The best way to help tenants is to cut red tape for landlords

The government’s deregulation programme doesn’t seem to be progressing very well. Indeed during the recent party conference season numerous additional regulatory burdens were proposed. One of the most egregious is the new ‘Tenants’ Charter’ announced by Eric Pickles. While the precise details have yet to be finalised, this policy is likely to increase further the legal protections given to tenants in the private rental market and in particular give them the legal right to demand long-term tenancies which could be as long as five years. The aim is to reduce the number of short-term tenancies of one year or less, the reasoning being that having to find new accommodation is disruptive to families.

The new rules must be seen in the context of an already heavily regulated market. Tenants are already so well protected that it typically takes several months to remove them if they fail to pay the rent. At the same time, many rental properties in multiple occupation are subject to strict local authority licensing requirements. The government is also considering forcing landlords to check the immigration status of potential tenants, under threat of heavy fines. Hence there are already significant disincentives for investing in the lettings market. Current regulations increase the risk of unpaid rent and expensive renovations to meet bureaucratic rules.

The new policy would introduce further risks. In particular, longer tenancies would place severe constraints on investors’ ability to regain vacant possession in order to sell their properties at maximum value. It will be significantly more difficult for landlords to respond to changing market conditions or changes in their own financial circumstances. This is also a risk for buy-to-let lenders, potentially increasing the number of delinquent borrowers and making it harder to offset losses through repossession and sale. Lenders are likely to charge a risk premium to reflect this.

These additional risks suggest the Tenants’ Charter is likely to be counterproductive. Rental properties will be less attractive compared with alternative investments, deterring investment in the sector and potentially reducing the supply of new housing (buy-to-let investors are major buyers of new builds in many locations). Reduced financial incentives may also mean more properties remain ‘underoccupied’ by home owners (for example, single people in large houses) rather than being transferred into more intensive rental use. Indeed, the increased regulatory risks could mean more homes being left empty rather than let out short-term before an intended sale. It is also predictable that the new rules will incentivise landlords to favour tenants such as students and migrant workers who are less likely to demand long-term contracts than families with children. This will work against the positive market incentives for landlords to let to families, whose relative stability means their tenancies are frequently renewed to the benefit of both parties. In high-demand areas in particular, the new rules may push more families into social housing and even emergency bed and breakfast accommodation.

There are clear parallels with the disastrous regulation of private rentals prior to the partial liberalisation of the 1980s, which saw the sector’s share of dwellings fall to around 10 per cent of the total stock, with negative knock-on effects on investment, quality, labour mobility and social housing costs. It may seem counterintuitive, but the best way to help tenants in the long-term is to reduce the regulatory burden on landlords rather than increase it. And if the government wishes to stabilise the accommodation situation of lower income families, it should liberalise planning and building regulations so far more of them have the option of owning their own homes.

Deputy Research Director & Head of Transport

Richard Wellings was formerly Deputy Research Director at the Institute of Economic Affairs. He was educated at Oxford and the London School of Economics, completing a PhD on transport and environmental policy at the latter in 2004. He joined the Institute in 2006 as Deputy Editorial Director. Richard is the author, co-author or editor of several papers, books and reports, including Towards Better Transport (Policy Exchange, 2008), A Beginner’s Guide to Liberty (Adam Smith Institute, 2009), High Speed 2: The Next Government Project Disaster? (IEA , 2011) and Which Road Ahead - Government or Market? (IEA, 2012). He is a Senior Fellow of the Cobden Centre and the Economic Policy Centre.

3 thoughts on “The best way to help tenants is to cut red tape for landlords”

  1. Posted 04/10/2013 at 17:33 | Permalink

    Part of the trouble seems to be that politicians want to be seen to be ‘doing something’ even when doing nothing would be a better (less harmful) option. I sometimes wonder whether it might make sense to press for a politicians’ equivalent of the Hippocratic Oath for doctors of medicine: ‘Above all, do no harm.’ The philosophy of laissez-faire doesn’t mean that politicians should never do anything, should never ‘interfere’ in the market. But it does mean ‘look before you leap’ and do try to imagine the indirect and longer-term consequences of your proposed actions. Why is it that so few politicians seem able to learn from experience, their own or other people’s?

  2. Posted 07/10/2013 at 07:04 | Permalink

    Note to D.R. Myddleton – it is a commonly believed myth that medics swear the Hippocratic Oath. They don’t (at least not in the UK). They simply agree to abide by the principles of good medical practice, as defined by the General Medical Council (which is slightly worrying given the record of the GMC in protecting the interests of medics above those of patients in recent years).

  3. Posted 08/11/2013 at 12:43 | Permalink

    Just don’t see ny reason….There should be short time rentals as long time rentals! Not everyone is going to live the whole life in the city, so what is the reason to reduce short term rentals in some people really need them? “Tenants are already so well protected that it typically takes several months to remove them if they fail to pay the rent”- Yes, there lots of problems here. Periodic tenancies run on a week-by-week or month-by-month basis with no fixed end date. If you have one of these, your landlord must usually give you ‘notice to quit’ – they must do this in a certain way depending on your type of tenancy agreement and its terms.If you don’t leave at the end of the notice period, they must apply to the court for a possession order, which gives them the right to evict you and take possession of the property. If the court gives your landlord a possession order and you still don’t leave, your landlord must apply for a warrant for eviction – this means bailiffs can remove you from the property.

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