Rent pressure zones

In December 2017 the Scottish Government passed legislation (Private Housing (Tenancies) (Scotland) Act 2016) which introduced a raft of measures relating to the private rented sector in Scotland, hoping to tackle issues such as supply, security and tenant rights. One of the headline policies from this piece of legislation was the introduction of Rent Pressure Zones (RPZ’s). The scheme allows local authorities to apply for areas to be designated as Rent Pressure Zones, limiting the ability of private sector landlords in the area to raise rents above a set level. The idea is to use rent control to ensure the market within a particular area remains stable; demand for social housing should not be put under increasing pressure as a result of tenants being priced out of the private rented sector by rising rents.

What’s happened in Ireland?

In the Republic of Ireland, legislation similar to that of Scotland was enacted in 2016. This included measures to introduce RPZ’s to 21 administrative electoral areas, including Dublin and Cork. In these areas, similarly to the Scottish model, landlords can impose a maximum rent increase on existing tenants, but issues with enforcement have proved challenging.  One of the major challenges local housing charity workers are reporting is the termination of contracts of existing tenants, so that landlords can bring in new tenants who they would then be able to charge more, because they are exempt from the terms of the RPZ’s.

Local authorities making a good case is vital

As was mentioned earlier, the responsibility of applying to have an area designated as a rent pressure zone falls on local authorities. One of the consistent challenges raised by academics, researchers, and those working elsewhere within the sector is the lack of data, or at least the lack of detailed, robust, quality data on which applications to designate an area and RPZ can be based. It has been suggested that in order to better support local authorities to make good applications, (which are likely to be accepted) the quality and accessibility of data available to local authorities must be addressed.

Supporting local authorities to increase supply of affordable housing is also important in high rent areas to allow all areas of the housing market to function effectively. Driving quality and affordability in one sector, it is hoped will drive up quality and standards in others to give people access to affordable quality homes in areas in which they actually want to live.

But will rent controls work?

Research conducted by academics on behalf of Shelter sought to review the use of rent controls across Europe. It shows a number of different models and how they have been adapted to reflect changes in the market. The term ‘rent regulation’ is commonly applied across Europe to refer to measures which seek to limit ‘in-tenancy’ rent increases, whilst leaving the rents for new tenancies free to find their place within the market. The research highlights the differing fortunes of those who have tried to impose rent controls, through RPZs and other means. Some have found it has had the desired impact, ensuring rent rates remain manageable for people living in an area. However, in addition to the Republic of Ireland, others have found challenges with implementation and enforcement.

Final thoughts

It will take time for this policy to bed in in Scotland, and for local authorities, government and the PRS to fully understand the impact it will have. It may mean that additional legislation may need to be introduced as a regulation method, or that landlords on the whole recognise the wider benefits to them and their sector which increased security can bring. However, the way that this element of the legislation was brought in (many think as a knee- jerk reaction to rising rents in Aberdeen which have now collapsed with the fall in oil prices) has meant that it has not been especially well thought out and the practicalities of its implementation on the ground have not been fully considered. Its long-term impact on the PRS, and on rent in areas more generally will be seen in the coming years. The rest of the UK will be watching intently to see how the Scottish project works. Ultimately, it could be replicated, particularly in large urban centres in England, including London, Manchester and Birmingham.


If you are interested in this topic, you may also be interested in the following blog posts:

The private rented sector: meeting demand and improving data

A mixed reception for Labour’s housing green paper

Released with nowhere to go: housing solutions for prisoners

Follow us on Twitter to see what is interesting our research team.

The private rented sector: meeting demand and improving data

The private rented sector (PRS) has grown recently, to become a more than significant part of the housing market in the UK. A shortfall in social housing availability, and extortionate deposit costs for first time buyers has meant that demand in the private sector has grown exponentially since the 1990s, the sector now taking in clients from across the demographic spectrum.

But research has shown the demand for private rent housing is not just about finance. Increasingly, many young professionals actively choose to live in the private rented sector because they like the flexibility and locational benefits of private rents. Renting privately can mean they are able to move freely for jobs without being constrained by a mortgage, and live in city centre locations, with short commutes and close proximity to amenities like shops, restaurants, gyms and cinemas.

