The consequences of reform

The consequences of reform

Few landlords will have failed to see the headlines recently heralding the Fairer Private Rented Sector White Paper or its more used title of the Renters Reform Bill. Clearly I was not invited to comment to Government on the proposals but if I had, I may have responded with “Be careful what you wish for.”

For the purists out there this could be a gamechanger of improving standards within the private rented sector and seeing the removal of the less than ethical that operate in this sector. For the cynical, it could be seen as a political move to gain popularity and support for a Government that appear to be currently struggling in the popularity contests.

The Bill is aimed to abolish the Section 21, the so called “no fault” eviction route, remove the limitations of a fixed term tenancy and in essence create periodic tenancies, end the use of rent review clauses to increase rents, apply the Decent Homes Standards to hopefully improve the quality of housing, provide an Ombudsman service to resolve disputes and to prohibit landlords from declining tenants in receipt of benefits and those with pets.

My own view is that we may see a rental sector which has similarities to that of the 1970s and early 1980s. Prior to the advent of Buy to Let, brought about by the 1988 Housing Act, lenders were cautious of Buy to Let funding given the security of tenure issues that landlords had with their tenants. The new reforms remove the landlords ability to easily gain vacant possession and lenders may see this as a significant increase in risk. I am therefore concerned that property funding in the sector will become more difficult.

The inability to increase rents may leave landlords in a precarious position if their own costs increase significantly and these cannot be passed on to the tenant via a higher rent. Those who operate in the HMO market, where utilities are paid by the landlord, could be particularly exposed

The application of the Decent Homes Standards makes little difference to the current situation. The Local Authority already has powers under existing legislation to inspect premises and serve improvement notices. I fail to see how this will change as a result of the new legislation. After all, its efficiency will be governed by the resources available to the Local Authority.

The Ombudsman for me is an interesting addition. I believe it is being proposed to free up an already overwhelmed County Court system but would caution that it can only be effective if it is fully impartial and resourced so that it can determine disputes in an acceptable period of time. My experience with Ombudsman services to date would suggest that this could be an enormous challenge.

In respect of tenants in receipt of housing benefit or who have pets I do hope that this will make no difference whatsoever. I have always selected the most suitable tenant for my properties and it makes no difference to me whether they have pets or receive benefits. Being a dog owner myself I am perhaps drawn to tenants with animals not least as in my experience they tend to stay longer as they are aware that they have less choice in the event that they choose to move.

Beyond the alleged positive change that is forthcoming, I wonder how the market will react. In the short term I expect to see a deluge of Section 21 notices being issued by landlords. Those who are unsure whether they want a long term future with their tenant will doubtless serve them notice. This will lead to a short term period where there is a greater supply of property to let but equally an increased demand.

In the longer term,  I am confident that further landlords will sell up and leave the sector, fed up with how they seem to be continually targeted and demonized by Government and various pro-tenant groups. Further, I believe that many landlords will convert a number of their long term lets to Serviced Accommodation to insulate them better from further legislative change and red tape in the Buy to Let sector. Finally I believe that finance costs, due to the change in tenancy type and the abolition of Section 21, will become more difficult to obtain and more expensive. This will doubtless deter new investors from entering the market or existing investors from expanding their portfolios.

Just remind me what happens when demand increases and supply sharply reduces…….  It could be that an effort by the Government to bring in rent controls, to address a problem they will have caused themselves, is next!