PRS – What for 2022?

PRS – What for 2022?


The last few months of 2021 saw a huge array of articles pretty much predicting the end of the current PRS (Private Rental Sector) boom, due in the main to Government interference and an ever increasing number of increasingly complex regulations for landlords and agents to fully understand.

Many older landlords have and are taking the view that there are probably easier ways to make money without the ongoing hassle the PRS currently endures; which was primarily started in 2017 by the introduction of the amended Section 24 (Income Tax Act 1961) and has not let up since! Air B&B and Holiday lets are the preferred options, especially in popular tourist areas; otherwise, they are selling up, taking their profits and exiting the market. The question so often now asked is, what can the current tenants do, who can`t find or afford anywhere to move to? The government needs to step up to the mark to ease the supply and demand strain as the PRS is fast approaching breaking point!

I would argue that for those private landlords who want to stay in the PRS, the future looks very rosy, once the proposed bout of regulation has finished and is in place. The demographics show that there are and will continue to be a large section of the population that will either voluntarily wish to rent or are trapped renting because they cannot afford to buy – deposits are hard to save for with all of the other financial pressures being experienced. It`s an absurdity and some would say an injustice that mortgages are affordable compared to most current rents on a monthly basis, yet wages in many areas have hardly risen in comparison to the huge property price rises, making the gap between affordability and lending criteria unbridgeable for many, without parental assistance!

Current and new landlords will need to find the “right” properties to buy and keep the ones in portfolios that are economic to upgrade, so that current stock will meet the future MEES requirements of Band C by 2028. By planning for the future now, this potentially huge financial headache can be overcome. The improved MEES problem is not going away and landlords need to incorporate it into their future plans.

Quality Letting Agents also have a very good future once the perception of “easy money” is removed from the equation. It is currently quite clear that the larger agents are determined to gain greater market share by buying out smaller agents with a view to absorbing their stock into their economies of scale methods of management. The good independent professional agents who take pride in the level of service that they offer, will instantly differentiate themselves from the larger groups and be the local agent of choice for a landlord requiring a personal and professional service where people are dealt with as people not numbers! The key will be to have trained staff, personalized systems and be prepared to go that extra mile for your clients and tenants.

The next couple of years probably offer some of the greatest challenges to the current PRS since the 1988 Housing Act and the introduction of the AST (Assured Shorthold Tenancy). These challenges are not insurmountable, as Scotland has shown; so long as the government listens to the myriad of excellent advice being offered on practical solutions to them that are being put forward:

1.Renters Reform Bill – this has been perceived by many experts as the biggest concern for landlords given removing Section 21, stripping them of a simple and quick route to possession of their properties. There are a variety of reasons for using this method, but most landlords are very reluctant to evict unless there is a very good cause or have a change of personal circumstances. If the current Section 8 notices are amended and changed, as is being suggested, then they could offer the same protection to landlords and be made fair for tenants. At the same time, the courts need to be reformed with specialized housing courts being set up. In conjunction with more IT being put into place this would make the whole process a lot quicker, fairer and transparent for all users.

Lifetime Deposits is the other big issue and one which everyone sees as a “holy grail”, making tenants and landlords lives easier at both the start and end of the process. In reality, it is very complicated and might never be easily understood nor resolved in the near future. Some would argue that since the Tenant Fee Act (2019), forcing deposits to be capped at five weeks, there is less need to alter the current system as they are fair already, or at least fair by comparison to the virtually limitless amount that some landlords could previously require. The only current issue with the capped amounts relates to pets and this does need addressing as there is no financial incentive for a landlord to balance against the higher risk of a pet.

2.MEES (Minimum Energy Efficiency Standards) – this is an area which over the next few years, probably worries landlords more than anything else due primarily to the lack of clarity as to what will be required, the short timeframe for the work to be completed and the cost of the improvements. In many cases, the suggested works are neither practical financially nor possible given amongst others the confines of some external boundaries of older terraced houses and blocks of flats, which make up a large percentage of properties let across many towns and cities. The government will need a carrot to incentivize landlords (and home owners looking further into the future) to undertake the work required and this will have to be in some form of workable grant (unlike previous Green Deals), whilst also allowing a greater number of builders, plumbers and electricians to be available to do the work.

3.RoPA (Regulation of Property Agents) – a very laudable aim, especially when coupled in some format with a licensing scheme for private landlords. The public who deal with agents and landlords would then be reassured that they were dealing with honest and competent individuals who understand their trade and all of the surrounding legislation it involves. Sadly, this appears to have slipped down the government`s agenda; but this blip in the system gives a greater short term advantage to those visionary agents who believe in trained staff and excellent levels of service.

So, what of the future and in particular this year. I believe there will be a drop in the number of landlords and thus properties from the market, due to the current uncertainties and a lack of landlord confidence, leading to a further shortage of supply in the short term. What this will do to rents, will depend upon the market and tenant`s ability to both pay and be passed for referencing. In turn this scenario could give the tenant pressure groups an opportunity to seek rent capping in certain areas.

Whilst some older landlords will sell up and release their capital, “bricks and mortar” still offer a good yield and potential appreciation in value over the long term (property prices may have a short term depreciation but the longer view seems to be ever upwards). This is creating an exciting opportunity for a new breed of landlords to enter the market – ones who understand their responsibilities, who listen to advice and accept legislative changes and most importantly offer quality accommodation. These new landlords should benefit from less government interference, an ongoing pool of quality tenants to choose from and a continuing, if not growing demand for rental property.

Over time the imbalance between supply and demand will start to even out; due to a greater supply of private rentals as well as an increase in the supply of social housing and the continuing growth of Build to Rent (the proviso being the large number of flats in the pipeline is balanced with houses, especially for families). New homes will also play an important part, and with many more being built the tide of first time buyers who have been locked out of the market will be stemmed and start to decrease, as prices start to become more accessible.

The PRS will certainly have a massive role to play in the current housing market, and until the other sectors of the housing industry grow significantly, it will continue to be a major provider of homes for many who otherwise would be unable to find a roof over their head. The upside for existing and new landlords who grasp this opportunity are limitless, so long as they remember service and don`t just look at yield!

To this end, the government needs to look at the housing industry as a whole in a much more holistic manner and not look at piecemeal changes – all parts are interlinked as they are the very fabric of our country and form a major part of the economy!