Blog: Private Rented Sector reforms still put landlords and investors first

Tony Cain
Tony Cain

Welcome as they are, the Scottish Government’s package of reforms to the Private Rented Sector (PRS) just don’t go far enough, writes Tony Cain, policy manager for the Association of Local Authority Chief Housing Officers (ALACHO).

The root of the problem is that private renting is still seen as something that home owners with a bit of spare cash may want to do in their spare time.

And whilst there is growing evidence of a cohort of professional landlords in the sector for the long term the desire to protect the interests of the amateurs and not to restrict returns across the sector is selling tenants short.

The focus on minimising risks to landlords and investors means that business failures are underwritten by the public sector through the homelessness legislation.

The best way to demonstrate this point is to look at two of the proposed revised ground for repossession that have been set out in the recent consultation paper.

Ground 1: that the landlord intends to sell the house;

Ground 2: that a lender wishes to sell the house because the landlord has broken a loan agreement.

The unstated, and unquestioned, view that underlies these provisions is that eviction and homelessness are appropriate management tools to address business failure or change.

These provisions ensure that private landlords or lenders can remove tenants when thing go wrong with the business or they want to disinvest. And most importantly, the value of the asset is protected by ensuring that it is linked directly the property values in owner occupation. It also means they can borrow more to invest and make bigger returns on capital values.

Equally importantly what they also do is transfer the cost (aside from the personal trauma and disruption to the tenant) on to the public sector.

By protecting the value of private rented houses in this way and transferring the risk and costs of business failure on to the tenant and local authorities, landlord and investors can be confident that they can sell out relatively quickly and at very little cost to them.

There is, of course, a delicate balance to be struck here between recognising that many private landlords are indeed renting out their own home whilst they, for whatever reason, are living elsewhere, and the rights of tenants to a secure place to live.

But for a bank making a commercial decision to offer a “buy to let” loan or a landlord managing a portfolio of properties the approach is simply not appropriate and will significantly undermine attempts to improve the management of the sector and offer tenants more protection.

And what of the risk of disinvestment by smaller landlords if eviction is removed as a business planning tool? Well, there is, arguably, a case for treating landlords with just one property that they previously lived in differently though I’m personally unconvinced by it. Being a landlord shouldn’t be a hobby.

For those investing in the sector the rules of the business need to be rewritten to ensure that consumers and the public purse do not underwrite failure or support inflated returns. To the extent that this adds risk to the business, then as in every other sector it will need to be priced. Good management practices that reduce risks and improve returns will be incentivised.

I think it likely that the voice of investors will ensure that the 2015 bill preserves the current protections for landlords and investors. But it is becoming increasingly difficult to see the public and private elements of our housing system in isolation. At some point a more joined up approach needs to emerge.

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