1. 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

2. 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?

3. 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

4. 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

5. 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)

6. 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’

7. Rent regulation

8. Leases

9. 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

10. 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)

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

12. 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

13. 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

14. 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

15. 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

16. 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

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

18. 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

19. 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

20. 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

21. 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.

22. 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?