Government warns landlords could leave PRS over Awaab’s Law costs

The government’s own impact assessment on Awaab’s Law admits that extending the law to the private rented sector could have a financial impact on landlords and cause some to leave the market.

The government has launched a consultation on extending Awaab’s Law to the private rented sector (PRS), alongside an impact assessment. It is seeking views on how the rules should work and when they should come into force.

The government is seeking views on extending Awaab’s Law to the private rented sector (PRS), including how the rules should work and when they should come into force.

Landlords may decide to leave

In its impact assessment, the government estimates the changes will cost businesses £422.4 million in net present value, with an equivalent annual net direct cost to business of £42.2 million.

The assessment estimates an average cost of £8.17 per property per year, ranging from £5.64 to £10.69. However, landlords could face additional costs from having to carry out repairs more quickly.

The government appears to anticipate that extending Awaab’s Law could drive landlords providing poorer-quality accommodation out of the private rented sector, with their properties potentially being taken over by professional landlords.

The impact assessment said: “The main costs are expected to fall on private landlords and owners of licensed accommodation.

“They include landlords/licensors familiarising themselves with the new requirements, fixing properties quicker so they are compliant with the new requirements, and communicating with tenants about repairs.

“This equates to a cost to landlords of £8.17 per property per year (ranging from £5.64 to £10.69) This does not account for any pass through of landlord costs to tenants. Landlords may, in some instances, attempt to pass through some of the costs of the regulation to tenants.

“The extent to which this will happen is dependent on market conditions and housing affordability, however at an aggregate level we do not expect 100% cost pass-through.

“Alternatively, landlords may decide to leave the sector as a result of increased costs. However, we think the landlords most affected by the new requirements are those offering the poorest-quality accommodation.”

“Their potential exit from the market could create opportunities for more professional landlords to enter or expand, thereby improving overall standards in the sector.”

Power imbalance between landlords and tenants

The government claims intervention through Awaab’s Law is needed to address what it describes as a power imbalance between landlords and tenants.

The impact assessment said: “While the majority of landlords aim to act responsibly, market forces do not provide the right incentives to discourage landlords and licensors from providing low-quality homes. Therefore, there is a clear need for government intervention.

“There is unequal information between landlords, tenants and letting agents. This is because landlords typically possess more information about a property than a tenant. Tenants may not be aware of the hazards posed by a property before moving in, nor do they know in advance how landlords or agents will respond when problems arise. This means tenants are not always able to make an informed decision about whether to move into the property and the level of rent they are willing to pay.”

The impact assessment adds: “This is exacerbated by the power imbalance between landlords and tenants. Wider reforms to the PRS, including the abolition of ‘no-fault’ section 21 evictions and the introduction of a new Ombudsman, will help tenants to demand action from their landlords on issues such as damp and mould without the fear of retaliatory evictions or unfair rent increases. However, there are fewer properties being marketed than pre-pandemic, and there are still, on average, 5.6 enquiries per rental property.

“This reduced competition among landlords and increased competition between tenants limits tenants’ bargaining power and their ability to push for home improvements.”