Despite the growing “young professional” market, the sector also (in some areas) has something of an image problem. Characterised by rogue landlords charging extortionate rents for poor quality homes, with the ability to remove tenants without reason or much notice. This negative aspect, which centres on the issue of tenant rights and security within the private sector, is something which has been discussed widely at a number of events recently, for example, at the UK Collaborative Centre for Housing Evidence (CaCHE) event we attended in Glasgow last month. It is also something which last year the Scottish Government legislated to try and mitigate.

Ensuring quality in a place people can call home

One of the other major issues that is often highlighted with PRS is the need for a minimum quality standard, bringing private lets into line with the minimum standards (supposedly) adhered to in social housing. The legislation and policing of this element of the PRS is proving more complicated to navigate, although it is something which is being discussed within the Scottish Government.

There is also the growing issue of the short-term rented sector. You cannot have failed to notice, whether you work in housing or not, the rise of sites like AirBnB and HomeAway which allow individuals to list entire properties or spare rooms out on a short-term basis. Concerns as to the growth of this market have been raised the world over. The major issues are the impact on permanent residents, who can find having new neighbours each week disconcerting, and on the local housing market more generally, as the rise of short term lets then reduces the pool available for longer term private lets. Cities like Barcelona are, however, beginning to look at how regulation and use of permits can address the negative impacts, and are being watched the world over to see if their actions will work.

How can we meet demand?

It is often said that housing is a complex flux of different sub-sectors, and that, more often than not, one cannot function effectively without the other. The PRS, the housing market and social housing are all reliant on each other to help control demand and prices and ensure that everyone, regardless of circumstance, has somewhere that they can call home.

One of the major issues with meeting demand is space and land to build; another is funding and another is understanding exactly who needs homes, and what type of homes they need. In many cases people view the private rented sector as being a stop gap for those not able to get social housing, and not able to afford a deposit for a mortgage. Although in many instances they may be right, the demographic of those renting privately now is changing, and becoming more and more varied year on year, with many young professionals and families with children now renting privately.

Understanding these trends will be key to meeting demand. In order to do this the data on housing, particularly within the private rented sector needs to improve. Research from the Urban Big Data Centre and CaCHE found that data is lacking, and that we need to improve it if we are to improve the PRS more generally.

A recent evaluation by the Welsh Government of Rent Smart Wales found that Rent Smart Wales and its database of registered landlords has provided good quality information and guidance to local authorities and landlords, as well as driving up standards within the PRS in Wales. Learning from how data collected on the Rent Smart Wales database can be maximised to provide an accessible source of information on the PRS in Wales is very important going forward, and this is something we are seeing increasingly across the sector – the desire for more data, to help those within the sector make better decisions.

What next?

A report released by LSE in June 2018 found that while the PRS has grown significantly, projections suggest that it will start to level out, and reach a state of stasis, or even decline in the coming years. Other reports have contradicted this, however, stating that unless there is an intervention or significant change in house prices, more people than ever will be forced to live within the PRS.

What does seem to be agreed upon is that better data and understanding of the sector and how to manage it is necessary and that ultimately, standards will improve across the board, with or without government intervention, but the way we view private rented sector accommodation will also change.

PRS properties will not only be buy-to-let houses, converted into HMOs, or tiny bedsits where 5 people share 2 rooms. Instead the market for sectors like build-to-rent are growing, and changing the expectations of the new generation of renters about what to expect from PRS accommodation.

In the future the ambition is for high quality, stability and housing which is suitable for a range of different tenants and their needs from young professionals and families with children, right through to older people living in retirement villages managed by a corporate landlord. It is hoped this will help stabilise rents and improve standards across the board, creating affordable places that people can plan to live in long term, with security and quality at their heart.


If you are interested in this topic, you may also be interested in the following blog posts:

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Rent controls: lessons from Berlin?

