Category Archives: regulation

UK rents set for steady rise in 2015

Rental prices are expected to increase by around 2-3% during 2015 across the UK, underpinned by a continuing shortfall of supply against demand. Yet in central London, that rise could be as high as 10%, local agents in the capital reckon.

The countrywide prediction has been pencilled in by David Cox, managing director of the Association of Residential Letting Agents: “Simply put, we need more houses. Demand continues to outstrip supply.” He notes there will be some supply increase, with investors moving their focus from London and the south east towards the north of the country. Some “accidental landlords” – those who were forced to rent when homes they had bought slipped into negative equity – will be finally in positive territory, allowing them to sell.

In London, while the heat is coming out of residential sales, agent Marsh & Parsons believes it will instead be applied to rentals. “The rental market will be where much of the action takes place in 2015,” said the company’s chief executive Peter Rollings. “Those relocating to the capital for work are now biding their time before purchasing their own portion of London property, until question marks surrounding additional property taxes are erased.”

“This will push demand in the corporate lettings sector even further, and the biggest rental increases are predicted to be among one or two bedroom flats. Supply of rental properties looks set to be sustained, but any regulatory changes to tenancy fees under a new government could inflate rents artificially. The powers that be need to ensure that landlords are not spooked out of the market by unnecessary layers of legislation, and that aspiring property investors don’t take their money elsewhere.”

ARLA is also keeping a close eye on regulation in the sector. Cox said the outcome of 2015 general election could impact the private rented sector substantially. “The colour of the next Government will have a large impact on the rental market; particularly when it comes to regulation of the sector. ARLA would like to see a fully regulated industry to build a better, stronger private rented sector, which will help to eradicate the rogue agents who tarnish our industry. Labour is pro regulation but has also pledged to introduce three-year tenancy agreements with strict rules which will make it more difficult to evict tenants. This could see landlords pull out of the market.”

Cox sees some impacts from existing leglslative changes that still have to work through the market. “The recent Immigration Act requirements on landlords, which are being trialled in the West Midlands, may be rolled out more widely in 2015. Under the new Act, letting agents will be required to make ID checks to establish the immigration status of all prospective adult occupiers before a residential tenancy agreement is granted. Whilst establishing ID checks for all adult occupiers is effectively converting best practice to law, it may push some vulnerable tenants into the arms of rogue operators.”

Government support for PRS is substantial, argues Stanford

Speaking at a MIPIM UK breakfast seminar Andrew Stanford, head of the government’s private rental taskforce, outlined the steps government has already taken to encourage the sector. And he had bad news for those arguing for a change in planning regulations.

Stanford said the government had already made a significant commitment to the sector, with the Build to Rent fund and the debt guarantee scheme. “That’s really helped to get things moving,” he insisted. On planning he noted: “Yes, it would be great if all local authorities would embrace build to rent,” perhaps through section 106 flexibility, or getting projects built on their own land. “Do I think the government needs to do more? I think the government is doing a lot already.”

On planning, he had bad news for those calling for changes in the definition of housing developments: “It is not going to introduce a new use class.” But he believed that options such as a 10 to 15 year private rental covenant, or flexibility on CIL or section 106 agreements, were the answer. “I genuinely believe we are making a difference.”

Stanford was responding to questions at a debate organised by Estates Gazette and sponsored by Macfarlanes, held at MIPIM UK during October; speakers included Bill Hughes of Legal & General, Elliott Lipton of First Base and Ryan Prince of Realstar.

Government action demanded to support private rented sector

Two separate calls have come from those in the property industry, calling on the government to involve itself actively in the promotion of the private rented sector. Only with this level of support, they argue, can the sector gain traction, and help solve the UK’s housing crisis.

Agent GVA suggests three initiatives, to help the housing market. In its Development Outlook for summer 2014, the firm suggests there needs to be:

* a substantial expansion of the new town/garden city initiative

* further stimulation of the private rented sector “on sites less suitable for owner occupier housing”

* more public sector affordable homes

However, the researchers at GVA are under no illusions: “All these initiatives would require increases in government expenditure, which seems unlikely to occur in an era of public sector cut backs.”

