Government landlord and tenant policies – carrot or stick?

Hello, Mrs Thatcher allowed the introduction of the AST (Assured Shorthold Tenancy) and also supported home ownership. These changes were all voluntary and people adopted them because they made sense.

Home ownership grew from 55% of the population in 1980 to 64% in 1987. By the time Margaret Thatcher left office in 1990 it was 67%. 1.5 million council houses were sold by 1990, by 1995 it was 2.1 million and as a result of the Right to Buy the Treasury received £28 billion.

Unlike current policy, a stick wasn’t used and nobody got punished (landlords or tenants). Instead, an orderly change was introduced which allowed new products for renting mainly the AST (Assured Shorthold Tenancy) to be offered. The Banks preferred the new AST and landlords chose to offer them over previous restricted tenancies. Nobody was forced to offer AST, nobody was forced to buy a council house.

Since then around 5 million tenancies became AST’s and the blunt failure rate ie forced bailiff evictions runs at just 0.5%. (Around 16,000 a year). The AST model was so successful there became 1 million more private tenancies than social tenancies.

Observant people may have noticed recent policy appears totally desperate and used sticks to punish and enforce change. Landlords are given no choice; punishment and change is being forced upon us. Recent changes that are costing landlords more in terms of money, stress and regulation all battered home with sticks.

I won’t go into the changes here, but needless to say the evidence is landlords are selling. Despite what you may read, the biggest reasons for landlord sales will likely be lack of profitability. The Bank of England retrospectively scrapped its own affordability rules that regulated the market and put up interest rates beyond what it knew people could afford under its own affordability rules. If examined, this his caused huge hardship for some landlords and likely an across the board rent rise. Some landlords – around 40% – own rental homes outright and have welcomed and prospered by increased rents.

Regulatory and tax changes are also taking their toll with more sticks being wielded against landlords. Landlords are in the main trying to provide homes to the millions of people the banks won’t lend directly to because – to put it bluntly – the banks don’t believe these people are a good risk and will pay them back. In many cases, the rent paid to the landlord is below what a tenant would pay the bank in interest alone were they to buy the same property. (Which, of course, they won’t!).

The evidence is the use of sticks is bad for tenants and bad for landlords. Consider Fleetwood in Lancashire. There are now more properties for sale with tenants already living in them than there are available houses to rent to tenants. In Fleetwood, there are just two available three bedroom houses for rent and the rent is North of £800. Housing benefit would pay just £650 so these are not affordable for someone on benefits.

Meanwhile, there are an ever increasing number of three bed houses coming to the market. Many of the listed houses are ex-rentals or with tenants in them meaning fewer available homes for tenants, yet the policy makers are wielding more sticks.

The evidence suggests current policy is creating higher rents and fewer rental properties and desperate landlords and tenants. Much of this is needless. It really doesn’t need to be like this, it just requires evidential understanding and competence. Small changes rather than demolition and reconstruction.

It is carrots not sticks that facilitate successful change and create well being, until they get it, things are likely to get worse for all.

What does the Property118 community think?

Paul

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