Kath Scanlon London School of Economics Learning the Lessons: National and International Evidence and Approaches Kath Scanlon London School of Economics Evidence & Policy on the Private Rented Sector Northern Ireland Housing Executive Belfast 22 March 2018

The issues in Northern Ireland Affordability—rents mainly stable but concerns about those who rely on benefits. Would rent controls help? Security of tenure—for families especially. Are longer/unlimited leases the solution? Supply—could build to rent contribute? ….and generally could the sector become a long-term choice for more households?

International perspective: Size of PRS Country % Germany 59 USA 32 Australia 25 France 22 Norway 17 Sweden England Northern Ireland 16 Netherlands 10 Spain 7

In most countries tenants are Young or old Low-income Singles or single parents Mobile Young professionals Students High-income corporate transfers Those who can’t afford owner-occupation Housing benefit recipients Migrants Those who can’t afford mortgage deposits

Who doesn’t live in the PRS? Middle- and upper-income families almost always own their homes Very few older people rent privately in the UK (not the case in some other countries)

Affordability and security of tenure Overview of rent regulation and leases in other countries The two go hand-in-hand, as otherwise leaves open possibility of ‘economic eviction’

Rent regulation

Leases

The German example Leases Tenants get indefinite leases Landlords can evict only for reasons set out in the law; notice period 3 – 9 months depending on how long tenancy has lasted If the landlord sells, the lease binds the new owner

The German example Rent setting Initial rent can be freely set, but not more than 20-50% above average rents in the local area Rent can go up every 15 months by average in the area SINCE 2015—caps imposed on initial rents in high-cost cities (Berlin, Munich, Hamburg etc)

Path of rents under third-generation controls (e.g. Germany)

Would it work here? Different rental offer Most PRS units in Germany are in rental-only blocks in single ownership Tenants stay for long time (average 11 years) Landlords invest into the longer term—generous tax breaks for energy efficiency improvements Landlords provide minimal facilities beyond the dwelling itself: usually no furniture or kitchens

Would it work here? Different economic environment Over last decades real house prices fell in most parts of Germany General inflation also very low so costs fairly predictable, though some problems as standards have risen eg re energy efficiency But demand is increasing in many cities—and owner-occupation and house prices in these areas now rising quite rapidly

Closer to home Scotland Scottish Private Tenancies Act came into effect December 17 Unlimited tenancies for all new leases (including students) 28-day break for tenant, no minimum stay Possibility of rent regulation for ‘rent pressure areas’ but none yet designated

Build to Rent: a new type of supply Follows American ‘multi-family’ model: purpose-built rental accommodation Usually mid- to high-rise blocks in locations with good accessibility Layouts differ somewhat from standard for-sale schemes Entire blocks owned & managed by single organisation

Features Professional management (often full-time handyman/concierge on site) Amenities (gym, cleaning service) Longer leases (3 to 5 years standard), usually no fee Often fully furnished Affordable units retained by operator

Some London examples Fizzy Living, Poplar Essential Living, Archway Greystar, King’s Cross

Institutional investors: What are the barriers? Price of land vs owner-occupation Low risk-adjusted yields Need for scale Negative investor and local government perceptions Lack of UK investor experience Uncertainties around regulatory and tax regimes

BTR in NI? Most examples so far are in dense urban areas (London, Manchester) Sigma Capital pioneering rented houses (not flats) in N of England Specific BTR planning policies can give certainty (cf Mayor of London’s SPG) Sigma BTR houses, Sheffield

Recent policy changes: big landlords ,small landlords Policy rhetoric: Small landlords compete unfairly with first-time buyers (as dwellings could be sold to either) New/increased taxes–most affecting only small private landlords 3% additional Stamp Duty Land Tax for purchase of investment properties or second homes Change in treatment of mortgage interest—now no longer deductible at marginal rate. Disadvantages those with bigger mortgaged portfolios and/or higher incomes Capital gains tax reduced for all assets except residential property …and some smaller measures

The PRS as a tenure of choice? PRS suits some types of household well (and always has done): Mobile professionals Single sharers Students Increases in SDLT mean every step on the property ladder costs more, so it will make sense for people to rent for longer. Families with children generally prefer to buy a home or rent from a social landlord because of financial drivers to do with house price trends, pensions and the tax system; also deep-rooted cultural preferences. More families are living in the sector—though generally not by choice. Challenge is to make the PRS work better for those who choose it and for those who have no choice.

Policy questions Should policy favour large corporate landlords when individuals and couples own the bulk of PRS homes (and will continue to do so)? How can landlords be incentivised to provide better accommodation and longer leases? Could tax incentives work? What does a ‘good’ PRS look like and what needs to change to achieve it?