PRS – What now? Time for the Government to smell the Roses!
PRS – What now? Time for the Government to smell the Roses!
Over recent weeks, there have been a growing number of articles asking and even demanding the government to properly take a look at the property market and sort it out. It is transparently obvious that neither the rental nor sales sectors are functioning for the poorer parts of the market, as both rentals and sales prices are sky high due to the ongoing shortage of supply.
Now we await a new Prime Minister and the subsequent re-allocation of ministerial posts as the Cabinet is made up. The housing sector will wait with baited breath for another incumbent into the post; but will that really alter anything? It appears that the Tory government no longer has an appetite to encourage people to rent property but would much rather help them to buy their own home. The question is; how practically achievable is that for many first time buyers, when faced with the high cost of living and the surge in energy costs. If the tax payer subsidises their purchase we increase the already onerous government borrowing and if we increase lending multiples then we run the risk of another property/economic meltdown as we saw with sub prime lending in 2008.
We are just not building enough property; the housing stock levels are just too low for the demographic requirements of this country. The property that is being built, often doesn`t match the need of the community – a block of flats when one and two bedroom units are needed with an outside space. Too many four bedroom plus houses feature on all new developments when in reality for the desperate purchasers, a two or three bedroom property is all they require. The properties that are built, are in the main, so small with virtually no storage space, enabling someone to buy their own home but not to enjoy any quality of life once in it! There needs to be joined up thinking between the developers, local authorities and the market, so the right property is built in the right places and not just enabling national developers to make the absolute maximum profit out of every site.
We have to accept that the rental market is going through another evolution, one that fundamentally we cannot change; as the Renters Reform Bill will drastically alter the way we look at renting property. The changes that the mid 80`s ushered in, were in themselves revolutionary for landlords, with the advent of buy to let mortgages and the new Assured Shorthold Tenancies. This gave landlords the ability to access specific funding to start up or increase their portfolios; as well as having the long desired ability to quite quickly and easily remove an unwanted tenant without having a reason. Unfortunately, it also encouraged certain buyers to “jump on the bandwagon” without caring or wishing to understand the responsibilities of being a professional landlord. In some cases (very few in reality), rogue landlords were able to abuse the system to either accrue fortunes at the expense of tenants, or worse to unfairly remove them from their home.
Scotland has led the way in these recently proposed changes and has shown that they can work and that the rental market can continue to perform.
So, do we need to be worried? Not if the changes are carried out and followed through in a comprehensive manner, such that when the Section 21 notice is abolished the courts have been improved with specialist housing courts to speed up the whole process. Similarly, in this digital age, the current paper process should also be on line for the ease of all parties. The Section 8 notice needs to be amended with certain grounds being strengthened, others possibly altered and new ones added so that the package is both functional and fit for purpose for both landlords and tenants to use. The potential worry given the current political scenario is that the Government rush through abolishing Section 21 without altering both Section 8 and the court system. This would enable them to keep their commitment to the Queens Speech, but it could leave the Private Rental Sector (PRS) in chaos!
What of the future? AirB&B and holiday lets continue to be a plague on the PRS, particularly in scenic holiday areas, such as the South West; where they deprive tenants of rental stock and drive prices ever upward! The knock on effect can be mortifying, as the very hearts of communities can be ripped out with many key workers unable to live in the area where they work, forcing them to commute or move away. Some local councils are taking matters into their own hands and banning second homes, but is this really the long term answer either? Holiday makers, in whatever guise, bring much needed revenue to areas that rely on good Summer incomes to see them through the quieter Winter months. The Government need to regulate this sector so that the same rules apply to holiday lets as do hotels, guest houses and the PRS – this would go a long way to protecting both jobs and tenants.