That said, the government has previously committed itself to substantial support for the housing market including Help to Buy, Funding for Lending, Build to Rent and Get Britain Building. It’s just that, together, these initiatives may have helped in some way, but do not appear to have solved the key issue.

Meanwhile, PRS developer Fizzy Living believes it is only a change in planning law that will help move things up a gear. The company’s managing director Harry Downes says rental housing needs its own planning classification. “We need to get tot he point where the government, local authorities and planners understand the PRS,” he told Property Week, “where it has its own planning classification and where it forms part of a section 106 agreement.”

Downes has suggested his firm would bind itself to work with local authorities, introducing such restrictions as a cap on incomes for those eligible to rent. “If the government is serious about solving the housing crisis, then it just has to give local authorities the policy to make it happen.”

Housing associations make record profits from renting homes

Britain’s housing associations are making more profits than ever from social renting, while looking for alternative options to broaden their business base. Yet despite many of them being charitable organisations, they are gouging tenants with rents higher than they need be – and failing to build as many new homes as the marketplace needs.

In contrast, private sector renters are seeing rental growth pinned down, as struggling working tenants live in an unsubsidised world where pay rises are barely keeping pace with inflation. And private sector landlords generally have to pay tax on any profits they generate.

The actions of the housing associations are laid bare in a new report that suggests housing association chiefs need to reconsider their organisation’s mission; and recommends the regulator keeps a closer eye on profit levels within the sector.

“Housing association profits soared to a record £1.93bn last year, nearly ten times bigger than five years previously,” said Calum Mercer, one of the authors of A Better Deal for Nation Rent. “The excess profit has been made by housing associations raising rents above inflation, while costs, management, maintenance and debt service interest payments have been broadly flat in real terms.”

And report co-author Natalie Elphicke added: “Housing associations need to follow their guiding principles and not become bedazzled by the prospect of greater and greater profits.”

The report notes the following facts about housing associations:
many are charities and pay little tax on their earnings
profit margins on social housing average 26% and are set to rise to average 30% by 2018
between them they own 2.7 million homes
housing association profits have increased tenfold in five years
the largest 25 associations own 1.1 million homes between them, and are the size of FTSE250 companies

This site will carry more from this research in the near future, in the meantime the report, and its predecessor report Nation Rent, can be downloaded at:
www.millionhomes.org

Foxtons and Felicity Lord accused of unreasonable rental fees

Letting agents Foxtons and Felicity J Lord have been named as two of the worst for charging high fees to residential tenants – and acting in a way that has encouraged the Labour party to call for legalisation to ban upfront fees.

Aside from fanning flames of the debate for greater regulation, the excessive charging of some agents is encouraging others to enter the market. New landlord brands such as Fizzy Living and Get Living London are dealing with their tenants direct, cutting out the letting agent as being a middle man with insufficient value to add to justify their fees. At the same time new entrants are coming into the lettings market, convinced they can still create a workable business, while charging less substantial fees.

The high charges were revealed by a Labour member of the London Assembly, Tom Copley. In a recent article in New Statesman, Copley said he had even gained an acknowledgement from London mayor Boris Johnson that the fees charged by Foxtons – famous for their swanky offices and fleet of company Minis – were “unacceptable”.

“Foxtons charge new tenants £420 as an ‘administration fee’,” said Copley. “Felicity J Lord charge £165 per property for a ‘tenancy agreement’, £65 per person ‘for reference checks’, a £60 ‘admin fee’ and a £120 ‘check-in fee’.”

He noted the problem is more widespread than just the two letting agents named. “A constituent that contacted me from the London Borough of Camden was asked by a letting agent to pay £300 just to be added to a tenancy agreement. He was told that this sum would not be refunded even if his references didn’t come through.”

Copley has called for the rest of the UK to adopt the system employed in Scotland, where letting agents can only charge fees to landlords – who will then amortise these in the rental charged. He says Labour’s other proposals, for longer tenancies, and some form of ceiling on rent rises, do not amount to a return to rent controls, as some have suggested. Ed Miliband’s proposals are “are a shift to the kind of second generation rent regulation seen in most of our European neighbours”.

