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The Chartered Institute of Housing is the independent voice for housing and the home of professional standards

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Landlords need carrot as well as stick to improve the private rented sector

30/08/2014


Extra tax breaks should be offered to landlords who sign up for a national accreditation scheme to raise standards in the private rented sector, according to a new report.

to let signsThe report, from the Chartered Institute of Housing (CIH) and the Resolution Foundation (RF), says that targeted incentives for landlords would encourage them to improve the maintenance and management of their properties, offering a ‘something for something’ deal. Private landlords currently receive around £7bn of tax allowances a year, including for repairs and maintenance, but there is no incentive to carry out work above the minimum standard – and that standard is not being enforced effectively.

Today’s report suggests that financial incentives could either take the form of new additional funds for those who sign up for accreditation, or diverting more of the existing allowance to those who do.

But it also warns that more effective regulation is needed to tackle the most unscrupulous landlords – and to ban letting agents from charging tenants fees.

The private rented sector has doubled in size since 1992 and now accounts for 18 per cent of all households in England – that’s four million households, making it the second biggest tenure in the country, after home ownership. The percentage of private renters aged 25-34 has risen from 31% in 2008-09 to 45% in 2012-13, and the sector is also housing an increasing number of families and older people.

The English Housing Survey shows that a third of private rented homes would have failed the government’s Decent Homes Standard in 2012, compared to only around one in seven social rented homes, while almost one in five don’t have central heating.  Most private landlords are individuals with only one or two properties. Very few are full-time professional landlords, which means that standards of housing management, while by no means universally poor, are inconsistent. In the worst cases unscrupulous landlords are able to exploit vulnerable people who have very little choice when it comes to housing.

Current government policy is mostly focused on improving standards by encouraging greater competition in the sector, while Labour policy is mostly focused on greater regulation. But CIH and RF said a combined ‘carrot and stick’ approach would be more effective.

The report recommends:

  • Creating a single, easily understood set of minimum standards (covering both property conditions and housing management) for landlords and making sure that sufficient resources are made available for enforcement
  • Extending the regulation covering estate agents to letting agents and stopping letting agents charging tenants fees for their services
  • Considering the use of incentives by the government to encourage landlords to commit to higher standards (over and above the legal minimum)
  • Developing a nationally agreed set of standards for accreditation (covering both property conditions and housing management)

In setting new financial incentives for landlords, the report says the government could consider:

  • Giving accredited landlords a more generous tax allowance for ‘allowable expenses’ (where landlords deduct the cost of repairs from their profits for income tax purposes), compared to unaccredited landlords
  • Allowing landlords to treat any improvement needed to bring a property up to standard as an ‘allowable expense’, instead of deducting it from their capital gains tax liability when they sell the property – so they would get a more immediate tax benefit from the investment
  • Allowing accredited landlords to benefit from capital gains tax rollover relief (meaning that if a rented property is sold and the proceeds are immediately reinvested in another, the landlord would not pay capital gains tax on any profit they had made).

CIH chief executive Grainia Long said: “This government has focused on measures to boost home ownership, but with more and more people living in the private rented sector – including more older people, more families with children and more vulnerable people from the housing waiting list – it’s vital that we look at new ways to raise standards. The cost of housing means that for many people, the private rented sector is the only option – but too many of them are having to put up with poor standards and insecurity.  Ultimately, we want people to have a good choice of housing at a price they can afford, so we need to make private rent a better option.”

RF deputy chief executive Vidhya Alakeson added: “Many landlords already benefit from generous public subsidy but, while many of them are responsible, not all of them give anything in return. By introducing the principle of getting ‘something for something’ from this investment we could ensure that housing is improved and works better for both tenants and landlords. Government should incentivise those who work to raise their game in order to improve the overall standards of private renting.”

Download the full report

A fair deal for tenants and landlords: read Vidhya Alakeson's blog

Media coverage:

BBC News: Housing experts call for clampdown on rogue landlords

BBC News: Rogue landlords: what is it like to live in a substandard home?

ITV News: Call for clampdown on rogue landlords

 

 

 




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  • Having read the article and report (I couldn't get to comment on the report) I have to say that I don't disagree with some of the conclusions. However, to persuade me, others and Government that the conclusions are valid, you need to include more citations of the research you are drawing the data from (e.g. you state that a fair number of PRS landlords are 'accidental landlords'). Where is the evidence (and please don't quote the Daily Mail). It's this sort of product that lets the private sector down, - you could have been bold and (realising it's business for the landlords involved and not a social obligation) suggested that the Government could set up a 'Landlord's Bank' which would lend (at something like either a fixed term with conditions attached to rent increases or a variable but preferential rate to landlords who signed up to and kept to defined criteria which the Government whished to be met from PRS). Then both sides would benefit - landlords from the fixed or preferential rate and tenants from the conditions imposed by Government on access to those preferential rates, It would even be relatively easy to police as you would have register of those who chose to participate! You could even have a certificate for landlords which allowed tenants to choose whether they went with a registered landlord or not, which would give them (and the landlords) flexibility to meet demand. Investors (whether reluctant or not) want stability and there is none in the current market(or your suggestions) for an investor. Giving investors the confidence that their mortgage rate wouldn't change for X period, would allow them to invest in their property (without all the complicated suggestions you are proposing) and would create stability and a reason to invest in the market to give adequate homes to those who need them. I am a landlord!

    Neale, John
  • ?In all honesty I think the report skirts round the issue, rather than go to the heart of the matter. The problem is not well behaved landlords, it is those who provide poor service and flout the law It is surely naive to assume that dud landlords are going to respond to tax incentives. If they are flouting the law over the condition of their tenants? housing, are they going to bother telling the tax man about their activities as landlords?! Ideally there will be reform of section 21 of the Housing Act 1988. All tenancy agreements should be in writing, and if not section 21 should not be available to the landlord. I suggest changes should include a landlord having to prove he is licensed as landlord of the property (implies universal compulsory licensing), that the property complies with the decent homes standard and all other regulatory standards (e.g. up to date gas safety certificates) and that his letting activity for the property is registered with HMRC. Others can come up with other proposals to add to this. I would also suggest that landlords should have to give written certification that the property is fit for use at the time of letting, and that if it is not that should be a defence against a section 21 claim.

    Kennedy, Paul
 

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