Trying to Understand the Renters' Rights Bill

One of the things I keep being asked about the Renters' Rights Bill is some version of "why is the government doing this?" Ultimately it is not a question I can answer beyond a slightly facetious "because they can". But I also do not think that the government has done a very good job of explaining its reasoning, hence this post.

Some key caveats. First, I do not speak for the government. Their opinions are not my opinions and so if you do not agree with what I am saying here then don't shoot the messenger! Secondly, you should take what I say with some degree of healthy scepticism. I have no special access to the inner thinking of Labour ministers. I just speak to a lot of relevant people and keep a close eye on the political situation. I am therefore saying what I think the government probably thinks, not what they actually think. That is of course coloured by my own opinions too! I am sure that the government would deny having some of the views I would ascribe to them, at least in public!

So, why read this? Well a lot of the problems I perceive from landlords and agents is that they have a poor understanding of what is driving the government and so are trying to obtain changes in the RRB which are just never going to happen. Trying to find ways to keep s21 and fixed terms (even for certain groups) falls into this category and is hopelessly ineffective as a lobbying strategy.

Political Situation

A key driving factor is the overall political situation. The Labour party one power with a relatively low share of the popular vote based on a clear and sophisticated understanding of how the "first past the post" system works and who their voters were. Unsurprisingly that was not calculated to include a large number of landlords! But it was calculated to include a lot of tenants who have shown a far higher propensity to vote and have tended to break for Labour in the last two elections. They are perceived as a frustrated group who see their chances of getting on the property ladder receding and feel that they pay a lot of money in rent for property of very variable quality on relatively insecure terms.

I am sure some of you are thinking of typing an angry comment here about how well your tenants are treated and what a great relationship you have with them but you need to bear in mind that there are a lot of tenants who do not have that experience, or even something close to it and almost every tenant knows at least one person with a very negative set of tenancy experiences.

To appeal to tenants the Labour party made, and talked up, a manifesto promises to end s21 notices as soon as possible. They seem to have a (quite unprecedented) commitment to keeping their manifesto promises which is a little unexpected from a government but is largely driven by an effort to appear different. So this was always going to be pretty committed to getting this done. And having secured votes on this basis it is almost impossible to walk away from that commitment without getting the kind of backlash that ultimately doomed Nick Clegg's Liberal Democrats after their reversal of unwise promises on student fees.

So, however much the government might regret its commitment to get rid of s21 (it doesn't) or however much they are pressed to reverse some or all of this (they won't) they are in a position where it would be politically impossible for them to do so without alienating a huge percentage of their members, volunteers, and (most critically) voters making any prospect of winning the next election a total impossibility.

The PRS

The Labour government, rightly or wrongly, views the PRS as a problem. And to some degree they are correct.

The PRS has grown far beyond initial expectations and is now asked to house a far greater number and range of persons than anyone ever anticipated. Many of these people are not really suitable for PRS housing and would be far better accommodated in the social sector. In addition a considerable number of PRS properties are sub-standard (some grossly so) and some of the landlords involved are borderline criminals (some not so borderline). Further, PRS properties tend to have lower energy performance ratings on average and are more likely to be older.

That is not to say there is not a lot of great property and great landlords in the PRS. There are. There are also bad properties and bad landlords in the social sector and poor quality properties in the owner occupied sector. But the statistics speak for themselves and the average is not great.

Despite increasing regulation these statistics have remained pretty stubbornly unchanged. Clearly, proper investment in enforcement would help but in the absence of money the government is looking for alternatives.

There is also the ongoing problem of housing in the South-East. The PRS is massively concentrated here and there remains a huge pressure for people to live in and around London. To a large extent the opportunities offered by Brexit and Covid to restructure the UK to address this have been squandered.

Where They Are

So given the above there are limited options. You do not have to agree with this analysis of the situation (I do not particularly) but if you accept that this is the view of the government the RRB makes a lot more sense.

The government was trapped by its desire to move fast into sticking with a large chunk of the model used by the previous government in the Renters (Reform) Bill. I suspect that is not the way they would have done things had they had a free hand and the time to do it themselves.

