Housing and Planning Bill (Second sitting)

Brandon Lewis Excerpts

Tuesday 10th November 2015 Public Bill Committees

[The Chair]

Before we move on from that point, can the Minister come in quickly?

[The Minister for Housing and Planning (Brandon Lewis)]

Q 112 Mr Fletcher, I assume that you are talking about developments such as the multi-family housing we see elsewhere in the world. I understand the point you are making. In that situation, I assume that the developers, knowing that they have to do their bit for the community as negotiated on affordable housing, would look to do what we see elsewhere: if they can make a case for an apartment block, for example, they might provide affordable housing or starter homes on a different site but in that area with the local authority.

Ian Fletcher: Absolutely, Minister. I said in my first remarks, I think, that I was talking specifically about the on-site requirement. I have no qualms about the other part of the Bill, which is about the duty of local authorities to provide starter homes.

[Mr Jackson]

Q 113 On paragraph 14 of your briefing—I am sure members have copies—about automatic planning permission, you make the case that this should move on from simply residential housing to multi-use sites, including leisure, retail, industrial, etc. How would that work? Surely that would be an overly permissive regime—to have that in the Bill and extend what is essentially a welcome proposal to drive the number of houses up to a free-for-all, having every economic activity on a brownfield site?

Ian Fletcher: That part of our brief is trying to express a concern that the permission that is granted in advance on the brownfield sites will drive a lot of those sites into housing use. That is, therefore, a concern in terms of ensuring that we have a balanced economy. We have evidence that illustrates that about 50%, I think, of local authorities and local plans are out of date with respect to things such as industrial uses. The local authorities that are particularly out of date are some of the places you would most expect to have expansion of industrial use places, such as the Thames valley and the northern powerhouse. We are just expressing a concern that this policy might drive more brownfield land into housing use at the expense of other uses.

--- Later in debate ---

[Mr Thomas]

Q 217 I draw the Committee’s attention to my declaration in the Register of Members’ Financial Interests. I want to pick up on the question that Mr Hollinrake was asking about client money protection. Mr Cox, can you flesh out the detail and the type of amendment that you would want to see that would offer that? Similarly, Mr Cox and Ms Uphill, do you agree with Mr Smith on the potential benefit of three-year tenancies and on a provision for that being included within the Bill?

David Cox: If I can deal with the client money protection issue first, client money protection is at the moment primarily provided by the professional bodies. All our licensed ARLA members must have client money protection, so that in the event that any one of them goes bust or misappropriates the funds—it has happened 12 times in our 34 years—we will cover the moneys up to certain caps.

There are providers out there that offer client money protection for agencies through the open market, but client money protection means two things. First, it is an insurance premium, so that in the event of an agency going bust or misappropriating funds, clients—both landlords and tenants—get their money back. Secondly, and more importantly for us, it means that agencies have to have their client accounts audited, so that you know whether something is going wrong. We audit every single one of our member firms’ client accounts, and we require that in order for them to join the professional body.

In terms of an amendment, I am afraid I do not have the specific wording here today, but I can provide the Committee with a set of words. We provided a set of words for the Consumer Rights Bill last year, and that was supported by more than 20 organisations, including landlord associations, letting bodies, consumer groups and Shelter, Generation Rent and Crisis. It is an issue that has unanimous support among everyone involved in the housing sector. The Consumer Rights Bill started moving us in the right direction, with firms having to display whether they have client money protection, but we estimate that on average on any given day—my members alone account for about 60% of the market—firms will hold just under £3 billion of other people’s money. That is protected for our members, but what about the other 40% that is not protected?

On the three-year tenancy question, three-year tenancies can work. I do not think they should be mandated because there are a lot of situations where people do not want a three-year tenancy. In my previous answer I talked about somebody who may be coming to London or one of the other big cities on a short-term contract. The other prime example is a student. When they have been in halls for one year and have only two years left of their undergraduate course, do they want to sign a three-year tenancy when they do not know what they will be doing at the end of their third year? So we would suggest that the current tenancy regime works.

According to our latest survey of our members, the average tenancy is now 20 months, and we have to remember that, according to the Government’s statistics—I think it was the last survey of English housing—well over 90% of tenancies actually end at the request of the tenant, not the landlord, so removing that element of flexibility could do more to harm those that probably want it than actually help.

Carolyn Uphill: As the clients, when we are talking about client money protection by our landlord members, we would of course support client money protection because it is only right that the money should be ring-fenced within agencies. I am sure David will supply you with a suitable form of words.

As for three-year tenancies, the English housing survey of 2013-14 evidenced that the average tenancy was three and a half years, so tenancies are not as short as some people imagine. Many, many landlords are more than happy for tenants to either be given as long a tenancy as the mortgage provider allows or roll on to a longer tenancy, because what landlords want is good long-term reliable tenants without the costs associated with churn. But if that were to be imposed as a minimum, it would seriously damage the availability of accommodation for those who need it on a much more flexible basis.

