The Case for Reforming the Private Rented Sector

A new report by the Institute for Public Policy Research (IPPR) makes the case for the need to reform the private rented sector (PRS). The report focusses on the PRS in England, but has implications for other regions of the UK. It highlights the past two decades in particular as the period when the growth of the sector has outstripped the growth in either social renting or home ownership, with private renting in England more than doubling in just over 10 years.

Factors contributing to PRS growth

The growth in the sector has been impacted by a number of factors, according to the report. These include:

• Deregulation of the housing market, beginning in the Thatcher years and continuing through successive governments;
• The expansion of credit, particularly in the early 2000s, which enabled the growth in the Buy-To-Let (BTL) market;
• The BTL market was further impacted by the after effects of the Global Financial Crisis (GFC) as interest rates hit historic lows, making borrowing more affordable for those with the ability to get access to credit. The flip side of lower interest rates has also meant that property investment has been viewed as a way to realise a higher profit on investments as opposed to saving or investing in other ways;
• Growing demand in the PRS has also been driven by the tighter restrictions on mortgages by lenders as a reaction to increasing default rate on mortgages in the wake of the GFC (requiring higher deposits and lower loan-to-value ratios). This has meant that borrowing to fund home ownership has become less affordable, resulting in more households having to access housing in the PRS as an alternative to home ownership.

The report uses data from interviews and focus groups with both tenants and landlords to highlight how changes in the PRS are affecting both groups. For example, the report highlights that whilst the majority of tenancies are ended by tenants (with only 10% of tenancies ended by landlords), this conceals the experience of tenants, who reported leaving a tenancy in anticipation of being served with a notice to quit and subsequently having a finite time in which to find alternative accommodation.

Landlord and tenant perceptions

The experiences of tenants with regard to a reluctance to complain about the conditions of their properties for fear of ‘revenge evictions’ was set against the experience of landlords who complained of the difficulties involved in getting tenants to leave a property even in the event of a build-up of arrears. By and large tenants tended to feel that landlords had all the power, whereas landlords felt that tenants had the upper hand.

Other issues covered in the report relate to affordability, particularly for low income households (an issue covered in some depth in Northern Ireland in the recent report from NERI), the increase in households with children in the PRS and the lack of stability, both for tenants in terms of feeling at home in their property (e.g. restrictions on decorating or owning a pet) and for landlords, who might prefer a longer term tenant. Overall though, the importance of good relations between landlords and tenants was stressed, and this was seen as a matter of luck, rather than happening by design. The report highlights that both tenants and landlords were frequently unaware of their rights and responsibilities and so called for reform of the PRS which could be used to address the complexities of this sector. In this regard, the report points out that there are lessons to be learned from our European neighbours, particularly in countries like Germany, where the PRS plays a more significant role in housing provision.