Labour Party housing policy is flawed

Richard Blanco, NLA London Rep distills Labour’s private renting reforms.

Richard Blanco, London Representative for the National Landlords Association (NLA)
Richard Blanco, London Representative for the National Landlords Association (NLA)

Labour leader Ed Milliband announced a change in Labour Party policy today in a London Borough where I rent two properties, Redbridge.  The proposals turn previous policy musings into concrete manifesto ideas, most notably the idea for a National Register of landlords in England.  I was sad to hear Ed speak in favour of local authority licensing schemes, now championed by many labour authorities, however his reference to them as registers shows he fails to understand the complexities of this area of policy.

After extolling the virtues of five year tenancy agreements in their PRS policy review in December 2012, the Labour leader has settled on the idea of a default three year AST which will probably mirror arrangements in Northern Ireland where initial agreements last six months, past which you’re tied down to a further 29 months .  Other proposals include indexation of rents and rent capping, and a ban on letting agent charges.

Labour’s vision

It was the lengthening of ASTs and rent controls which grabbed the headlines.  Ed Milliband argues that one million families and two million children in the PRS deserve more security of tenure.  Of course what landlords really want is for their tenants to stay as long as possible, and we already know the average tenancy is two and a half years anyway.  Four out of five tenants say they are happy with the length of their tenancy and most tenancies are ended by the tenant not the landlord. So where’s the need to change the current system?

Well, Labour and Shelter argue that landlords hike rents and evict tenants with section 21 notices if they object to rent rises.  This is why they want to control rents by pegging them to an index once a market rent is agreed at the start of the tenancy.

Have you ever forced your tenants out for a higher rent?  Most of my tenants stay for 2 to 3 years, I review the rent biannually and if I increase it I do so modestly.  The Evening Standard  responded in its leader column by arguing “in the present environment , with rents soaring in London, the move is likely to win popular support.” But despite rents rising  by 7% in 2012 in London, they rose by only 2% in 2013 and estate agent Chesterton Humberts reported last week that rental yields have declined in 9 out of 10 cities with large private rented sectors like London, Sheffield  and Manchester.  Soaring rents is old news, but the hyperbole continues to be used to create policy.

The impact

Longer default tenancies

What impact might longer ASTs have on the housing market?  For landlords like me who are in business for the long haul, it could be quite positive, unless I get a tenant that doesn’t work out.  Then we would be stuck in an inharmonious relationship for 3 years.  Certainly landlords would want to carry out very rigorous checks and I suspect that we might see the return of licenses to try and get around these market averse rules.  Two thirds of PRS homes are let by landlords with just one or two properties, often because they move for work temporarily or go to live abroad.  Will they want to commit to three years?

I fear we will see a huge increase in empty properties. I have seen it in cities like Madrid when minimum contracts were five years.   Most of our buy to let mortgage terms stipulate that contracts must be no longer than 12 months, so will Labour change all of these contracts too?  Institutions that were considering moving into residential letting will surely think twice now and many landlords will be put off from buying more properties, leading to a reduction of the PRS.  Labour are planning 200,000 new homes, which is fantastic, but will they manage to deliver this?  We know that in London developers deliberately drip feed new supply so as not to suppress prices.

Rent caps and indexation

On to the issue of rent caps. The housing market is cyclical; andrents rise and they fall depending on demand and supply in particular areas.  Currently the majority of rent increases are levied between new tenancies, not on those in situ. But with indexed rises, it encourages a culture of rent increases every year regardless of what is going on in the market.   The reality is that over the long term, rents rises are lower than the CPI measure of inflation, so rents actually fall anyway.  My policy to reward good tenants by keeping the rent the same will actually be disallowed.  Landlords will be incentivised to move tenants on after three years to get back to a market rent and we will see the return of the sitting tenant, with landlords reluctant to invest in their properties.  One landlord told me today that he has asked his lettings manager to make sure all rents are increased to market rent before the changes come in, assuming Labour or the Lib Dems come to power.