 

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Image: James Carson

In March 2016, a study by the Centre for Economics and Business Research highlighted the growing problem of rising rents in the UK. The Cost of Renting found that the average private rent in England is growing at an annual rate of 2.5%, and forecast that rents were set to rise by 28% on average by 2026. The findings support recent studies suggesting that the UK is now the most expensive place in Europe to rent.

In contrast to the UK, renting in Germany is less expensive. For historical as well as economic reasons, only 43% of Germans are home owners (compared to over 70% in the UK). The rest rent their homes, making rent rises a highly sensitive political issue in Germany.

In recent years, Germany has been experiencing a housing shortage. Last year, the Cologne Institute for Economic Research reported that in 2014 the number of new flats and houses built in the biggest cities was 50% fewer than needed to cope with rising population numbers. As a result, rents in Germany have been rising more steeply.

Introducing rent caps

Last year, concerns about keeping homes affordable for tenants on average incomes prompted the German government to introduce legislation on rent control. The new law means that private landlords taking on new tenants can only raise rents by up to 10% above the local average for similar properties.

Even before the law was passed the state government of Berlin had announced that it would be the first city in Germany to introduce rent controls. In recent years, the German capital has been growing by around 50,000 people a year, putting greater strains on the city’s housing market. Rents in Berlin have risen on average by almost 53% in the past five years, and in some districts, by 79%.

The trend has raised concerns among Berliners that their city could be on the way to emulating London, where growing numbers of people are struggling with the cost of living in their private rented homes. The Cost of Renting report found that Londoners on average spend nearly a third of their disposable income on rent payments, and suggested that worsening rent affordability may push residents on lower incomes out of the capital. Rent control is one measure intended to prevent Berlin going the same way as London.

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Image: James Carson

The impact of rent controls

Within weeks of Berlin introducing its rent cap, there were signs that the move was having an immediate effect, with the average rents per square metre falling by 3.1%. But in February 2016, a survey of Berlin rents by CBRE found that the year-on-year rise across the city for 2015 was 5% (compared to the 2014 rise of 6.5%).

On the face of it, this looks like the new controls are not working. But the rent cap was always intended to slow down Berlin’s spiralling rents, rather than bring them to a halt, and on those terms the law has been effective. Moreover, while new rents for Berlin’s most expensive apartments rose by 5.7%, rent rises for the cheapest 10% of flats rose by just 2%.

And, as if to underline how serious Berlin is about tackling rising rents, in addition to the rent controls on private landlords, the Berlin state government has also introduced new rules for over 500,000 social and state-owned housing tenants, guaranteeing that rent rises will not price them out of their homes.

Lessons for the UK?

Since Berlin introduced rent controls, other German states, including Hamburg and Bavaria, have followed suit. This has prompted some commentators to wonder if the idea could help to tackle the UK’s housing crisis.

A recent report from Shelter highlighted the serious impact of rising rents in London:

“Those who find it difficult to pay their rent are likely to cut back on food for themselves or clothes for their children. Others get deep into debt to avoid going into rent arrears or to cover the high costs of frequently moving home. At worst, a growing number of London renters lose their home and become homeless.”

Although London has seen the steepest rises, other parts of the UK have also been affected. In April 2016, figures showed that rents on new tenancies in Greater London were, on average, 7.7% higher than a year ago. But in Scotland the increase was 7.3%, just ahead of the East Midlands with 6.8%.

Writing in the Financial Times, columnist Jonathan Eley acknowledged the differences between the UK and German housing markets, including the high numbers of renters in Germany and the larger number of properties owned by institutions (in contrast to the UK, where most private rented sector properties are owned by individual buy-to-let landlords). However, he concluded that the UK had something to learn from the introduction of rent controls in Germany:

“It is not perfect, but it does a much better job of balancing the interests of tenants and owners than the policies of successive UK governments, who have basically ramped up house prices without much thought for the long-term consequences.”

It’s still too early to say whether Germany’s attempt to tackle rising rents will have a long-lasting impact. But if the measures succeed in putting a brake on spiralling rents, there may be growing calls here to follow Berlin’s example.


