Why the Renters’ Rights Act is causing a tsunami?

Landlords are the life blood and custodians of a fragile ecosystem, who left alone, largely solve and don’t create problems.

Nobody likes admitting they are wrong, but housing minister Matthew Pennycook’s claim that the Renters’ Rights Act (RRA) has maintained stability in the rental market is delusional and dangerous. Here is why I think so.

If there are 1,000 tenants and 1,000 properties, and everyone finds a home, then the system is in balance.

If there are 1,000 tenants but 1,010 properties, then if any tenant wants to move, they have a choice of 11 properties.

11 landlords will have empty properties and reduce rents to attract the tenant who can pick from 11 properties. The media will report on a glut of properties, and market rents will reduce as no landlord wants to be without a tenant. Landlords with empty property will sell, and a balance will be restored. In the meantime, each of the 11 landlords with empty properties will chase the single available tenant with lower market rents.

Now, conversely, if there are 990 properties but 1,000 tenants, then ten tenants are homeless. For every home that comes free, 10 potential tenants are looking for it. If a landlord evicts a bad tenant, the bad tenant will not be able to find a home because ten other good tenants are looking for that same home.

The media will hysterically report that for every house on the rental market, there are 10 people looking. New market rents will soar because of a tiny proportional lack of property. A 1% reduction in property can easily create a 1000% increase in people without homes, fueling a hysterical media.

By deliberately messing with the private rented sector with restrictive policy, Pennycook knows he has reduced available rental housing stock, but claims this is stable. By causing even a small percentage reduction in available rental property, the government has created a tsunami. The evidence is there with fewer available properties and corresponding pressures on market rents.

Pennycook is the master and architect of such a policy, which is causing misery for tenants as prices rise for many looking for property to rent.

For the last decade, it appears every policy the government (not just this one) has implemented has been punitive for landlords. Namely, preventing landlords from offsetting full mortgage costs.

Forcing landlords to keep properties empty after evictions, yet doubling council tax on empty property. Allowing tenants to go further in arrears before they can be evicted. Imposing disproportionate fines on landlords. Imposing more complex regulations on landlords, even allowing utility companies to charge high standing charges on empty property, all act to increase landlord costs.

The government will now look towards rent controls to cure the problem of rising rents, a problem of their own making and a solution that would further reduce rental stock. Yet oddly, they will not seek to control many landlords’ costs, which are at the whim of the Bank of England interest rate rises.

Such action is being considered because, contrary to what Pennycook says, the government has destabilised the market. Rent controls will shrink the rental market further and lead to more homeless tenants. In trying to cure the symptoms rather than fix the cause, which of course is his own bad policy and lack of available housing.

Millions of landlords are now renting below the NEW market rents to existing tenants. They have not raised rents to the new market levels. The few new properties on the market seek higher rents because the demand appears so high

Compare this to the serenity under the 1988 Housing Act which relaxed legislation and made life easier for landlords. There was no tsunami when relaxing regulation it went as smoothly as a mill pond. Millions of properties were added to the private rental sector, and whilst rents may have been higher than corresponding mortgage payments. The banks wouldn’t lend to millions of tenants, leaving them with no option but to rent.

If people want permanent homes, then the problem lies with the banks not lending to them. If a tenant is paying more in rent than the mortgage, then the banks could be forced to lend to the tenant. It is the bank that is stopping someone who can afford the cost from being denied a permanent home. The villain here was never the landlord providing that home.

All free markets find equilibrium. By reducing rental housing stock even by a small percentage, the government has created a tsunami. If the government impose restrictions on market rents, more landlords will sell, reducing the PRS further. Restrictive policy chokes a democratic free market. This will only result in more homelessness.

What does the Property118 community think?

Thanks,

Paul