Written evidence submitted by the Residential Landlords Association [NPP 12]
About the Residential Landlords Association
Introduction
The Associations’ concern is that, in revising the National Planning Policy Framework (“NPPF”) the policy is not taking cognisance of the increasing importance of the PRS as a significant provider of housing. This Government appear to us to be pursuing policies intended to cause serious damage to existing and potential PRS tenants, as well as private landlords as housing providers. Some of the proposed changes to the NPPF reflect this policy, although we support other policies such as the Housing Delivery Test. The fundamental problem is around lack of overall housing supply, due to consistent shortfalls in previous years, as well as an increased population in the United Kingdom due to net inward migration and an increasing ageing population. To set about attacking one sector, the PRS, to favour another, owner/occupation, as if the PRS is the cause of these ills is wrong headed. At the time same the Government are acting to the detriment of social landlords providing affordable housing by reducing rent levels.
Whilst owner/occupation levels have been falling, this was a trend that started before the 2008 Great Recession and results from the general problem of a lack of supply, particularly in areas such as London and the South East but also elsewhere. The Government also fails to appreciate fully the regional nature of this situation and as a result of the serious difficulties in London and elsewhere are driving housing policy throughout England in the wrong direction.
Private landlords are in the “firing line” because it is perceived that they are in competition with owner /occupiers, especially first time buyers and this competition drives up the price. Even if this were the case, there is research which has demonstrated that the overall increase in house prices driven by shortages dwarfs any increase that may result from private landlords seeking to buy. In any case, owner /occupiers, and first time buyers, are not necessarily in competition for the same properties. There is also a contrary case in that there is ample evidence to demonstrate that private landlords buying plots ‘off plan’ have provided the necessary pre-funding which has enabled developers to proceed with developments which would then be sold to both private landlords and owner/ occupiers. The evidence base, therefore, upon which the Government’s current misconceived policies aimed against private renting is based is shaky.
Affordable Housing
In our view, it is essential that the NPPF continues to emphasise the obligation placed on all local planning authorities (LPAs) to plan proactively for all kinds of housing in their areas, both for sale and to let. We believe that the changes which the Government is now proposing include draft provisions that will cause the pendulum to swing too far in favour of owner/occupation, to the detriment of those who due to current realities are only able to rent or who choose to rent anyway.
These changes proposed have to be looked at against the following background and cannot be viewed in isolation –
In the affordable Housing Sector, social landlords face compulsory reductions in rent and in the case of housing associations, right to buy, reducing available rental stock; again in order to favour owner occupation.
The need for private rental provision
The reality is that until a fundamental change in housing supply has been brought about there will be more, not less, demand for private renting. In particular, there will be greater calls on the availability of private rented housing This will be coupled with the Government measures relating to social landlords already highlighted above, which will mean that despite increased population numbers, there will be relatively less and less of housing available via social landlords. Research on the demographic of those living in affordable housing shows that they tends to be older people, those with special needs and single people with children. Couples and families more and more are turning to the private rented sector.
Independent predictions show an increasing demand for private renting, looking forwards to 2025.
The problems facing owner/occupiers
The biggest problem facing those seeking to buy at the moment are the need to find a deposit, coupled with high house prices relative to average earnings in a large number of areas and various regions of the country, especially London and the South East. In the 1960s/70s a house could be purchased on the basis of four times average earnings but in these areas this can currently be at least seven times and more. The current price rises are fanning out from London and buying is simply an impossible option for many. They have to turn to the private rented sector because there is no affordable housing via social landlords available. Indeed the Government measures to increase social housing rents for higher earners would also work against a considerable number of them anyway.
The Government plan to build 200,000 starter homes by 2020. Some commentators have suggested that, particularly in London, many of these are simply unaffordable even with the 20% discount on price to be offered. Whilst these measures may help some, the reality is that because of the lack of supply it will take many years of determined effort to rectify the current situation which has become embedded in housing provision in the UK. We only currently have around 135000 housing completions in England per annum against a target of 230000 or more. The backlog in supply grows each year. The demand for private rent must continue to grow. Whether there will be private landlords out there to service this demand remains a moot point, bearing in mind the Government’s concerted attack on private renting, which is currently, regrettably, in progress.