We read numerous features about how the PRS is now in decline with many older landlords no longer willing nor able to continue, against the growing reams of legislation and regulations that are being heaped upon them. Having begun their property journey prior to the government deciding to turn the screw against small landlords (those who only own a property or two as part of their pension plan). Many now find the situation they are being put into by the measures introduced over the last ten years, just too onerous and punitive, so are getting out of the market.
It`s not, however, all bad news as there is a new generation of younger landlords entering the market; ones who do not feel so encumbered by the red tape but just accept it as the current position and look to bolster their living by running a portfolio. The majority of those entering are professional in their attitude to being a landlord and they want everything done properly, such that they are offering quality, energy efficient properties that tenants really want. The problem comes that these properties attract and achieve top end rents; which is of no benefit to the poor and vulnerable because they are outpriced and often not considered due the large volume of demand and hence choice that landlords now have!
The other concern has to be that a small element of new landlords are attracted to this market because it is one of the only places giving a decent yield. They are looking at profit and not providing the level of service that this changing market requires – unfortunately pent up demand means they can still let out properties at extortionate rents. Worse, some come to be landlords without ever having owned their own home and have no comprehension of the responsibilities of property ownership let alone the skills required to be a professional landlord!
The massive “elephant in the room” for many landlords and a vast swathe of older properties across the country are the forthcoming changes to energy efficiency. The Government, having committed to cutting back this country`s carbon emissions is proposing drastic changes to the properties that will be allowed to be let out (an Energy Performance Rating (EPC) of C by 2025 for all new lets, and by 2028 for all let properties). The intentions are laudable and much needed to lessen global warming, but has any consideration really been given to the logistics of how this is rolled out? At present properties on F and G are not allowed to be let out, yet hundreds still are, because the councils are so under-resourced they have not been able to act. Worse if they shut the property down, their housing department has a duty to house them – an impossibility as there is no spare social housing and budgets do not extend to limitless B&B funding.
Until the issue of the supply of new social housing is properly addressed, the pipeline for preventing lesser rated properties being let is surely a wish rather than an actuality. No Council is going to want to be seen to deliberately putting people back onto the street, so they stay in place and the landlords are requested and in some cases educated as to the issues that need changing. Some extreme cases do necessitate closure, and quite rightly so; but many landlords are able to carry on regardless.
An interesting conundrum, running parallel to energy efficiency is the bizarre situation of new homes. So long as they achieve an EPC rating of C, no thought is given to future proofing for the coming electric revolution. Rarely do you see a developer installing car charging points or solar heating as standard; important issues as we prepare to lessen our reliance on gas and go more electric. Given the cost savings that builders can achieve by buying in bulk, surely it makes sense for them to do the hard work and just nominally increase the sale cost. As ridiculous, most new homes are not built to allow any heavy storage in the roof and provide precious little, if any, storage space. This begs the question, if air source pumps are a realistic replacement where does the required water tank go?
In a recent report, there is a growing demand from a certain type of forward thinking investor who is buying a property to do up which has a low EPC, as it is the perfect opportunity to improve the EPC rating and future proof the property for years to come. How much easier is it to work in a vacant property than one being lived in? Quicker, simpler, different contractors can work in unison rather than waiting on access. The finished property will comply with the future energy changes, be far more cost effective and energy efficient to run and worth more either to rent or sell. Due Diligence has never been so important and many potential landlords have embraced this requirement to check out the facts before buying. Failing to do the background work could be disastrous in a few years time but for those who do, there really is a golden future in becoming a landlord.
To conclude, the Government has a lot to ponder, if it is going to effectively solve the property crisis that we are currently gripped by. The ongoing demographics clearly show that there is a huge demand for property both to rent and buy, but current prices are just prohibitive for all but the lucky few or those who enslave themselves to keep a roof over their heads! The new Housing Minister will have to address the issues of property supply and demand, prices, social housing, local authority resourcing and property energy efficiency alongside future proofing the rental sector, because currently it is providing the take up for a social housing shortage.
Much food for thought, more detailed analysis to follow; what do you think?