Banning fees

And while I’m on the subject of lettings agents, 81% of tenants say that their agent was upfront and transparent about fees they charge.  But if agents cannot charge fees then they are likely to increase their charges to landlords and that could put upward pressure on rents.

National register

A compulsory register will lead to the collection of data on 9 million properties in the UK.  Surely intelligence led enforcement by local authority staff getting out of their offices and finding criminal landlords would be so much more cost effective.

This announcement by Labour, albeit panned by most property experts, is very worrying.  Lenders, institutional investors and landlords across the UK will be thinking hard about their future and making contingency plans.  The Labour Party has been fed policy by Shelter and adopted it with little thought for the consequences.  Shelter does excellent work supporting tenants who have difficulties in the social and private sectors, but all they hear are the problems.  Nobody ever calls their advice line to tell them how fabulous their landlord is.

For a major political party to create policy based on the negative minority is an affront to the many hard working landlords I know who pride themselves on running innovative businesses and creating excellent homes for their tenants.  We need our policy makers to create policy that builds on good practice through accreditation and landlord engagement and working out why local authorities are failing to bring bad landlords to book using their existing powers.

This feels like short termist, populist policy and we need long term solutions.  The 1.4 million UK landlords and our 9 million households deserve a more balanced, intelligent and responsible approach to long term housing challenges.

6 thoughts on “Labour Party housing policy is flawed

  1. Excellent comment, well thought out and balanced. Thank you Richard for articulating what the vast majority of responsible landlords will feel.

  2. I have to disagree with your statement that this is a flawed policy. Ed Milliband is part of the new breed of “career” politicians, less commited to political dogmas but very focussed on public opinion. The policy is another example of politicians finding a problem that does not exist (or is non-existant outside the M25) then applying a solution that does not work. The policy is not about rent reform, it is about appealing to a popular misconception then trying to elicit a few more votes at the next election. That is why it is a good policy!

  3. Labour is very anti-landlord and we must fight this pervasive cancerous approach to housing with great force.

    Do NOT vote Labour this upcoming election!

  4. The Labour Party have really not thought the ‘Three Year Tenancy’ through at all. I have written to them with the question “What if a tenant does not want to stay at a property for 3 years?” As I have pointed out, not all tenants are on Housing Benefit. A tenant might need to move to another area due to a job promotion long before the 3 year tenancy has come to an end. Will the tenant have to go on paying rent for a property they are no longer living in or will the Labour Party legislation be so one sided that the tenant can terminate the tenancy at any time but the Landlord will have to honour the full 3 year term? Even tenants on Housing Benefit may have to move for family reasons or because they simply do not like the property or the area through no fault of the landlord.

    Will Stamp Duty have to be paid on a 3 year tenancy agreement and will they be as straight forward as the current 6 or 12 month agreements or will solicitors have to become involved? All this will add to the fees that have to be paid by the tenant.

    We have let properties for 19 years, all through the last Labour government. As I am sure with a lot of landlords, we reward good tenants by hardly ever increasing the rent. We have had tenants that have stayed with us for 16 years. These Labour policies are patronising to tenants and insulting to landlords

  5. Before anyone makes anymore ludicrous housing policies, they really should consult landlords with properties in impoverished areas, in the north east of England for example. I would also strongly suggest that they review the impact of the Care in the Community Bill on private landlords. Will this 3 year tenancy agreement apply to ALMOs and Housing Associations too or once again will it only be imposed on private landlords?

    1. The Labour Party Housing policy really worries me because I worked in the lettings industry before ASTs were brought in. My job was looking after arrears rent. I spent my time dealing with tenants that for different reasons did not pay their rent. It was an expensive and long drawn out process to get repossession of the properties so we did not take them to court unless this was the only possible way . The tenants who owed money, did not look after the properties they were living in as they felt things were unfair, the judges were unhappy about giving possession back to the landlord, result, unhappy landlords, unhappy tenants and unhelpful DSS departments and often destroyed properties. ASTs made the whole situation much less strained for all concerned. There are some bad landlords and some bad tenants but if the labour policy is put into practice we will as a country go back to a shrinking PRS as people will not want to take the risk.

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