Oliver Romain of Landlord Magazine reports exclusively from the launch of the Rugg review by Dave Rhodes and Julie.

Major reforms of the Private Rented Sector(PRS), including a drivers’ style licence for landlords and new tax breaks, have been recommended in a comprehensive review of the PRS. The independent, government commissioned review published by Julie Rugg and David Rhodes of the University of York has been welcomed by industry experts.

The National Landlords Association (NLA) said the review ‘marks a major watershed in attitudes to the PRS.’ The report recognised the positive role the vast majority of private landlords play and called for more support for landlords, compulsory light-touch licensing, tougher enforcement against rogue landlords and strong mandatory licensing for letting agents.

The Association of Residential Letting Agents(ARLA) welcomed the review. “The Private Rented Sector has been well served by the small landlord. Without this backbone, the sector would never have been revitalised and the housing market would be having even more problems,” commented Ian Potter, ARLA’s Head of Operations. “Professor Rugg’s comments are very welcome. Stimulating the sector will do much to help us through the difficult times ahead, and at very little cost to the exchequer.”

Agreeing with Rugg’s call for licensing, ARLA pointed out that the Association has been calling for the licensing of all letting agents for more than a decade and is pleased that this demand has now been backed up.

Whilst broadly supporting the review, the NLA called for more scrutiny of the licensing proposals and more work to see how the framework would work. David Salusbury, chairman of the NLA stated; “The Rugg Review offers Government a number of policy options based upon sound and independent evidence.

The rhetoric has gone and myths have been dispelled. “It demonstrates and encourages a commitment to ‘grow the business of letting’ for smaller landlords but also encourages largerscale investment, where appropriate. This means tax incentives to encourage investment in quality housing across the board.”

Rugg defended smaller landlords, who the government had been keen to displace with larger institutions, stating; “Smaller landlords can offer their tenants better deals, some tenants don’t get rent increases because small landlord want to keep them.

Smaller landlords have more flexible letting policies, they are more likely to take lone parents, people who are unemployed, or people who are sick or disabled. Whilst small landlords are castigated they are actually doing quite a lot of good work with vulnerable people.

Tax changes recommended included changes to stamp duty to favour portfolio landlords and a review of how tax affects renovation and repair of properties, Rugg said: “We would like to see changes to stamp duty regulations so that landlords buying portfolios are charged per property and not on the basis of the entire portfolio cost.”

Rugg also stressed the importance of recognising that most landlords are well intentioned, stating; “We know that we have some excellent landlords, some landlords that mean well but don’t quite understand the level of responsibility that goes with letting, and a very small proportion of landlords who are prepared to operate outside the law.”

The author recognised that landlords come under attack from tenants’ rights groups unjustly, “The data they produce tends to be unreliable, it’s usually gathered from their client base who are already presented with a difficulty. By the nature of their job welfare rights workers never come across the bits of the pipeline of the sector that work.”

According to the report it is not viable to leave market forces to weed out poor landlords and more effective policing is required. Rugg commented “Bad landlords will always find tenants, since at the bottom of the PRS there are more tenants than properties and the existing policing frameworks are simply inadequate, the regulations are there but the local authority performance is at best variable.”

The report dispelled the myth that letting agents provide better services, Rugg said: “Many tenants use managing agents because they think they will get a better level of service, but when it comes to property quality, it’s no different.”

Rugg also called for more help for recipients of Local Housing Allowance (LHA); “Tenants who can vote with their feet don’t choose to rent poor quality property, but tenants on LHA have very little choice. Universal assistance with rent in advance and deposits would go a long way to extending choice for these groups and go a long way towards knocking the bottom out of the slum rental market.”

Some commentators have been calling for changes to Assured Shorthold Tenancy regulations to give longer periods of occupation, however, the report called for caution, as the image of the PRS did not match reality. “Most tenancies end when the tenants are happy they should come to an end,” commented Rugg.

The report stated that there has been little policy intervention to support tenancies, particularly for tenants in receipt of LHA. “If we have homelessness stats that take ‘end of AST’ as the reason for loss of accommodation we are simply not asking the right questions.”

The report was critical of local authority attempts to use the PRS to discharge their homelessness duties. “The belief that the PRS will expand to meet this demand just because we want it to, indicates a poor understanding of the sector. “Landlords are reluctant to move into this market without some kind of incentive, so we have incentive inflation, ever more expensive and ever more complicated initiatives to persuade landlords to take benefit recipients.”

