On 22 March 2018, Kath Scanlon presented at a conference hosted by Northern Ireland Housing Executive in Belfast. The conference, entitled ‘Evidence & Policy on the Private Rented Sector’, focused on just that – evidence and policy of the Private Rented Sector (PRS) in Northern Ireland. (Click here to download the presentation.) In her presentation, Kath talked about how the sector compares to the rest of Europe in terms of affordability, security of tenure, supply, and the sustainability of choice.
Kath observed that the PRS in Northern Ireland makes up 16% of the housing stock, close to England’s 17% but much smaller than Germany’s 59%. Looking across Europe, in most countries PRS tenants tend to be disproportionately young people or pensioners, relatively low-income, singles or single parents, mobile (e.g., young professionals, students, high-income corporate transfers), and those who cannot afford owner-occupation (e.g., housing benefit recipients, migrants, and people who cannot afford mortgage deposits). Middle- and upper-income families are more often owner-occupiers. Surprisingly, very few older people rent privately in the UK, which is not the case in some other countries.
When it comes to affordability and security of tenure, Kath provides an overview of rent regulation and leases in other countries. She noted that these two go hand-in-hand, as otherwise tenants would be vulnerable to ‘economic eviction’—that is, if landlords raised rents so much so that tenants could not afford to stay. Countries with strong regulation of the PRS (in particular rent stabilisation, but also regulation of maintenance, requirement for landlord registration etc) also usually have very long—or even indefinite—leases, and tenure security beyond the lease period is high. Germany and Switzerland are two examples. By contrast Northern Ireland, like England and other Anglo-Saxon countries, has short lease periods of six months to one year.
Focusing on the German example, Kath notes that tenants get indefinite leases, landlords can evict only for reasons set out within the law (with reasonable notice period), and if landlord sells, the lease binds the new owner. The initial rent can be freely set, but no more than 20-50% above rents in the local area. Rents can be increased every 15 months in relation to the average in the local area. This allows for the path of free market rents to move at a more controlled pace, thus protecting tenants.
In considering whether Germany’s model could work in Northern Ireland, Kath notes the differences in rental offers and a different economic and regulatory environment. Landlords in Germany invest into the longer term, and energy efficiency improvements are incentivised by generous tax breaks. Protected by strong regulation, tenants stay for long periods of time (average 11 years). German landlords seek rental returns rather than capital gains, since house prices in much of the country have been flat or even falling in real terms for decades. However this is not the case everywhere–demand has been increasing in many cities, pushing up rents, and owner occupation and house prices in these areas is rising rapidly.
Kath considers whether the Build to Rent model would work in Northern Ireland, but she notes that most examples so far are in dense urban areas like London and Manchester. Another key issue is planning certainty (a theme we have worked on in our previous projects, see here) but Build to Rent can be embedded in planning policies into local governance (cf. Mayor of London’s Supplementary Planning Guidance (SPGs)).
Lastly, Kath concludes with some important policy questions pertinent to her audience: 1) Should policy favour large corporate landlords when individuals and couples own the bulk of PRS homes (and will continue to do so)? 2) How can landlords be incentivised to provide better accommodation and longer leases? Could tax incentives work? 3) What does a ‘good’ PRS look like and what needs to change to achieve it? Answers to these questions should consider that the challenge is to make the PRS work better for those who choose it and for those who have no choice.
Click here to download the full PPT presentation.