David mentioned students. I am a student landlord. It would tie me in knots when my students decide to stay on in Manchester as young professionals and say, “Can we stay on for a year because we don’t know where our career is taking us?” so I end up with a mixed house. Any imposition of a period beyond the 12 months that, in that particular case, suits the academic year would cause me as a landlord to consider, “Can I stay in this business?” There are lots of other landlords who are letting because they are away for 12 months and various other factors. There really should be flexibility in the market. There are tenants who want flexibility and there are plenty of landlords willing and happy to give longer tenancies to those who want them.

So we support the principle of longer-term tenancies being available if the mortgage provisions can stop that being constrained, but not as an imposed three-year or any other fixed minimum.

David Smith: I was not in any way suggesting that three-year tenancies should be mandated. All I am talking about doing is removing barriers. I should also say that the statistics are very difficult to interpret, because longer tenancies are more common outside London and the south-east. As soon as you drive into London and the south-east, it is not so much that tenants do not stay for two or three years, but they are forced to sign a series of 12-month tenancies. There are a range of reasons for that. At the risk of incurring David’s wrath, I will point out that one of the reasons for that in London is that letting agents encourage a series of 12-month tenancies to secure their fee structure. That also, in our experience, is one of the things that most actively drives rent increases, particularly in the capital, and we feel that if tenants were able to sign two-year tenancies, and those barriers to two-year tenancies were removed at the front end, the pressure to drive that rent up during the course of the tenancy on each renewal would be reduced.

[Brandon Lewis]

Q 218 On that point, on the issue around tenancies, when we look at what is happening elsewhere around the world, many places have a much larger and more advanced rental market than we do and still have one-year tenancies. Would you agree that one of the differences seems to be that we have a buy-to-let-led system—I think the colloquial phrase is “mama and papa” landlords who own a small number of properties, about 91% of the market—and the biggest risk to a tenancy is that property being sold to an owner-occupier, whereas in other models, such as multi-family housing, if the property gets sold, the invoice from the managing company might change from Greystar to Amlin or somebody else, but the property tenure remains the same and the tenancy issue is of a different nature. That leads back to one of our earlier evidence sessions, when somebody made the point about how more institutional money with a more professional rented sector changes the dynamic around the tenancy lengths, anyway.

David Smith: I am not sure I would agree with that. The statistics already show that the majority of tenancies end at tenants’ requests, not because the landlord wants to sell. Increasingly, the sector’s structure, even among smaller landlords, is changing. Landlords are often now increasingly selling with tenants in place to other landlords. Some of this is the buy-to-let sector in England and Wales growing up and perhaps becoming more like some of the buy-to-let sector abroad. Our view remains that one of the reasons that we tend to have many 12-month looped tenancies is that it has grown up that way through influences from the opposite side of the equation, from mortgage company pressure, from long lease pressure and from lettings agency pressure. At the moment, landlords are very linked to six-month or 12-month block tenancies. There is very little other discussion about term in the market. If we can break out of that cycle, we feel that would do a lot to change the dynamic.

David Cox: I would agree with that, and at the same time with what the Minister said about looking at other countries. We hear a lot that we should look to Germany and France and their tenancy models. However, in relation to our tenancy model, that is comparing apples with pears. We have to factor in that in places such as Germany, they have indefinite tenancies but it is the tenant’s responsibility to maintain the property during those tenancies, and many do not come with kitchens and bathrooms. Here, the obligation is entirely on us as the landlords to maintain the properties and the goods inside the properties, whereas in Germany and France it is the tenant’s responsibility. We also have to factor in that they have a much more mature rental market. They have many more institutional investors. In Germany and France, the vast majority of the private rented stock is owned by institutional companies, whereas ours is owned predominantly by the “mama and papa” landlord.

It is also still a relatively new market. Looking back 100 years ago, 90% of the UK’s stock was in the private rented sector. By the time we had regulatory liberalisation under the Housing Act 1988, that had shrunk to less than 7% of the sector. It has only grown back to the size that it is today with that regulatory liberalisation, particularly the ability to use section 21 of the Housing Act, coupled in 1996 with the introduction of the buy-to-let mortgage, which provided a financing vehicle to allow people to start investing in property in the UK.

We need much more investment in property. There is a chronic housing shortage in the UK at the moment. The Government estimate that for every house built, two new households are created, therefore the level of housebuilding is not at a sustainable level. The only way we are going to get rents under control, get house prices under control, particularly in places like London, is by a massive house building programme.

[The Chair]

We have 10 minutes left, so we will have to be quite swift.

Carolyn Uphill: If I may just add to that, I think there is a place for institutional investment but we are not like Germany, as David says; we are an entrepreneurial buy-to-let sector. We have lots of small landlords, but that does not mean either that they should not be professional, which is the purpose and objective of the Bill, or that they are not in it for the long term. I have certainly invested in my portfolio as a pension plan. Many, many landlords want a longer-term income and therefore longer-term stable tenancies.