These positions also make it very clear why the RRB is here and why getting rid of s21 is not negotiable. The current government could not offer less to tenants than the previous government was offering so getting rid of s21 and fixed terms and allowing pets, banning discrimination, the PRS database and landlord redress were all going to have to be there. That said, I would assume that the current government would do much of that anyway. Redress schemes are a cheap way of taking pressure off the courts, so reducing costs there, and the database gives you an assist with enforcement and also allows for targeting of rogue landlords who probably will not sign up anyway and so can be attacked for that offence alone with little substantial need for evidence.

Rent in advance is a more surprising point but generally reveals the power that tenant groups, representing a clear chunk of Labour voters, have with a party that needs those votes. Overseas students, while important, do not vote and so are not ever going to matter as much. Landlords tend not to vote Labour and so faced with choosing between those two elements it is clear where the government will go. While rent in advance is not used much by some it is prevalent in parts of the market and drives poorer tenants into the arms of high interest and illegal lending. It was bound to be a target although I am a little surprised by how far the government went on this.

The issue of the more limited rent increase structure is again largely a copy of the previous government. They had moved to force use of s13. The main change has been to make it easier for tenants to enforce their rights and motivate them to do so. That is undoubtedly a policy decision to encourage tenants to use the rights they are entitled to and to buy off some of those calling for rent control with an element which will potentially slow down rent increases. This buys time for policies intended to increase social and private housing supply to start to kick in.

The Negatives

There is a lot of talk about large-scale landlord exodus. But the government is very clear that it just doesn't buy into this. They have a point in that this has been suggested before and not happened. Undoubtedly some landlords will sell and it is likely that the PRS will shrink in size. The government, I believe, sees this as a short term pain issue. They are prepared to accept a temporary range of challenges with a shrinking PRS to reach a longer-term goal of a restructured PRS with a smaller number of more corporate landlords in it. They anticipate that new building will eventually lead them out of this problem.

Equally, I do not think the government anticipates large rent increases. They are probably reliant on statistics that suggest that London, especially, is running up against affordability limits on rents. Whether the rest of the South-East will see large rises to catch up with London does not appear to have been discussed.

Overall

So the government is bound by a combination of ideology and promises made it cannot escape. Once you take these into account it becomes clearer why they are also then leaning on a hope that it will all be OK and are refusing to budge.

I appreciate that people will say that the government is not listening to reality or is captured by stories that do not represent the average experience. But these are common human problems. Belief that what you can see is all there is or that storied you have heard are the general reality are normal in many forms of decision-making. Landlord groups do it too! These are symptoms of rapid decision-making in a complex world which we often do not understand. The work of Daniel Kahneman is worth looking at if you want to understand these phenomena.

My Thoughts

I did not really intend to say much about what I thought of all this but it seems inevitable that I will be asked.

• I have always said that I thought the loss of s21 and fixed terms is not the most important part of the RRB. many landlords will say that it really matters to them but in practice relatively few s21 notices are served as compared to the number of tenancies and even fewer end up in court. Most tenancies end because the tenant wants to leave and I expect that to continue.
• Where landlords do have to go to court I expect that this will get more complex, more costly and slower. I do not anticipate that the digital reforms will speed things up a lot and I doubt that the redress schemes will really end up diverting many cases from the courts.
• While there will be an increase in tenants contesting rent increases I do not think that vast numbers of tenants will do so. It will definitely be more (probably quite a lot more) and I do not expect the Tribunals will be able to handle that load well. So landlords will face delays in increasing rents.
• At the same time many more landlords will increase rents more regularly as a side effect of the changes and so I do not expect there to be any slow down in rent increases over time. I would also anticipate rents in outer London and the Home Counties to rise quickly so that they start to match those inside London.
• I doubt there will be a mass landlord exodus. Landlords will sell and other landlords will buy into the sector. The number of landlords will likely reduce and they will own more properties. The big problem is likely to be that those landlords may be looking for different tenants and I can see specific tenant groups that currently rely on the PRS being increasingly pushed out of it.
• I do not think that the government will come close to meeting its housebuilding targets, especially for social housing, and this is likely to mean that things will get much worse for some. Not precisely because of the RRB but rather in spite of it.

I am sure this will provide little comfort to many landlords and agents. But that was not really my purpose. I wanted to provide a little bit of insight into the thinking of the government, if only so I do not get asked the same questions again and again. You may disagree with the government's reasoning (I do) and indeed with mine but this is what I am seeing from the statements the government is making and their actions.