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Labour’s proposed PRS changes polarise opinion

Britain’s Labour party is promising legislative changes to support tenants in the private rented sector, should the party be voted into power in the 2015 general election. But the announcement has led some to warn that the proposals threaten to frighten off institutional investment in the sector – which is already promising to deal with some of the issue raised.

Labour specifically wants to tackle the insecurity of short tenancy agreements, to enable more steady rents, and to reduce one-off fees and additional costs related to taking out tenancies.

On tenancies, Labour says it wants to make three year long tenancies the norm, with landlords required to give longer notice periods. Said Labour leader Ed Milliband: “Generation rent is a generation that has been ignored for too long. Nine million people are living in rented homes today...a Labour government will take action to deliver a fairer deal for them too.”

This could present a practical problem for small scale buy-to-let landlords. Often mortgages for these borrowers restrict tenancies to a maximum 12 months.

Rent rises would be limited to a maximum ceiling, based on a percentage rise related to local market averages.

And there would be a restriction on letting agents charging fees to tenants. This is often an area for complaint, with up front fees; and often issues around retentions from a deposit, even if there are clear grounds for it being returned in full. Labour says this restriction would save tenants an average £350 per tenancy.

Not everyone is impressed, however. In a letter to the Financial Times, Charles Fairhurst of Fairbridge Residential Investment warned: “Institutional investors in the private rented sector, as well as domestic and overseas buy-to-let investors, will read Labour’s announcements and question whether this is a good time to invest in the sector. The result will lead to a reduced supply of UK housing until the Labour party’s housing plans are clarified, which makes its annual new homes target of 200,000 look unrealistic.”

And at law firm Addleshaw Goddard, Marnix Elsenaar warned: “Rent caps would severely undermine the potential to get the investment we desperately need in the sector.”

Despite the concern over rental controls, some point to other markets where some form of rent control works just fine. Germany – the poster child for the private rented sector – has rent controls and longer tenancies, and the market there is robust, with many major institutional investors happily involved. Other markets including France and American cities such as San Francisco also operate some form of restriction on the pace of rental increases.

BPF calls on councils to plan for long term private rented homes

A new report has called on councils to set minimum targets for the construction of long-term private sector rented homes. Local authorities should commit land to such projects, and also start to understand the value of private rented projects in local communities.

The report, compiled by law firm Addleshaw Goddard and the British Property Federation, says the private rented sector has the power to transform the UK housing market for the better. While politicians focus on affordable housing, this is often inaccessible to working, earning people – for whom purchasing a home is also becoming an increasingly impossible dream.

The report says there needs to be formal planning guidance to encourage growth of the sector, and a better understanding of it. It calls for a “covenant”, which would bind partners legally to build homes for long term rent. This would not allow homes to be sold off, ensuring certainty for both investors who know what they are getting into, and local authorities who don’t want to be accused of helping the private sector to excessive profits.

“Planning guidelines need to be stronger and financial viability models need to reflect the fact that building for long term rent is not the same as traditional housebuilding,” said Marnix Elsenaar of Addleshaw Goddard. “Policymakers need to appreciate that if they get this right they could unlock a model that provides thousands of new homes with real long term community benefits.”

The sector is growing, said Ian Fletcher, director of real estate policy at the BPF: “Acceptance of the role that the PRS has in providing the next generation of housing has never been higher – with many local councils conducting ground breaking deals in the last twelve months.”