Section 21 abolition - madness or design?
Why is it when the government plans to legislate in a particular area, they seem to launch a consultation and then ignore all contributions that are made? They certainly did that with the Tenant Fees Act and appear to be doing the same now with the potential abolition of Section 21 of the Housing Act which allows landlords to give tenants notice without a reason required. Some people say that the government is woefully ignorant not to foresee some of the obvious implications of new statute, others that it is a cleverly thought out piece of strategy with a grander purpose than offering some protections for man on the Clapham omnibus.
Take the Tenant Fees Act for example. Industry experts predicted that instead of saving tenant’s money with banning the charging of administration fees and capping deposits it would end up costing them money as rents would rise, and premiums would be charged for pets and young families. The government said that would not happen. What has happened? Rents have risen for four consecutive months and landlords have started charging tenants "pet rents" to cover the risk of increased wear and tear that would not be covered by a smaller deposit. Typically, a lot of landlords expect an 8-week deposit if tenants have cats and dogs, so this was inevitable when instead it is capped at 5. There seems to be plenty of anecdotal evidence in the press as well that families with young children have less choice now.
So why ignore all the advice that predicted this? HMG has no actual interest in the detail. The Tenant Fees Act was simply a well-choregraphed piece of naked vote buying by the Tory party to get one over on what was traditionally Labour territory. Heralded as fighting for the pocket of the common man, the Tories simply stole Labour's policy and presented it as their own in a climate where a general election is always just around the corner. Tenants feel like they are saving money if even they are not. So, what about the abolition of Section 21?
Nearly all stakeholders in the industry, except Shelter, forecast that if Section 21s, as they are colloquially known are abolished that the very people the government is supposedly trying to protect are going to be punished. What does the government think will happen if you force landlords effectively to commit to an incoming tenant long term, potentially for years, until they choose to sell it? They are naturally going to far more particular and fussier about who rents their property. Most landlords have taken a view on tenants on occasion because they met the tenant, wanted to give them a break, felt sorry for them, were prepared to take a chance. Most private sector landlords don’t behave as possibly they should, are not business minded enough, not ruthless, maybe even a soft touch. This is only however because they know they have a get out of jail card in Section 21. if it doesn’t work out, they can just ask the tenant to leave. However, no more Section 21, no more Mr nice guy.
Who will suffer? Potentially a long list but it could likely feature any number of single parents, young people, people on probation, the self-employed, people with pets, young families, anyone without a very strong credit rating. Anyone who is potentially a risk that they may cause more wear and tear on a property, may lose their job, may not be able to afford to pay the rent. Anyone who is not a safe bet. Then there is the spectre of rents being forced up once more, as Landlords look to mitigate any risk.
Shelter and exponents of the changes point to the fact that tenants who don’t pay their rent, don’t look after a property, who are a nuisance can be evicted using Section 8 of the Housing Act instead. In reality, many landlords don’t use it, as it is not fit for purpose. It is expensive, and the average court order takes 5.4 months after which rent may not have been paid for the entire time or the tenants may have taken retribution on the property itself for being taken to Court in the first place. Much easier to use Section 21 and ask the tenants to leave. The government says it will reform the Court process to make it more effective, but as of today's date they have not started, and most commentators say that such changes would need at least 2 years to implement before any useful improvement would be seen in practice. In the meantime, the government plans to legislate come what may.
But why? Surely, this makes no sense, whichever side of the argument you are on, it is clear that a lot of tenants will become marginalised. No one wants that, landlords included, so why create a situation where that will happen? There is more at play here perhaps, and tenants are simply collateral damage as the government looks to achieve a greater ambition.
In the last few years Build to Rent has become a new industry, and one the government wants to encourage to flourish, providing communities and homes in towns and cities up and down the country, especially in areas of regeneration. These are generally owned by one of about a dozen behemoth institutional landlords whose biggest concern would be having to compete against 1.5 million private landlords who currently have far more property available than they do. How do they deal with that? Easy, tell the government that will only continue support Build to Rent if they dramatically reduce the size of the private rented sector. This as an idea is not an anathema to the government either. 1.5 million landlords are difficult to manage, in fact many are not even known to them. HMG believes far too many are uncompliant, rogue landlords who avoid paying their taxes and reducing their number and shifting the balance of power to a handful of institutional investors on speed dial, who will do as they are told pay their taxes sounds quite attractive. Cue the strategy to make being a private Landlord so unattractive they all decide to sell their properties, ideally to first time buyers, which in itself would solve another problem.
The introduction of a stamp duty surcharge was first to deter private landlords from acquiring more properties. Next came a 8 new pieces of legislation to make being a landlord more complicated and time consuming from Right to Rent, to Smoke and Carbon Monoxide regulations. Next came the reduction by half in tax relief on mortgages to make sure very few landlords made any profit and whilst at the same time increasing tax receipts. Slowly but surely it started to work. For the first time since 1999, the number of private landlords decreased in number by 46,000 in 2017.
The abolition of Section 21 is the next piece of the strategic jigsaw. Whilst they would never admit it, the government of course understands how this will change landlord behaviour, but they see that as a small price to pay and only for a few years as these landlords all decide to jump ship.
Heard the rumour circulating about the reintroduction of tenants right to buy, but this time from private landlords? That could well be the next piece of the jigsaw.
As far as conspiracy theories go, does it sound that far-fetched?