Reforming the Private Rental Sector: Prioritising Pragmatism Over Ideology

According to property website Rightmove, the average monthly rent outside London hit a record high of £1,316pcm. The new high meant that average rents for newly listed properties outside of London rose by 7% compared to a year earlier. In London, the average advertised rent reached £2,652pcm and was 4% higher than last year.

Another report out today commissioned by Landlord Action, a solicitor firm specialising in evictions and housing law, said that repossession orders have reached their highest levels since 2015. The firm said, “We are seeing more tenants requesting landlords to evict them under Section 21 because they’ve had that advice from their council on getting a council house.”

Why are things so bad in the Private Rental Sector:

The supply of new homes for rental properties has stagnated due to tax changes and more regulations, making the private rental sector less attractive to investors. Demand has continued to grow over the last five years, as the graph below highlights. This has contributed to an imbalance between demand and supply. The imbalance is so stark that for every available property to rent, there are now 13 enquiries, compared with just five back in 2019.

 The imbalance is continuing to get worse as more regulation is proposed and introduced into the sector. In June alone, 28,000 rental properties were listed for sale, twice the number listed in the same month last year and a 27% increase compared to May.  

Propertymark said 48% of all Section 21 requests were made within five weeks of the election being called in May. The incoming Labour government has definitely spooked the landlords, and some might be pre-emptively looking to sell before more regulations mean extra costs on top of the regulatory costs of the last eight years.

The introduction of section 24, the stamp duty surcharge, and the latest changes to the Capital Gains Tax allowance are primarily to blame for the lack of investment into the sector. They are resulting in little to no growth. For far too long, the government has focused on taxing private landlords more and more, with little reform to the private rental sector, meaning that rents have soared. Supply dwindled, leaving tenants and landlords unhappy with the existing situation. So, how does the government resolve this?

How do you reform the Private Rental Sector to help tenants and encourage the much-needed investment?

According to figures obtained from the English Private Landlord Survey 2021, the average median age of a landlord is over 60, and 56% of all landlords have been landlords for over 11 years or more. This means that most landlords will be looking to retire very soon and would have made decent capital gains over time to have enough equity in their properties to retire. Excessive taxation and regulation will likely drive them out of the sector, worsening the supply crisis.

The next government must balance renter rights with landlord incentives. To boost investment in the private rental sector, it must enhance tenant protections and implement fair tax reforms.

Abolish Section 21 but strengthen grounds of repossession under Section 8:

Abolition of section 21 must coincide with enhanced rights for repossession undergrounds of section 8 in case of anti-social behaviour, rent-arrears or if the landlords would like their property back for a reason such as moving a family member or selling the property, as was proposed in the Renters Reform Bill. The issue of not enhancing possession rights under section 8 will mean less security for landlords in case of any issues and will most definitely deepen the supply crisis.

Scrap Section 24 to encourage investment into the sector:

According to Rightmove, the introduction of Section 24 has led to 1.2 million fewer properties available to rent, which has contributed significantly towards the high rental inflation. Section 24 is also unfair for private landlords as it gives an advantage to cooperates operating as limited companies are allowed to claim back mortgage interest as an expense as opposed to private landlords.

Scrapping Section 24 will likely encourage the much-needed investment into the sector, relieving the supply crunch.

Create a National Register for Residential Landlords:

This idea was proposed in the Rental Reform Bill, allowing tenants to look up rogue landlords. It should be implemented to ensure that those who do not provide safe properties to rent and uphold housing standards are unable to rent properties. Local councils should control the register.

Many regulations introduced promising to make conditions better for renters have only made things worse for them. Rents have reached their highest levels ever, and investment in the rental sector has stalled. The new government needs to change its approach and work with landlords and tenants to understand the issues on the ground better. Reforms in the private rental sector should be carried out practically, focusing on evidence-based solutions rather than ideological positions. By prioritising data-driven policies and balancing the needs of tenants and landlords, we can ensure that the reforms are effective, fair, and adaptable to the changing dynamics of the housing market.