Tenant’s voice: Corporate aid

Tenant’s voice: Corporate aid

Tenant’s voice: Corporate aid

First Published 04 September 2016

Could institutional investors succeed where HMO licensing has failed?

Recently, I attended a meeting at which a Communities and Local Government officer summarised government plans to assist the private rented sector.

This included the Private Rental Sector Initiative (PRSI), a proposal to kick-start long-term investment in new-build by offering financial incentives to fund managers and investors to enter the private rental market.

At the end of the presentation, someone wanted to know how the government could justify giving millions of pounds to institutions to invest in new private rented homes for yuppies.

Sounded like a good question. It’s clear that none of the homes resulting from this public investment will be available to homeless families, or to anyone in acute housing need. So why, when almost every government department is facing public expenditure restraints, is the PRSI seen as a priority?

On the face of it, an entirely different issue. In July, the government placed the latest statistics on licensing of houses in multiple occupation in the House of Commons library.

For anyone who needs reminding, mandatory licensing of HMOs (bedsits) by local authorities was brought in by the Housing Act 2004 and came into force two years later, along with powers to run additional and selective licensing schemes, subject to government approval. So after three years of operation, it seemed timely to check progress.

The statistics are depressing beyond belief. Apart from those authorities claiming only a handful of HMOs, most had managed to licence less than 5 per cent of their HMOs in three years.

At that rate, bedsit tenants with respiratory problems due to the damp, those who can’t take a shower without flooding the tenant underneath, those with no access to mains drinking water or adequate means of escape from fire can be reassured that standards will be raised to meet the requirements of licensing some time during the next 60 years. Well, thanks.

We may never know how much money has been invested in this futile exercise, but by no stretch of the imagination can we say that HMO licensing is having any impact on driving up standards in the private rented sector.

So could the PRSI succeed in raising standards where HMO licensing has failed? Could there be a knock-on effect that would help bedsit tenants if the government succeeds in encouraging institutional investors into the top end of the market on a large scale?

For a view on this, we need to look at what currently deters responsible investors. A key deterrent, we are told, is the short-termism of the sector.

Small-scale buy-to-let landlords were encouraged to adopt a get rich quick mentality -maximum rents for minimum maintenance costs. And shorthold tenants have little incentive to invest time and money in their homes.

Another drawback is the poor quality of private rented homes. With most landlords owning between one and four properties, they are unable to grasp the economies of scale that would make property refurbishment an attractive option.

Until recently, landlords have had to compete for properties with owner-occupiers, driving up property prices. Landlords have relied heavily on their asset’s capital growth, realisable on disposal. Unlike in European countries with a healthy private rented sector, properties in the UK are worth more when empty than when they are occupied.

The recession and the collapse of the housing market allows space for a radical rethink. Maybe it’s true, as one property professional told me, that institutional investors are like sheep. Persuade a half dozen to take on private renting and the rest will follow.

If the government and fund managers can come up with a model for private renting which relies on having long-term tenants in decent, safe and well-managed homes, then the millions spent on this PRSI kick-start could be worth its weight in bricks, or even gold.

Paul Ograe is director of Brent Private Tenants’ Rights Group.