By: Jules Birch, Inside Housing

19/01/2012

Within the next month official figures will confirm that there are now more private rented than social rented homes in England. This will be hailed as a triumph for the market.

In strictly numerical terms it is. When private renting was deregulated with the introduction of assured shorthold tenancies in 1988 there were 1.8m homes in the sector.

By March 2010 (the most recent figure currently available) there were 3.9m and, with each of the last four years seeing growth of over 200,000, the March 2011 total will almost certainly be over 4m.

In contrast, the social sector shrank from 4.7m in 1988 to 4.3m in 2000 to 4.0m in March 2011. And home ownership has fallen for each of the last four years.

Whether you attribute all this to lack of investment in social housing, high house prices, restricted mortgage lending or the creation of buy to let (in 1996), the transformation is little short of remarkable. And it reverses the seemingly irreversible trend from private renting to social renting seen in the 1960s (in 1961 there were 3.2m social rented homes and 4.7m private rented, by 1971 there were 4.6m social and 3.2m private).

But the real question – and this is my third key question for 2012 – is what happens next. The government’s answer so far is nothing. Nothing should be allowed to interfere with such a market success story.

One of its first acts when it came to power was to reject the modest proposals for regulation put forward by the Rugg Review as ‘red tape’. As Grant Shapps put it at the time:

“With the vast majority of England’s three million private tenants happy with the service they receive, I am satisfied that the current system strikes the right balance between the rights and responsibilities of tenants and landlords.”

In November the housing strategy said that:

“The Government is committed to supporting growth and innovation by avoiding unnecessary regulatory burdens on landlords. But we are also looking at measures to deal with rogue landlords and encouraging local authorities to make full use of the robust powers they already have to tackle dangerous and poorly maintained homes.”

Yet there are growing calls from reform – and not just from the quarters you might expect.

Over Christmas The Economist, normally an advocate of deregulation in everything, argued that:

“When demand outstrips supply against a background of profound housing need, tough action is required.”

Visiting a family living in a rented garage in Newham, it dismissed the usual arguments against regulation (free markets work better, self-regulation works better, tenants are as bad as landlords) and concluded:

“Seen from inside the Hamids’ mouldy garage, these arguments are not persuasive.”

In London as a whole, regulation of private renting has emerged as a key issue in the mayoral election campaign. Ken Livingstone has pledged to ‘campaign for’ a form of rent control. Boris Johnson has attacked that idea but he is also pledging a single badge of accreditation for all landlords, letting agents and management agents.

Meanwhile the Lib Dem half of the coalition does not seem as satisfied with things as they are as the Conservative half. Richard Kemp, co-chair of the Lib Dem housing policy group, says that:

“The key new area that I want the Party to tackle is the whole area of private landlords. Some have complained that this will drive a wedge between us and the free market, no holds barred section of the coalition. If that is the case bring it on!”

He goes on:

“I believe that no-one should be allowed to let a property unless that property has been inspected and that inspection is regularly updated. I believe that to be a landlord individuals or companies must either be registered or have to let solely through registered lettings agencies.

Some will say that this is a restriction on fair trade. I believe that it is a restriction of unfair trade. Out of desperation hundreds of thousands of people are living in squalid conditions which are funded by the tax payer through housing benefit. Some of the key supporters of such registration are good landlords who have to compete on price with modern day Rachmans and who get tarred with the brush of “racketeer”.”

So regulation of the private rented sector is an issue that is not going to go away. Getting the system right, and avoiding an over-prescriptive one that would kill off the growing signs of interest in the sector from institutional investors, will not be easy and cannot happen in isolation of wider reform of the housing system.

However, good landlords and letting agents have nothing to fear from sensitive regulation and know that it will work their their advantage by driving out competitors who cut corners to undercut them.

Because the truth is that the explosive growth of private renting over the last decade is evidence not of market success but of market failure: the failure of a rental market in which millions of tenants can only afford their rent thanks to billions of pounds a year in housing benefit; the failure of housing and mortgage markets that have priced hundreds of thousands of younger people out of owner-occupation; the failure of the current system to protect tenants from rogue landlords and agents; and the failure of six- and 12-month tenancies to be remotely adequate for the 1m families with children (an increase of 77 per cent in the last two years) now living in private rented accommodation.

The deregulated system invented 24 years ago has run its course. Much like the 20-somethings stuck living at home with their parents because of the state of the housing and rental markets must be getting sick of being told, it’s time it grew up and took some responsibility.