Blog: The Private Tenancies Bill: one step closer to a genuine housing market failure?

PRS 4 ScotlandAs the Private Housing (Tenancies) (Scotland) Bill moves toward Stage 3 of scrutiny at the Scottish Parliament, PRS 4 Scotland is urging providers and businesses in the PRS to let their MSPs know what they think of the proposed legislation.

Shelter Scotland commented authoritatively here about the perceived benefits that the new Private Housing (Tenancies) (Scotland) Bill will deliver for security of tenure, especially as it becomes subject to further ‘strengthening’ in its latter parliamentary stages.

Something crucial has been lost in this assessment, if indeed it was ever there: what about PRS provider sentiment? Does the bill give landlords security too?

Being a provider in the PRS is a purely voluntary pursuit, usually undertaken by people or businesses wanting to see some form of return on a significant investment in capital, often spurred on by the shortage elsewhere of options to invest hard-earned life savings. This is a simple, albeit inconvenient, fact; one that the architects of the private tenancies bill don’t seem truly to grasp.

Not all housing can be owner occupied or socially rented – at least that’s something that is unlikely to be the situation any time soon, with the PRS having undertaken a much discussed expansion from 5 per cent in 2000 to around 14 per cent of tenures in 2014 (but in places like Edinburgh as much as 25 per cent).

So let’s leave aside for the moment the fact that the majority of Scotland’s 252,000 PRS providers and 1,000 letting agents run their affairs responsibly and fairly and have high levels of satisfaction among tenants. Let us also bypass the fact that most leading businesses in the PRS would agree that positive steps need taken to remove ‘rogue’ landlords from the sector and that tenants need better protection from bad, unfair practice.

Regrettably, the private tenancies bill has long passed the point at which it reflects the interests or concerns of providers as individuals or businesses with the freedom to allocate their resources as they choose. At a stroke it will:

  • Leave all providers without any assurance that properties let in one month won’t be empty the next, because of the effective removal of the initial period at Stage 2 of the bill’s parliamentary scrutiny on 10 February.
  • Hinder the capacity of HMO providers in the student lettings sector (the majority of that section of the PRS by far) to ensure that they get a sustainable or predictable rate of return on their property.
  • Leave all current properties in the PRS open to the threat of inclusion in rent control zones, something that has led to the stagnation of PRS markets in other countries (and yes, there is a good chance that these will be used because the bill has singularly ignored calls for improved market data capture, leaving local authorities to guess where and when to bring in rent controls and therefore liable to make mistakes).
  • Massively ramp up the burden of bureaucracy that providers have to undertake before successfully removing an antisocial or defaulting tenant.
  • Significantly increase the burden of punitive financial risk that providers are liable for if accused of unfairly removing a tenant before the First Tier Tribunal.
  • These points just scrape the surface of what providers will have to adjust to, not by stages, but in one go, as they are enacted by parliamentarians who have consistently rejected evidence that their bill presents a risk to the housing market as a whole.

    That risk is simple to understand. Campaigners have consistently aimed to ensure that the PRS is changed to ensure that all tenants, in the words of Shelter Scotland, “have absolute certainty that they can stay in their homes for as long as they need” and indeed, it is likely that they have achieved this aim.

    What this ignores is that housing in the PRS is, by definition, also the property of an individual landlord or business. Therefore any successful regulation of the sector has to take into account the interests of both parties. Opportunities for one side need to be balanced by an objective appraisal of risk to the other.

    The consequences of the failure of the bill’s architects to spot this are also simple to appreciate. By making life as difficult as possible for providers, the bill will increase costs, drive up rental prices, discourage investment in the market and encourage existing providers to consider selling up altogether.

    In other words, the conditions for people who want to live in the PRS will get more difficult because of a growing shortage of choice in the market.

    Shelter Scotland gets all of this. Indeed, it’s too straightforward for an engaged participant not to grasp. Its pre-election manifesto launched this week called for the government to facilitate the construction of 12,000 affordable rented homes each year to address Scotland’s housing crisis.

    The problem is, the government and local authorities don’t have enough funds to reach that total, so the onus falls heavily on the PRS to fill the gap.

    What we needed was a joined up, strategic approach to the PRS that aligned the needs of tenants to have secure, high quality housing, with the needs of investors to have confidence that policymakers in Scotland don’t see them as the enemy.

    What could have been achieved, in partnership with providers, was a new government-backed, systematic roll-out of long term leases guaranteeing steady returns for providers willing to invest for the long term at steady rates of return, with incentives unavailable to the short term let market for those involved.

    Instead we are seeing – hot on the heels of a range of further punitive measures that will harm investor sentiment in the PRS, from John Swinney’s LBTT surcharge on second homes to George Osborne’s tax grab on mortgage interest – the passage of a piecemeal bill that heaps more risks on providers’ shoulders with every week of parliamentary scrutiny; one which will ultimately disadvantage tenants too because the choice of accommodation they require simply won’t manifest itself here in Scotland.

    What a missed opportunity to give Scotland the housing sector it needs.

    There remains concern that the architects of this legislation aren’t yet done. In March, the Private Housing (Tenancies) (Scotland) Bill comes before the Scottish Parliament for its third and final reading. If Stage 2 was anything to go by, MSPs will be prompted to alter it further, with little or no thought given to the interests of providers or potential investors in the PRS. We hope we’re wrong, but we never thought that the bill would become as unbalanced as it has become and there is genuine cause for concern that further irresponsible amendments will be brought forward and accepted as part of the final bill.

    As noted above, there are some 252,000 PRS providers in Scotland, most of whom are ordinary savers and investors from all walks of life. There are also many 1,000’s of businesses of various sizes and scale that rely on a stable, effective PRS to operate efficiently, including agents, property managers, tradesman and a myriad of other ancillary service providers. We would advise as many as possible to consider the effects of the new bill and, if they share our concerns about it, make their voice heard by contacting their local MSP to articulate their own concerns.

    An election is coming in May. They might just listen.

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