“Tenancy reform would help to create a more stable private rented sector for tenants, and make the rental market more affordable,” he insists: though acknowledging that the other major issue is getting more homes actually built.

The overcharging cowboys are also encouraging new entrants to the marie. One letting agent convinced there is a better way – at a less punitive cost – is Seren Living. Covering the South Wales area from a Newport office, the company was set up under the auspices of the Seren housing association; and lettings agency is something other housing associations are also getting involved in. Despite the connection with their parent, the office lets properties for a range of private landlords. Manager Emily Samuel told me part of their service is to advise on such things as installing smoke alarms and stair handrails; issues which prevent landlords from the danger of being sued down the line.

The New Statesman article is here.

Landlords call for better enforcement, not more regulation

Local authorities are out of touch with the reality of the UK’s private rented sector. And that distorted view is leading to a situation where ill-considered further regulations are being considered and imposed, when they may not be necessary.

“In 2013, private individuals put an estimated £20bn into providing much-needed housing in the UK, so it’s frightening that councils simply don’t seem to understand the approach and motivations of most landlords or how successful private lettings businesses work,” said NLA chief executive Richard Lambert.

Speaking to a seminar of local government housing professionals at the New Local Government Network, he added: “There is an expectation, especially from the political level, that licensing is some kind of panacea, which will resolve everything and introduce new standards and requirements, when in fact they already exist, but are just not effectively enforced.”

This misunderstanding has led to unhappy situations such as in London’s borough of Newham, where the local authority has managed to alienate responsible landlords in the borough by pushing through a landlord accreditation scheme.

“Time and again, we find that where licensing proposals are being considered – and in some cases where they are already in place – no thought or budget has been given to ensure that the required enforcement action, which is inevitably needed, can take place,” added Lambert.

“The responsible landlord community should be the strongest advocate for the drive for higher standards and tougher action against rogue operators and criminals.  But councils won’t be able to build that alliance if landlords have no confidence in their council’s understanding or awareness of what’s really happening in the rented sector”.

Alan Ward, chairman of the Residential Landlords Association, also recently suggested that, with proposed rent controls – a Labour party suggestion – and greater licensing, “you could be forgiven for thinking that war had been declared on the British landlord”.

In an article carried in the Daily Telegraph, he argued: “A growing private sector has a key role to play in tackling the housing shortage. Rather than bashing private landlords, we should help them to flourish.”

Survey shows councils still unaware of demand for private rented sector developments

Many politicians are still blind to the importance of the private rented sector, and its relevance to those looking for a home. Just 2% of councillors surveyed put PRS top of their perceived priorities for improving the supply of housing.

The disappointing result comes from research carried out by the Smith Institute on behalf of housing provider Places for People. The study asked councillors and officials for their views on a variety of issues around housing, and discovered that while 60% thought owner occupied properties were the top priority, and 38% placed social housing top, just 2% perceived the private rented sector as needing top priority.

“Despite local authorities’ best efforts, clear appetite from investors, and strong emphasis from central government, this work shows us that more needs to be done to make it happen,” said David Cowans, chief executive of Places for People. “Councils have a key role to play in using their planning and economic growth levers to create the right environment to attract investment into this vital sector and drive up standards for tenants.”

A few local authorities are the exception, understanding the importance of PRS and taking a proactive stance. These include Birmingham which is planning to develop its own private rented sector homes, and Wandsworth which has recently approved plans for a major residential scheme with a substantial private rented element.

Paul Hackett from the Smith Institute, which carried out the research, summarised the issues raised. “Our survey shows that councils are cautious about the PRS. They want to improve the security of tenancies and housing quality, but struggle to regulate the PRS in their areas. The government needs to do more to help councils lift the quality bar across the sector.”

While just 51% of councillors thought their local plan actively supported the private rented sector, two thirds were in favour of relaxing section 106 agreements, to favour projects with a significant proportion of PRS homes.

