What the new renters’ rights bill means for landlords and renters
The UK’s rental market has changed significantly in recent years; The proportion of tenants has doubled since 2000 to 30%. During the same period, housing costs rose much faster than wages.
Historically the rental sector has faced less regulation in the UK than in many other European countries. But now new legislation aims to improve the safety of tenants in England and strengthen tenants’ protection against environmental hazards.
Many elements of the tenants’ rights bill are likely to improve tenants’ lives without harming landlords. However, some improvements for tenants will make homeownership more difficult and even undesirable for some. We think that the measures proposed so far fall into three groups: good, not so good and complex.
Good
A 2023 government report estimated that 3.6% of private rented properties had significant levels of damp and mould. Part of the bill would extend the “Awaab law” (named after two-year-old Awaab Ishaq, who died because he lived in a moldy house) to the private rental sector, providing protection for tenants in distressed properties.
Additionally, a new private rental industry landlord ombudsman could help tenants resolve disputes without slow and costly legal action. Establishing a dedicated rental sector database would increase transparency for tenants and compliance by landlords with pre-existing laws.
not so good
The bill aims to end the practice of “bidding to rent”, where landlords can effectively maximize the rent they receive. Landlords and rental agents will not be allowed to accept more than the initial advertised rent.
In practice, many landlords can increase their initial asking rents, so the new rule will have little impact on the prices faced by tenants. Additionally, evidence from other marketplaces such as eBay shows that auction-style price setting leads, in many cases, to lower prices than simply posting prices.
Therefore, it is not clear whether this policy will have the intended effect. However, the bill also aims to regulate rent increases for established tenants.
One of the most important parts of the bill is the elimination of “section 21 evictions” (so-called “no-fault” evictions). The repeal of section 21 will leave landlords relying on what is known as a “section 8 notice,” which is a written document used if a tenant has breached the rules of the tenancy agreement.
While section 8 allows landlords to recover costs, it also requires a full court hearing. But evidence suggests that homeowners are often willing to give up the possibility of recovering losses in order to get their property back quickly.
This is mainly due to the length of the court system and the length of time it can take to recover property (often up to a year). The bill missed an opportunity to tackle costly court delays by creating a specialist housing court; this was something that could easily be funded by a small tax on the UK’s £55bn annual rental income.
Complicated
Overall, the reforms are likely to increase the cost (and reduce the income) of homeownership. This may push some property owners to leave the sector and change the composition of property owners active in the market. There is strong evidence of net market exit in the case of rent controls from other countries, including the US and Spain.
Landlords in the UK have seen negative impacts on their profits from several recent policies, including the phasing out of mortgage interest tax relief, stamp duty on second properties and the Tenant Rates Act 2019, which bans rental fees in the private sector. Our own research into this has found that landlords are paying around 25% of what tenants previously paid.
ABOUT THE AUTHORS
Nikhil Datta is Assistant Professor of Economics at the University of Warwick. Jan David Bakker is Assistant Professor of Economics at Bocconi University. This article is republished from The Conversation under a Creative Commons license. Read original article.
Landlords leaving the industry is not necessarily a major concern, but how it will impact the functioning of the market may be.
When homeowners sell their properties, the real question is who will buy them? Basic economics suggests that landlords exiting the industry lowers prices in the property market, making it possible for some renters to buy.
But the realities of the UK housing market mean things are not that simple. The large deposits required and limited access to mortgages and credit will still prevent many renters from purchasing a home.
In any case, this will only apply to a small proportion of tenants. If the reform increases the cost of homeownership, it is likely that some of this increase will be passed on to renters.
While the UK rental market is dominated by “mum and pop” landlords (those with a small number of properties), other countries such as the US have seen a rise in institutional investors. It is possible that the bill could contribute to a similar increase in the UK; This may lead to higher rents as large players can use more market power.
The bill’s immediate effects may be modest. But there is a bigger concern ahead. Will low house prices reduce construction activity and ultimately depress housing supply? This is certainly possible, but the government has other tools it can and should use to modernize the planning system and make construction cheaper. These measures can increase supply and increase affordability for both renters and buyers.