Affordable Housing
We have always expressed concerns about the requirement imposed on house builders/developers by Section106 Agreements for the provision of affordable housing as part of developments. The cost of this provision is being thrown onto owner/ occupiers, not least first time buyers, which exacerbates the issue of rising house prices. If there are to be such policies, then we support the Government’s proposals to widen out the definition in the way proposed. On the other hand, we would clash with the Government’s proposal to add in of the concept of the starter home to buy, at least in the way proposed. We consider that the Government’s approach will result in starter homes quickly becoming the sole means of provision of affordable housing. This view has been taken by other commentators. This must result simply because of the numbers. The Government’s stated policy is to build 200,000 new starter homes by 2020. When you look at levels of current provision of affordable homes via section 106 agreements and look at the likely levels of house building you can soon see that to achieve the Government’s 200,000 target to all intends and purposes all new affordable housing will have to be provided in the form of starter homes. After all the Government say that there will be up to 30000 new affordable homes built in the present Parliament. The changes to the NPPF proposed by the Government, coupled with the new duty contained in the Housing and Planning Bill as regards provision of starter homes mean in reality there will be no other significant alternative means of providing affordable homes.
In all of this our concern is that private renting is not likely to get a look in. More homes for private rent are needed even at market rents. The additional provision of private market rentals rent would , in turn, help to stop the on going upward trend in private rents. The Government’s over emphasis on owner /occupation and, significantly, its detrimental policies towards private rental provision outlined above will mean that there are less and less private landlords providing accommodation to rent despite ever increasing demand especially in London. This shortage , in itself, will lead to increases in rents which will squeeze out the less well off, including those families especially working families who are increasingly looking to the PRS for their home They, in turn, cannot access social housing for the reasons we have explained, not helped by the Government’s policies towards social landlords. It is likely we will all end up with a smaller private rental sector, charging higher rents, squeezing out those not able to pay, who will not be able to rely on local housing allowances particularly as the rates of allowance will be inadequate in the face of rising rents.
Houses in multiple occupation (HMO)
Whilst NPPF emphasises the needs of all types of occupiers, we are deeply concerned at the attitude of many LPAs, particularly those in London and larger cities, as regards the provision of accommodation in HMOs especially bed sits and shared houses. Many LPAs have adopted Article 4 directions restricting changes of the use to single dwellings (Class 3) to small HMOs (Class C4). With such a direction in place it is extremely difficult, if not impossible, to obtain planning permission for such a change of use, at least without going to the time and trouble and expense of appealing to the planning inspectorate. This accommodation is vital, particularly for younger single people The under 35s also already suffer considerable detriment in terms of benefits because of the shared accommodation rate on LHA (and its equivalent under UC).
The reality is that areas are designated which are effectively “no go” areas for new HMO provision. Repeatedly we have asked where new residents for this type of accommodation are to go. There is ongoing upward pressure and demand for this kind of accommodation. However LPAs never gives us a proper answer to this question. Invariably, existing areas where HMOs tend to congregate are those areas which are best placed in terms of proximity to universities and other educational institutions and places of work. Obviously, students make up a large percentage of the proportion of HMO dwellers.
The need to meet demand for accommodation for all needs to apply equally to this type of accommodation. We believe that these constraints are leading to issues around overcrowding and increasing homelessness. Inevitably, they are also pushing up rents. We have always argued that this Article 4 direction power is inappropriate and if there are particular problems associated with the concentrations of HMOs they are should be dealt with by the use of other available statutory powers. The introduction of neighbourhood planning has also led to some attempts by local residents to freeze out new HMOs, supposedly in support of the idea of inclusive communities. It seems a very strange notion to us that allows the shutting out of particular sections of the community from housing provision in certain areas in order to boost so called balanced and inclusive communities.
Development on Brownfield land and the small sites
The Association has always been supportive of the idea of developing brownfield sites wherever possible but has attached even more importance to the development of small sites. This aspect of our response therefore concentrates on small sites but in the overall context of brownfield land. We believe, based on surveys of our landlord members, that there is considerable interest among landlords in developing small plots. Often private landlords are also builders and developers. We agree with the Government’s idea of a small site being up to 10 units. However, small sites also include, in our view, conversions of existing dwellings e.g. large size family dwellings which are no longer needed, suitable for that use in an era of generally smaller families. These can be converted into flats and perhaps one or two additional new units added on them in some instances.
Our small sites proposal is set out in Appendix 1. This has been discussed with Government, including the Housing Minister, and has gained support. We have also engaged with local authorities but have met some resistance in terms of the planning aspects. We therefore consider that the Government’s proposals in relation to small sites are an important step in right direction. We very much welcome them. In particular, we are anxious to see that the proposed register contains a specific section dealing with small sites. This is in line with our proposal for local authorities to identify sites which are in their ownership. However, in line with our earlier submissions, when it comes to small plots there is, again, a very real need to ensure that sufficient small sites are provided for market rent in order to stimulate provision. This would most certainly be in line with the Government’s stated intentions of bringing about the range of economic and social benefits which would result including providing opportunities for SMEs to enter the development market, increasing build out rates in local areas and creating local job opportunities.
