form of rent control.

Conservative MP Craig Mackinlay, South Thanet in Kent, told The Daily Telegraph:

“The reality is, landlords will abandon the market and we will have a very serious housing crisis on our hands. I’m worried about landlords leaving the market, I really am. There’s a huge amount of disquiet about this. From colleagues I’m talking to, they’re not happy. We have seen too much of a war against landlords.”

Another Conservative, Marco Longhi, Tory MP for Dudley North, told The Telegraph, the renters’ reform bill was “like wielding a hammer to crack a nutshell. It’s a disaster. You will see huge swathes of landlords leave the market, and this has been happening for several months already.

“The Government doesn’t realise how much it depends on private sector landlords. These properties landlords are now selling aren’t even affordable for the majority of renters, so where are these people going to go? We should be building cities twice the size of Sheffield to keep up with net migration.”

The Government’s War on Landlords 1 – George Osborne fired the first round with his tax hikes, changing the way rental income was taxed so that not only were landlords nudged into higher rate tax bands, there was a three per cent surcharge on stamp duty and the wear and tear depreciation allowance was abolished. 2 – Increasing rules and regulations piled on the pressure for landlords, to the point that one missed service of a notice or a vital safety check or risk assessment in a series of increasing complexity when setting up a tenancy meant that landlords were unable to use the Section 21 eviction process. It now takes a very diligent landlord or agent to get everything into place. 3 – Energy efficiency targets and net zero – the MEES regulations mean that some landlords will need to invest considerable sums of money to bring their properties up to future emissions standards, especially as the bulk of rental property are of the older type of construction which are inherently inefficient. 4 – The Right to rent checks were the burden of checking tenants and refusing those without the correct immigration status was placed on landlords. 5 – Restrictions on the amount of fees and deposits landlords can take, were introduced. 6 – Now landlords are faced with the prospect of a Renter’s Reform Bill that will end Section 21, end fixed-term tenancies, it will prevent landlords resisting tenants with pets or those claiming benefits and impose a higher standard of safety – the Decent Homes Standard.

Section 8 – an adversarial system

By removing Section 21 and imposing an indefinite length tenancy a landlord with a bad tenant will be at the mercy of a convoluted and adversarial Section 8 process, a system where the landlord will have to convince a judge of the necessity to evict a recalcitrant tenant.

What will make this even worse is that no extra resources are planned for a court system that has been slimmed down and is already overloaded – the way things stand it could be 12 months before a landlord can get a tenant who is not paying any rent, into court.

The fact that additional mandatory grounds for eviction are being added to the Section 8 legislation is nether here nor there, if you cannot get your bad tenant into court, you are stuck with them.

It will work against tenants in the end…

The upshot will be that landlords will have to be far more careful and selective when signing up new and untested tenants. They will need to prove they are able to pay the rent, they will probably be required top pass a stringent credit assessment and provide a guarantor. Fortunately, landlords will still be in a position to reject applicants who cannot show they can afford to pay the rent.

The end result as I see it, is that far from making the system fairer for tenants it will work against them. Rent prices will go sky high, there will be such a shortage of rental accommodation that thousand of tenants will be priced out of the market, and even when they can afford it competition for rentals will be intense.

Student landlords

Student landlords are particularly concerned about the prospect of indefinite tenancies as they rely on their student houses being vacated in time for the following influx of students for the start of a new academic year. Unless, this rule is changed for student lettings during the passage of the Bill it will create chaos for student landlords.

The Government is committed

Despite all the arguments landlords can make against these radical changes, a Government spokesman for the Department for Levelling up, Housing and Communities, the Government told The Telegraph it is “absolutely committed to delivering a fairer deal for renters.

“We will bring forward legislation very shortly, which will include a ban on ‘no fault’ evictions, so that all tenants have greater security in their homes and are empowered to challenge poor conditions.

“We are also introducing a Decent Homes Standard for the Private Rented Sector for the first time ever which will make sure privately rented homes are safe and decent,” the Government spokesman said.

We landlords know that the vast majority are responsible landlords are doing a great job, one that most private tenants appreciate. It’s a much smaller minority of landlords that this new legislation is aimed at, but in doing so it affects everyone.

More complaints

The irony is that most landlords are doing a far better job that local government and social housing landlords, despite the Decent House Standard which applies to them right now. As MP, Mr Mackinlay told The Daily Telegraph:

“I receive infinitely more complaints about social housing from renters than I do about private landlords

“Firms don’t do repairs, so problems are hanging around for months if not years. No one responds. If you think these institutions are the panacea for the rental sector, you’re sorely misguided.

“Good landlords are far more responsive. You wouldn’t have a hope in hell of getting something sorted in a few days in social housing, like you would with a landlord.”

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