The £1.3bn public subsidy for rogue landlords
Daniel Bentley, 22 May 2015
As ministers mull over where they are going to find another £12 billion of welfare cuts, they could do worse than have a read of a new report by Citizens Advice and the New Policy Institute on the state of the private rented sector. Above and beyond the usual horror show of high rents, poor security of tenure and non-decent standards, is the finding that a staggering 740,000 homes owned by private landlords contain a Category 1 hazard. This designation means the property poses a severe threat to the health or safety of a resident. This may include things like fire alarms that do not work, broken handrails on steep stairways or doors and windows that do not lock.
Such conditions are not permitted in the council or social housing sectors, yet in the private rented sector you would be hard pressed to describe them as unusual. Those 740,000 homes represent 16 per cent of the stock, or one in six privately rented properties. They accommodate 510,000 children. That’s half a million children growing up in a home that presents a severe threat to health and safety. But here’s the kicker: of the £5.6 billion a year in rent that these unsafe homes collect, £1.3 billion of that is paid by the state via housing benefit.
The ways in which housing benefit as a system of support – as opposed to, say, rent regulation or even just building enough homes (imagine that) – makes the situation worse are numerous. But few examples capture as neatly as this the perversity of a system which enables landlords to charge rents at a level that the market could not otherwise bear while placing no responsibility on them to maintain minimum standards.
Surely, at a time when the government is looking for inroads into the welfare budget, it should be working out a way of relieving those landlords of some of that £1.3 billion. Taking it off the landlords without it being passed on to the tenants is the rub, but where there is a will there is a way. As an opening gambit I might suggest subjecting every property with the Category 1 appellation to rent restrictions at such a level that none of the burden would fall on the state.
Unfortunately, the housing minister Brandon Lewis prefers to devise policy based on “the majority” of private rented homes which are decent and well-maintained. He thinks that greater regulation will restrict choice and so push up prices. One can’t avoid admiring his chutzpah. It rather implies that those 290,000 families with children renting a home with a Category 1 hazard somehow choose to do so.
I might tentatively submit that this is not quite the case. The private rented housing market does not respond to the demands of its tenants, because there is no choice. So for example the increasing need for security of tenure, given the trebling in the number of children living in the private rented sector over the past decade, is simply not met. Short-term tenancies remain the norm, because that is what landlords (and their lenders) prefer.
As Citizens Advice notes: “In well-functioning markets, a changing customer base leads to innovation in products and services.” But this isn’t a well-functioning market. Because of the shortage of housing, across all tenures, it is severely imbalanced in favour of landlords to the detriment of tenants. Until there is genuine choice in the private rented sector, there needs to be much greater protection for those who currently have none.
Daniel Bentley is the author of The Future of Private Renting: Shaping a fairer market for tenants and taxpayers