Longer Tenancies ‘Risky’ for Private Landlords

Proposals to introduce fixed-term contracts in the private rented sector and bans on real rent changes within them are poorly thought out according to a report by a senior academic.

Michael Ball, professor of urban and property economics at Reading University, was commissioned by the Residential Landlords Association (RLA) to undertake an independent assessment of proposals by the charity, Shelter, for a new standard five-year contract with annual rent increases linked to inflation. His report is published today.

Under the model, five year contracts would be the norm with landlords having to seek permission from their local authority where tenants, such as students, might want a short tenancy. Such applications in cities with high numbers of students would end up swamping local authorities already facing severe staffing problems.

Tenants would also have the opportunity to leave the property at any point in the tenancy giving two months’ notice without the same power for re-gaining possession being granted to landlords.

In the first detailed assessment of proposals for standard five-year contracts, Professor Ball concluded that under this model, “landlords would face higher risks and lower returns; while the beneficiaries amongst tenants would be few and the losers many.”

Professor Balls warned that the proposition would “fatally undermine the huge increase in the private rented sector of the past two decades” and that “accommodation shortages would grow” with vulnerable low income groups likely to be amongst the greatest losers as a result.

The report’s findings support those from the Office for National Statistics showing that in each of the past eight years, private rented sector rents have risen by less than inflation. Linking rents to inflation would therefore leave tenants worse off, exacerbating the cost of living for tenants.

As the Government begins work on seeking to introduce “family friendly” tenancies, the RLA has established a model that would provide stability for the growing number of families with children now residing in the private rented sector, whilst retaining the flexibility that younger tenants, especially those wanting to buy a home of their own, look for.

Under the RLA’s model, tenants would have a right to renew their existing tenancies based on the current short-hold tenancy agreement. Where a disagreement ensued about renewal, the landlord or tenant could take the matter to arbitration. Such a model would crucially be possible now, as unlike proposals for a five-year tenancy agreement, it would require no new legislation.

RLA chairman Alan Ward said: “Landlords do not want to see a well behaved, rent paying tenant leave their property. That’s why only 9% of tenancies are ended by a landlord.

“Tenants also seek security, but crucially, each also has different needs, requiring the flexibility that the sector brings to meet these.

“The reality is that the existing system already provides for those tenants who want to, the opportunity to stay in their homes for longer periods, many of whom enjoy discounts on their rents as a result.

“Not only would rigid five-year tenancies ‘straight jacket’ the sector, it would, as Professor Ball has noted, lead to untold damage at just the time that we need more, not fewer, homes and leave tenants worse off.

“The RLA welcomes Professor Ball’s assessment of Shelter’s proposal and looks forward to working with ministers and the opposition as they prepare their proposals on tenancy reform to deliver stability to families whilst maintaining flexibility for the majority of young professionals and students in the sector.”

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