Tax threat to private rented sector growth

Developers active in the growing private rented sector are warning that tax changes proposed by the government could drive away essential foreign investors.
A consultation currently open to responses suggests introducing Capital Gains Tax on the sale of UK residential property. This could apply, it is suggested, even if the investment was made through an overseas fund, a vehicle that is currently exempt from a CGT charge.
“The government needs to make it very clear that it wants to encourage institutional investment,” said Bruce Ritchie, the chief executive of Residential Land, speaking to Property Week. The developer has built a substantial portfolio of rental properties in London, supported by overseas investors. “Foreign investors bring billions of pounds into the UK. At one end of the spectrum, it is saying that we need more homes and at the other, it’s thinking about taxing foreign investors.”
Also wary of such changes are developers Delancey, Capital & Counties, Land Securities and Grainger, all of whom have made responses during the consultation process. “It’s a very vulnerable time for this market,” said Grainger. “The government should not put securing investment at risk.”
The British Property Federation warns that the progress already made in the sector could be undermined by changes. “Imposing a further tax is very likely to act as a deterrent to those making large scale investments in the UK’s housing stock.” said the BPF’s Ian Fletcher.
The comments around the tax change contrast with views expressed just days ago about the progress of the private rented sector. Speaking at a recent conference and reflecting on the impact of the first year of the Build to Rent fund, Fletcher noted: “Good progress has been made in a short period, and initiatives such as the Build to Rent fund have helped in establishing the model and encouraging delivery. Projects on the ground are being delivered and there is real momentum coming from various players to put in place the market infrastructure that will further help to attract investors.”

Mayor launches rental standard to improve life for London renters

Mayor of London Boris Johnson has launched his London Rental Standard, an accreditation scheme designed to drive up standards in the private rented sector.

The idea is to improve compliance and standards of service among landlords in the capital, many of whom are amateurs with no property management expertise. It will also draw in letting agents.

Landlords need to commit to 15 key elements, in order to be accredited. These include dealing with emergency repairs the same day they are raised; being readily contactable at all times; providing written rental agreements; and giving tenants clear information about how their deposit is protected.

The scale of the issue in London comes from the fact that more than a quarter of the capital’s households now live in rented accommodation, with much of it provided by smaller landlords, a situation fuelled by the availability of buy to let mortgage finance. According to the mayor’s office, 85% of landlords are ignorant of core legislation, and 61% have no professional management training.

Deputy mayor for housing Richard Blakeway said the new standard is part of a wider programme, which he outlined in City AM. “The strategy is three-fold: set professional standards; tackle poor building conditions with tougher enforcement; and promote US-style long-term, purpose-built homes for rent to boost housebuilding – our biggest challenge.”

To encourage take-up of the standard, which is voluntary, the mayor has negotiated deals with insurance provider Endsleigh and deposit manager My Deposit.

Clearly, professional landlords will sign up to the scheme, exposing those who are less scrupulous as being outside the approval regime. However, it will be down to tenants to ask the right questions of their new landlord – and to have the will to walk away from those who are not approved.

Fixing the housing crisis – Toby Lloyd of Shelter

Toby Lloyd, head of policy at housing charity Shelter, suggests a five point plan to help deliver more homes to the British market, which were outlined in a recent article published by the Financial Times.

A restricted land supply means that housing supply is also restricted. This is rational market behaviour by developers, rather than, as is often perceived, some perverse reaction. A shortage of land – and therefore houses – means every house a developer builds, will be sold, he argues; so there’s no incentive to innovate, the market is hard for new entrants to get into, and every sale should generate profit.

He notes that the last few years have seen a concentration of the market, as larger firms come to dominate, and they like to build large, lumpy sites out. The combination of all these factors means, he warns, the market “is not delivering the homes we need”.

Lloyd’s five suggestions are:
Establish New Homes Zones, specifically set aside to help promote lower cost development and reduce land speculation
Start charging council tax as soon as planning permission is granted – to encourage construction to be carried out fast
Publish ownership details of sites, along with option agreements – enabling greater market transparency
Increase public investment in housing, using a national housing bank similar to that used in Holland
Allow councils to borrow more, to invest in affordable homes

“Ultimately we should be aiming not only to boost supply, but to transform our housing supply system once and for all,” says Lloyd. “With the right intervention and investment we think we can launch house building into a new era, in which competition can function properly, builders can build more homes – and consumers can finally start getting a better deal.”

Will these work? Do comment.

The article is in full on the FT blog.