Does increase regulation of the private rented sector have to mean increased cost of rent? That in my view is a myth propagated and repeated to defend the indefensibly high cost of the unregulated private rented sector.
Yet before I discuss that in detail I’d like to draw attention to an interesting and thought provoking blog http://redbrickblog.wordpress.com/2011/09/26/for-a-change-more-light-than-heat-on-the-prs/ on Red Brick on Monday 26th concerning the regulation of the private rented sector (PRS) and the PRS willingness for regulation rather than the need for it to be imposed makes a nice change. It is not the proverbial leftist public good / private bad discussion which unfortunately typifies the rented housing press.
Yet despite this the first commenter states
“If regulation means that the unfair competition by those undercutting by providing poor quality accommodation is removed, then that means a better standard of accommodation. Which is surely a desirable objective. The problem is that this will may also mean an overall rise in general rent levels in the private sector.”
I’ve emphasised the last sentence as it is often stated that increased regulation of the PRS equates with and must lead to increased cost. Some may say the Zoopla report of the same day http://www.24dash.com/news/housing/2011-09-27-Buying-now-cheaper-than-renting-across-90-of-Britain which said that renting is more expensive than buying a home in 90% of British cities, supports that view. Yet doesn’t that conflict with the efficient private sector and inefficient public sector arguments of the right?
What is little known and even more infrequently discussed is that the PRS comprises regulated and unregulated tenancies. The fact that there are only 45000 or so regulated tenancies compared with 1.265 million unregulated ones can’t hide the fact that regulate ones receive £79.45 in housing benefit as a national average compared to the £113.78 the unregulated ones receive. That’s a whopping 43% more for the vast majority of unregulated private tenancies and yet the unregulated ones must be making money at £79.45 per week. Hence the unregulated PRS must be on a gravy train and be pillaging the public purse? Yes and No and as always it’s not as simple as that.
If UK plc were to pay unregulated PSLs at the same rate as regulated ones the overall HB bill would reduce by £2.59bn is a statistical fact. It makes a mockery of Shapps and the Coalitions general aims of getting value for money and exposes his hypocrisy when he states there is no need or it will be too costly to regulate the unregulated PRS. A £2.59bn saving to the public purse is one hell of a saving foregone for what can only be reasons of political dogma.
But, aren’t most private rented properties priced at BTL mortgage cost plus profit is an oft-proffered, albeit simplistic view of the high cost of unregulated private tenancies and therefore they must cost much more than ‘subsidised’ social housing. Or why shouldn’t they be allowed to get whats in it for them?
If they are just short-term investments then that holds some economic validity, yet all research emanating from the private sector sees the hundreds of thousands of ‘amateur’(and some not so amateur) private landlords, no doubt inspired by the myriad of TV programmes dedicated to being a private landlord, being longer-term investors and using their single figure number of properties as their own pension equity.
So short-term investors out to make Milliband’s ‘quick buck’, these valueless bad businesses as it were, may have just cause to charge higher than social rents, but 43% above regulated private tenancies in benefit is stretching that point absurdly. It is even more absurd when the gross market rent according to the latest survey is £164.55 per week as a national average. This suggests that the £113.78 in LHA represents just 70% of the overall rent charged and that this compares very unfavourably to the average gross social rent (Council and HA combined) of £76.17 which is all met by HB.
The national average unregulated PRS gross rent is therefore 116% higher than the national average social rent.
That is a startling statistic and suggests strongly that there is a huge element of profiteering at play in the unregulated PRS market. It has got to such proportions that the question of whether to regulate the entire PRS is no longer a question of choice or dogma. It is one of national necessity and one with an aim of reducing cost even with regulation. But is this feasible?
Yes and here’s why.
In the late 1990s I worked at a Northern council who became newly responsible for the impending asylum seeker dispersal programme as part of a Northern consortium of councils. All councils in the consortium were to be paid the same rate to accommodate asylum seekers in a combination of 2, 3 and 4 bedroom properties to accommodate families or single asylum seekers and all properties had to be fully furnished right down to crockery and cutlery.
The council had few difficult-to-let properties and some areas were (and still are) 99%+ white only areas and much attention was given by the local media along the lines of what nationally, the Daily Mail was saying. This largely jingoistic media attention made the dispersal programme a politically charged issue.
The solution was to use the PRS 100% which provided better properties at a better standard and 13% less than the council could do even if it wanted to.
It was also the cheapest cost in the whole consortium and enabled the council to profit by over £300k per annum.
Because the PSLs were engaged, as were the local NLA/RLA representatives and because they got 260 weeks of guaranteed rent whether properties occupied or not and because they had to have their properties inspected and up to standard before they were considered, the private landlords were able to significantly improve their stock. Indeed many came to me asking would their chances improve of getting on the list is they installed a gym in the basement or additional white goods such as dishwashers in the kitchens. Such was the attraction of 260 weeks guaranteed rent.
(a) The council made money, deflected the political risks and the economic ones, sated the few jingoistic councillors AND had a modern, regulated and higher standard private sector stock than all of their
(b) The PRS landlords had the money to invest in their own stock and the surety of 260 weeks guaranteed rent (subject to regular inspection and monitoring of the properties)
(c) Both the council and the PRS had a much stronger working relationship and the programme was mutually beneficial. This continues to this day and the LHA costs in this council are the lowest in the area and I would strongly argue this area has the best PRS stock in terms of quality.
When councils see and accept that private landlords are motivated by profit but even more motivated by longer-term involvement and not take an ‘us and them’ approach then the result is mutually beneficial. Costs reduced radically with this systemic regulation but it must be said the 260 weeks of guaranteed rent (building voids and non-regulatory compliance aside) was a strong pull.
Why can’t something similar be done on a national scale?
We can see the NLA / RLA lobbying for direct payments of HB yet many still see this as wrong despite the fact that the HB regulations actively discriminate against it. After all the market is about risk and reward so reducing the risk of arrears should according to market principles reduce the cost.
It did with the dispersal programme.
We can see the NLA/RLA (and other PRS lobbies) now joining with social housing lobbies on such matters of direct payment and on other issues such as length and security of tenure. That should be welcomed rather than discouraged.
We see proposals to allow homelessness duties to be discharged by councils to the PRS. So isn’t it in council interests and the national one to ensure such properties are up to scratch?
Even the quote I first used above and I criticised can be seen as constructive when it says the good PSLs want regulation as it exposes the bad PSLs. Rather than concentrate on the ‘bad’ PSLs that the housing sector has focused upon for far too long, shouldn’t it focus on the ‘good’ PSLs that the entire housing rented sector needs and as my example above proves can deliver better quality accommodation at a cheaper price than public sector landlords can?
The asylum seeker dispersal programme I detailed above focused on the good private landlord and the good quality private property and in fact it necessitated the latter ‘competed out’ (ugly phrase I know) the bad private landlord and bad private property and achieved it at a lower cost than even social housing and WITH regulation.
It’s time the public sector took off its blinkered approach to closer and fully integrated working with the PRS and saw that the Cui Bono approach can be mutually beneficial.