Towards a Sustainable Private Rented Sector in the UK Lessons from Abroad

1. Towards a Sustainable Private Rented Sector in the UKLessons from Abroad What we have learned? Kath Scanlon and Christine Whitehead

2. Private rental growth in the UK • Now 17% of the housing stock in England and growing faster than other countries • So the question is probably not about size per se but more about sustainability and stability • Scale is as much about the size of other sectors – at the moment owner-occupation is declining and social renting at best stable • ‘Push’ factors have tended to dominate with private renting seen as second or third choice for many tenants and some landlords there by default • ‘Pull’ factors are more obvious in other countries – not just ease of access and flexibility but portfolio and risk management reasons for both landlords and tenants - and government support

3. Problems identified in the light of other countries’ experience • Scale of sector increasing but rents still rising • Insecurity of that growth if circumstances change? • Uneven quality and professionalism of management • How developers might fill the gap left by the near removal of build for Buy to Let • Fragmentation of ownership in multi family apartment blocks • Role of institutional investors? Or more generally those looking for long term investment based on rental returns rather than capital gains • Would it help to break down barriers between the rented sectors • Can the private rented sector meet the range of demands and needs especially where help to lower income households is being reduced.

4. Learning from abroad: correcting negative assumptions • Institutional investment does not dominate private rented sectors in other countries – generally fragmented ownership but often long term commitment. • Regulation is not inherently associated with smaller poorly operating private rented sectors. Countries with larger sectors often have controls on rent increases and long term security • Private renting is not just for the young and mobile but can be a tenure of choice for older, better off, more stable households

5. Learning from abroad: correcting negative assumptions (2) • Private renting is not inherently unsuitable for more vulnerable households – but providing well for such households involves considerable government support and regulation to work well – making it more like social housing. • Scale is not to be equated with a well (or indeed badly) operating private rental market. The appropriate size depends on the relative desirability and accessibility of other tenures. • The objective should be to meet the full range of demands and needs as effectively as possible

6. Learning from abroad: positive lessons • Funding: private renting needs a range of investors including a high proportion of individuals and small companies. Many will come and go so there have to be adequate incentives to enter; others may stay of decades or generations if the circumstances are right. • Regulation: many countries, not just the UK fear the reintroduction of heavy and inflexible regulation. But the evidence from other countries does show that scale and stability can be associated with well defined regulatory frameworks giving long run security and security to both landlords and tenants with respect to rental returns

7. Learning from abroad: positive lessons (2) • A wider range of tenants: private renting can suit families and even older households – but must be good quality, well managed and potentially on long leases. • Similarly with vulnerable households- most countries have part of the private rented sector of which they are ashamed - but best practice is usually associated with generous income related benefits and well defined government licenses. • New supply: depends on who are the investors, but also on built form and ownership structures. Many countries only allow single ownership of apartment blocks which helps company and institutional investors and REITS. • Also relevant here is a potential role for privately registered providers of grant or tax break assisted social housing as in the USA and Australia

8. Learning from abroad: positive lessons (3) • Fiscal arrangements: the international evidence shows that the relative tax and subsidy position is fundamental to a successful private rented sector. Tax incentives such as the right to against other income are present in many of the more stable sectors. But whatever any incentives must be tailored to the overall UK tax system. • The scale of the sector: sustainability is not about scale as such - but demographic changes, income distribution and the nature of the labour market all point to increased demand. Matching supply requires the capacity to make reasonable and predictable rates of return on investment. Scale on the other hand is as much about policy decisions in relation to all tenures as well as returns elsewhere in the economy, financial markets and cultural norms. • No country has everything right - those with larger, well operating private rented sectors tend to be prosperous, have generous income support – and stable or declining demands for housing. Others with large private rented sectors but also housing market volatility and uneven income distributions show considerable signs of stress. • Policy transfer is difficult - all we have done here is identify potential - the hard work starts here.