The lack of co-ordination between homelessness agencies is blamed for causing competition for property. Rugg calls for more thought for where the property comes from: “If this property comes from landlords who are already in the LHA market then we are offering incentives to displace what are probably even more marginalised households.”

According to Rugg, there are no systems in place to establish whether using the PRS is the best means of meeting the longer terms needs of homeless people. She also argues that lower income households can be vulnerable because LHA admin is poor, stating; “It’s harder to arrange tenancy support and because landlords are a business not a charity they can’t be expected to deal with tenants who have
complex needs.”

Rugg recommends a system of local social letting agents, who can work with landlords and co-ordinate local priorities efficiently whilst focusing on securing long term housing for tenants. According to Rugg the PRS needs more support, she said; “We need to grow the business of renting, we want an end to the notion that buying a house and letting it out is just an investment, it’s not an investment it’s a business and a business that needs to be managed.

“We have got to promote good business practice and get professional training opportunities in place to help small landlords in business planning and get them up to speed with the law.”

Mortgage providers are culpable for some of the problems in the sector and could do more, according to Rugg; “We want to see buy to let lending requiring sound business planning and packages to protect tenants if landlords fall into mortgage arrears and repossession.”

On the subject of landlord licensing, Rugg called for a light-touch; “We have to work with how the sector works and not keep putting into place cumbersome interventions that skew the market. “We need a system of landlord licensing, we need to ensure that when we find a bad landlord they will be kicked out of the sector.

What we suggest is light touch landlord licensing. Landlords can’t work without a licence but it will be easy to get one. “That sends a message to all landlords that good landlords can have a licence straight away with no qualifying criteria, but that when you contravene the law you lose your licence.”

The proposed license would cost in the region of £50 per year and a landlord would only need one licence regardless of how many properties they own. The licence could come with a number that would be used on tenancy agreements, tax and LHA forms. Everyone would have a right to a licence, however, the licence could be withdrawn using a driving licence style pointssystem for misdemeanours.

When we questioned Rugg on the practicalities to the tenants of a landlord being banned, Rugg responded; “If a landlord is in a position where they loose their licence and are no longer in a position to rent their property, then those properties can be managed by the social letting agent until those properties are either sold to another landlord so they stay in the sector or some other element happens.“Social letting agents could be a good agency to work with under those circumstances because they could take over interim management.”

Summary of the main recommendations from the report:

• Introducing a light touch licensing system for landlords and mandatory regulation for letting agencies, to increase protection for both vulnerable tenants and good landlords.

• Introducing a new independent complaints and redress procedure for consumers, to help end long drawn out disputes.

• Tax changes to encourage good landlords to grow, including changes to stamp duty to encourage them to buy more properties.

• Looking at ways for the PRS to be more accommodating towards households on lower incomes, including considering more support for landlords prepared to house more vulnerable people.

• Local authorities taking steps to better understand the sector and support good landlords whilst tackling poorly performing landlords and promoting tenants’ rights.

For letting and managing agents the report recommends a stronger approach including a system of mandatory independent regulation with agents required to meet strict criteria and more responsibility for ensuring the properties they manage are up to standard.

Rugg stated; “Managing agents have been letting down tenants for too long, and even their leading association believes that a stricter regulatory regime is required.”

Iain Wright MP, parliamentary under secretary of state for housing, attended the launch and welcomed the report, whilst calling for a considered response, stating; “Any reform can stifle the strengths of the sector, the flexibility, diversity and range of choice and with the present financial climate, having that flexible option is more important than ever before.

“We need to get the balance right so that more people can have reliable services and affordable housing in a sector that has high professional standards and is a sector they can trust.”

The minister was supportive of the concept of a landlord licensing regime, saying; “The idea of licensing landlords and fuller regulation for agents may be one way to support good landlords and offer tenants greater guarantees of quality alongside using current legislation. This would help drive out bad landlords from the sector.”

The NLA also supports the concept of effective regulation, however, it is calling for close involvement in the plans, Salusbury said: “The Review’s recommendations about licensing will need careful consideration but the NLA has a major role to play in the development of PRS policy and we look forward, in the coming weeks and months,to ensuring that landlords up and down the country are represented as the decisions which affect them are made.”.

Rugg concluded; “We hope the review will signal the governments intention to seek a better working relationship with the sector, we now have a much stronger evidence base and the opportunity to frame more informed policy.”

Oliver Romain is the founding editor of Landlord & Buy-to-Let Magazine and reported from the launch of the report at the University of York on 23rd October 2008.

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To read the full report visit www.york.ac.uk/chp/Projects/PRSreview.htm