There is, however, an issue we would wish to draw to the attention of the Committee. In line with the situation that appertains to the provision of traditional affordable homes via Section 106 agreements imposing obligations to set aside a certain part of any development (or, indeed, the whole of the development) for private rented housing depreciates the underlying land value. Traditionally the view based on the opinion of Savills has been that if land is designated purely for private renting (say for the minimum of 10 years as we would suggest) this can depreciate the value of the area concerned by 25%). However, commentators have recently suggested that this differential may be as great as 30% or 40%. Local Authorities are under a general obligation to secure best value when disposing of land in their ownership but equally, local authorities are often willing to transfer over land at a nominal price if it is to be used for affordable housing. Local authorities need to recognise the importance of providing extra market rental accommodation thus furthering the Government’s aims for promoting resulting economic and social benefits, so that land can be sold at less than its full market value for the purposes of private renting, in line with our proposals. We have also suggested a range of measures which would assist in bringing in SMEs and use more local builders to develop, this land for this purpose. This would be an extension of the Government’s “build to rent” policy which has very must concentrated on institutional development. Whilst there has been some uptake by larger institutions there is evidence that institutions are looking for a return of 10% on such investments whereas the most that is likely to be achieved in the market is 7.5%. There is a very real question mark as to whether institutions are wiling and able to deliver on the concept of build to rent, whereas, with assistance along the lines we have suggested, we believe that a significant contribution to housing growth could be made by private landlords, particularly in conjunction with SME builders to provide new homes for rent on small plots of land.
We therefore agree with the Government’s suggestion that NPPF should set out that LPAs should put in place a specific positive local policy plan to promote the development of small sites but for rent.
Ensuring delivery
We endorse the Government’s proposal for a need for an effective housing delivery test. There has been under delivery for many years and particularly when the intention is to boost delivery, it is vital that there are ongoing means in place of ensuring that effective delivery takes place.
Delivery/encouragement of starter homes
We have no quarrel in principal with the idea of starter homes for purchase. Clearly, young first time buyers need help to get onto the housing ladder in times of acute shortage. Where we differ from the Government is the undue emphasis which is being placed on the provision of starter homes for sale which, in our view, in reality, has the effect of crowding out other types of provision. This is wrong at a time when massive overall provision is needed of all tenures and types in appropriate locations to overcome the current crisis in supply. Demand restriction measures of the kind inherent in current Government policies particularly towards the PRS certainly do not assist in achieving this overall objective which is vital in the long term. As we have already indicated there is the real need for homes to rent .Providing homes to rent, especially on small sites, is vital if we are to help achieve this objective. The kind of relaxations that are suggested by the Government should be applied across the board; not just limited to starter homes.
There is a fundamental question everyone avoids and that is whether the current planning system is actually fit for its intended purpose. It has been in place since 1948 and whilst it worked well up until the 1970s/80s as regards housing provision, it is now a dismal failure. We consider that the way in which the planning system has been used by those opposed to housing development has been a major contributory factor to the current crisis. This is coupled with fewer small and medium builders who used to provide much of the backbone of new building. Ideas such as starter homes are tinkering at the edges of a much more fundamental underlying problem, in our opinion.
APPENDIX 1
Boosting supply of rented houses – small plots
The crucial question is how to boost the supply of rented accommodation in the face of a rising demand. This would keep rents stable and lead to higher standards.
A substantial proportion of the large number of individual private landlords are ready to invest further, if conditions are right, in more stock.
One of the best ways to increase the supply of private rented property is to encourage much greater development on small plots of unused public sector land that corporate investors are not attracted to.
DJS research for the RLA asked landlords if they would be interested in developing on smaller plots of land for up to four units of private rented housing if it were identified and made available for development. 46% expressed an interest and most would be interested in developing up to 10 units. This would mean that, from this sample alone, almost 1,000 new units of private rented housing could be developed. By extrapolating these figures to the wider landlord population, small-scale build to rent has the potential to meet a significant proportion of the country’s housing demand and outstrip the provision of build to rent by institutional investors.
The inability to reclaim VAT when building properties to rent, unlike building properties to sell, deterred 69% of landlords.
In order to provide new assistance to smaller scale developments we propose a range of incentives to encourage new building on smaller plots of land. These include:
January 2016