Further reading
If you’ve enjoyed this blog post, you might also be interested in these previous posts:

Generation rent: are there lessons from Germany?
To regulate or not to regulate? Housing standards in the private rented sector
Support for the squeezed middle: could public subsidies tackle London’s housing crisis?

Follow us on Twitter to see what developments in policy and practice are interesting our research team.

“Generation Rent” – are there lessons from Germany?

Berlin Housing (Photograph: James Carson)

Berlin Housing (Photograph: James Carson)

By James Carson

Could a lower level of home ownership in the UK become the new normal? That’s one of the questions arising from a recent Halifax report  that examined perceptions and changes in the first-time buyer market.  Although there has been an increase in the number of first-time buyers in the past five years, the report identified a growing number of people aged 20-45 who do not believe they will ever own their own home.

The authors concluded that if this trend continues the UK could be moving closer to the German housing model, where renting is the norm.

While about 60% of Britons live in owner-occupied accommodation, barely half of Germans own their own home (the lowest proportion in Europe). A number of factors explain the enduring preference for renting in Germany :

  • A good supply of high quality rental accommodation from housing associations and municipal authorities;
  • Rents are transparent and tightly controlled, and tenants enjoy substantial rights and protection from bad landlords;
  • Lending requirements have been traditionally more stringent than in the UK, and there is less of a borrowing culture in Germany;
  • German house prices have shown lower levels of growth and volatility.

In recent years, there have been some signs of a shift towards home ownership in the German market, particularly in Berlin. But, having looked on with disquiet at the fallout from property crashes in the rest of Europe, many Germans remain suspicious of booming housing markets. In Germany, renting is still seen as a perfectly respectable alternative to home ownership.

Could that happen here? Prohibitive deposits, high property prices and low incomes are preventing many people getting a foot on the property ladder. Faced with a shrinking social housing market, they are increasingly turning to the private rented sector (PRS), which now forms the second largest form of tenure in England (18% of the total households).

The Halifax report suggests that the German model is not unattractive, but also warned that a shift away from home ownership means problems in the UK’s PRS need to be addressed.

These issues were detailed in another recent report, from the Just Fair Consortium. Among its findings:

  •  33% of PRS dwellings do not meet basic standards of health, safety and habitability;
  • Tenants are afraid to complain about the poor quality of properties for fear of retaliatory evictions or arbitrary rent rises;
  • The cost of PRS housing is almost double that of social housing, and private tenants are increasingly unable to meet the costs.

The report’s authors noted that, while the rise of the PRS has been characterised by the government as a positive development, this has not been the experience for everyone:

“The UK government has increasingly presented the PRS’s expansion as based on lifestyle choice, and as a form of tenure suited to greater labour market mobility and flexibility. While this may be the case for some economically empowered renters, the overall context of private rentals suggests that the sector provides housing for a number of households, particularly families, for whom a private rental home is a source of anxiety over tenure security, cost, habitability, and quality, rather than a sought-after choice.”

The problems associated with the PRS in the UK may be contributing to a reluctance to rent. But if there were improvements to security of tenure, quality and affordability, the PRS might appear a more attractive option. Danny Dorling, professor of human geography at Oxford University, recently contrasted the UK’s rented sector with the situation in Germany:

“In Germany tenants cannot be evicted on a whim. Often landlords have to bribe them out if they want control of the property back before the agreed date. Property is of good quality, well soundproofed, spacious and well insulated. Pension companies often hold it, so you know where your rent is going: it is paying for your parents’ generation’s old age.”

If Generation Rent is here to stay, this has implications for the private property market, for the social and private housing sectors, for planning and economic development, to say nothing of the social impact. The UK is unlikely to return to mass private renting any time soon, but if current trends continue, perhaps there are lessons to be learned from the German model.


The Idox Information Service can give you access to a wealth of further information on housing; to find out more on how to become a member, contact us.

Further reading*

Rent increase (Britain’s housing tenure landscape)

The future of London’s private rented sector

Resilient? (social housing in Scotland)

Ownership status, symbolic traits, and housing association attractiveness: evidence from the German residential market

Making a rental property home

*Some resources may only be available to members of the Idox Information Service