Holyrood Policy

Housing in Scotland
The Role of the Private Rented Sector
24 November 2015
Presentation by Tony Cain
Policy Officer- Association of Chief Local Authority Housing officers

Growing the PRS has to be a part of the policy response to housing

shortages during the next parliament
I dont think it has escaped anyones notice that the housing market isnt
what it was ten years ago. The house building industry has, however,
been very slow to accept the implications of the changes that have taken
place.
There was a time when house builders couldnt build fast enough and
every thing that came out of the ground was sold, often before it was out
of the ground.
House builders could in all honestly say they were building what Scotland
wanted and they should be supported to get on with it.
That isnt the case today. It may be an awkward truth but a truth it
remains, that the principle reason for the slow down in housing
construction is that there is now a much smaller market for home
ownership.

In the rented sector on the other hand, in both the Social and the private
sectors landlords can pretty much let everything they can get their hands
on.
The very simply lesson from this fact is that the focus of housing policy
needs to shift away from a near obsession with home ownership to
meeting the need and demand for rented housing.
There will be, Im sure, many who will respond to this by saying that its
not that the aspiration to own is any less dominant; its the banks and
lending policies that are holding back home ownership and house building.
It may be the case that the demise of the self certified mortgage, the rise
in deposits relative to value and the tighter control of income to borrowing
ratios has reduced the number of households that can get a mortgage.
But I do not think there are too many left who want to argue for a return to
the lending practices of the early years of this century. The risks involved
are all too well understood.
The conditions that applied between 1999 and 2007 are gone and they
arent coming back. The industry needs to wake up to that not least
because the people of Scotland already have.
If you havent read the Scottish Governments recent research publication
on the housing aspirations of people in Scotland then I suggest you do. It
shows that whilst many still wish to own their own home they are practical
and sensible about what is achievable and sustainable for them.

And private renting is no longer a tenure of last resort but a tenure that
can meet needs in the long term.
House builders sitting on sites that they are holding for a return to the
boom times for owner occupation need to move on and the Scottish
Government and Local Councils need to commit to supporting the growth
of the Build to Rent Private Renting through the planning and wider policy
framework.
But if growing the private rented sector is going to be a key part of
government policy then the sector needs to raise its game in terms of
value for money, quality of service and responsible business
management.

Mid Market Rent in particular has a key role to play in meeting housing
needs and aspirations
The PRS is a market led sector; you may be a little surprised to hear that
ALACHO isnt convinced by the proposals for rent controls. We dont think
that Rent Pressure Zones as currently proposed will be of much value
though we do strongly support the idea of limiting rent rises to once a
year and the inclusion of a broad test of reasonableness for rent rises.
But this is more about a mechanism for protecting tenants from being
forced from their home than it is about restricting the market.
The answer to high rents is increased supply and more choice.

But there is a place for a significant mid market rent sector. That is a
sector that is either not for profit or non profit distributing operating on
the same terms and conditions as the wider PRS including without grant
subsidies.
The NHT, its Council variant and the recently launched LAR Housing Trust
demonstrate that long term investment at rents below full market rents
can work financially and ensure that a wider range of housing needs are
met in the public and voluntary sectors.
A growing Mid Market Sector can also champion a more professional and
tenant focused approach to management and a more balanced approach
to the enforcement of tenancy conditions.
But Mid Market Rent cant be the whole answer.

Issues of quality and customer (tenant) focus have to be addressed if this

is to be sustained
It may be a little uncomfortable to accept but the truth is there is almost
no culture of customer service in the wider PRS.
Only half the stock in the sector is managed in anything that looks like a
professional set up, and agents serve the landlord, not the tenant. The
other half, self managed mainly by owners with modest stock numbers, is
focused on the bottom line.

(And let us not pretend that there isnt a substantial criminal element
involved in the sector too).
In the current context this approach to tenants isnt that surprising. For
smaller landlords, despite the image of the sector as providing good
returns, cash flows are often marginal, a single tenancy failure can wipe
out a years worth of profit in a matter of weeks and capital growth is, in
most areas, less certain than may be assumed.
For those that have enough capital to invest through a repayment
mortgage a good deal of the return comes not from rent or capital
growth but from the simple fact that the tenant is paying back the loan.
But operating on tight margins isnt an excuse for poor or unlawful
practices or a reason to expect to be able to evict a tenant at will and
have the public sector to deal with the problem.
The expectations of investors need to change and new investment
vehicles need to be developed that can attract small investors without
compromising on professional and lawful management practices. There is
already evidence of this happening but it is still too easy to inflate returns
by cutting corners.
The current housing bill is part of the answer to this but the key to driving
up standards in the sector will be:
empowering tenants to enforce their rights;
Incentivising the profesionalisation of housing management; and

active enforcement to drive bad and unlawful practices out of the

sector.
Landlords will have to be more willing to accept that the regulation of their
sector is a cost that they are going to have to meet.
We may also have to move away from the idea that just anyone can buy a
house and become a landlord.

The sector has to find a better way of managing change and failure than
simply evicting tenants.
It is, to be blunt, time for the sector to grow up. It isnt acceptable to
excuse poor practice by saying you cant afford to do the job any better. If
thats the case its time to leave the sector.
And its not acceptable to inflate returns by flouting the law or transferring
the costs of business change and failure on to tenants and the public
sector.
Part of the price for public policy support is operating in a way that
supports public policy and wider social objectives.
What I mean by this is that the sector has to take on the cost of its failures
and manage change responsibly.
Last year the PRS produced 40% of the calls to Shelters help line and 18%
of contacts to local authority Homeless and Housing options services.

PRS tenants are disproportionately represented amongst homeless

applicants and the proportion has risen in recent years.
ALACHO has made this point to the ICI committee and particular argued
that just because a landlord:

Wishes to sell the property;

Has defaulted on their mortgage and the lender wishes to reposes;

or

Has lost their HMO licence or landlord registration;

is good reason for a tenant to lose their home or to pass their housing
needs on to the local authority.
Investing in private renting needs to be seen as long term,
management of the sectors assets has to be put on a more
professional footing and the quality of services to tenants should
underpin business decisions as much as the need to attract new
investors.
Investment will come so long as the returns are reliable and
competitive.
Tenants will only stay if the service meets their aspirations and
expectations.