Renters Reforms Bill 2022 - a review
30 Mar 2023
The year 2022 will not be remembered fondly by us in the UK. Having gone through 3 prime ministers and changed 4 chancellors, it heralded an intense period of political and economic turmoil. Brexit seemed far away as constant economic battering through cost-of-living crisis, energy crisis, high inflation and rapidly increasing lending rates shook us all. For the Private Rented Sector (PRS) last year also saw the introduction of the Renters Reforms Bill 2022 through which the Department for Levelling Up, Housing and Communities is aiming to achieve a fairer private rented sector. The white paper is available here for a thorough read. Or alternately if you’d prefer a simplified summary, it is available here.
Supply and Demand Disparity
Research shows that nearly 35% of all homes in the UK are part of the rental market with Private Rented Sector housing 19% of households with over 11 million people. The Government has admitted in the white paper that the proposed 12-point plan will provide further support for tenants on their path to home ownership showing a greater impetus towards Save and Buy rather than Save and Rent. Furthermore, the increasing mortgage costs and restrictive taxation policies are causing a worry of diminishing capital growth particularly for the ‘accidental’ landlord with 1 or 2 properties. Many non-portfolio landlords are already looking to exit the rental market as is evidenced by the 46% drop in supply of rental properties when compared with 5-year average. This, however, has not reduced the demand for rental properties through the lack of available housing, with portal traffic up by 142%. The Government under Boris Johnson had set out an ambitious plan of building 300,000 new homes per year to achieve parity between supply and demand, but in reality, this is consistently about 30% short of its target. Therefore, the Private Rented Sector, through both demand and its sheer size, is here to stay.
Headline Act - Section 21
The Renters Reforms Bill 2022 proposes radical changes to tenancy structures and abolition of ‘no fault’ Section 21 evictions. Quoting the white paper ‘We will abolish Section 21 evictions and simplify tenancy structures. To achieve this, we will move all tenants who would previously have had an Assured Tenancy or Assured Shorthold Tenancy onto a single system of periodic tenancies’. It’s aim is to ensure that tenants have the confidence of not being asked to leave without proper reason and proportionate notice and at the same time be able to leave for change of circumstances or if they are unhappy with the property. One category that appears to be under discussion of exemption is students in Purpose-Built Student Accommodation, however students renting in general private rental market will be included in the reforms for consistency. For university towns such as Oxford, the Private Rented Sector forms an integral part of the housing available for students and furthermore is governed by strict additional licensing incorporated by local Council. It is also extremely seasonal in line with the academic year of the educational institutions. Therefore, any exemptions should include all student housing and not just the purpose-built accommodation.
What should we expect in 2023?
The national figures are already showing a decrease in landlord volumes and hence properties available to rent, as more and more landlords look to exit the market by capitalising their gains. However, the demand for good housing is holding strong therefore pushing rents up. There is genuine concern over affordability at higher rents while battling rising cost of living which could lead to higher rent arrears. These circumstances are making Rent and Legal Protection products more appealing, especially legal protection, amongst landlords. Rent Guarantee products are also increasing in popularity where landlords are looking to shift the risk away from them. There is overwhelming cross-party support to the Renters Reforms Bill 2022 and the current government is looking to draft the policy for discussion as early as May 2023 with the law being passed in early 2024. Both landlords and agents are actively participating in dialogue with law makers to ensure that the policies are truly fair and clear in details of expectations. Many proposals in the white paper are currently vague such as the applicability of Decent Homes Standard to PRS or the proposal to introduce Pet Insurance as a mandatory requirement for properties with pets. The fiscal and monetary policies in the UK have developed a mature financial system for lending to the buy-to-let market over the years supporting the growth of PRS. However, many of the proposals appear to constrict this market and treat landlords as a capitalist money-making machinery to be penalised under the pretext of achieving ‘fairness’.