§ Mr. Peter Hordern (Horsham)
I beg to move, That the Rent Acts be repealed.
In some respects the housing market is working admirably. I refer, of course, to the large number of people who now either own their homes or are in the process of buying them both directly in the private sector and in the public sector by virtue of the right-to-buy legislation carried through by the Government.
However, it has to be said that while that sector of the market has been performing and growing admirably, the other sector, which is the amount of housing stock available for rent, has been under great pressure. I refer especially to that part represented by the private rental market.
The consequences of the decline in the number of houses and flats available for rent has been that there is a severe shortage for young people starting out in life and looking for somewhere to live. There is also a marked shortage for people wanting to move from one place to another, for the very eldery and, most acutely, for the very poor.
It was not always the case. As long ago as 1914, the number of tenancies in private hands amounted to 95 per cent. of the total. Rents were frozen in 1915, and that was when the long decline in the proportion of accommodation available for rent really began. Rents were frozen in 1915 for reasons which must have appeared very good at the time. Rents were rising fast, and those who had to put up with those rising rents were finding life very difficult. In the circumstances at the time, the freezing of rents must have made a lot of sense, but I do not think that those circumstances can be said to apply today.
In other countries, so far from there being a majority of houses owned in the private sector, there is a majority of rented accommodation. There are 9 million dwellings which are owner-occupied, whereas there are 14.5 million which are rented. In this country, there are twice as many owner-occupied houses as there are rented in both the private and the public sectors.
The high figure of rented accommodation has come about in Germany, for example, because in the 1960s new tenancies were allowed to be let at the market rate after many years of rent control. But existing tenancies up to that time were allowed to stand and existing tenants had their rents increased in line with costs and had security of tenure.
Much the same seems to have happened in France. In the 1960s rent control was removed from new tenancies. In Germany, substantial tax advantages were given to encourage higher income individuals to become small landlords. The same has happened in the United States under the tax shelter schemes there. One cannot but help notice the difference between the positions there and here.
In Britain, under the business expansion scheme, rich individuals are encouraged to buy farms and even office blocks, but they are not encouraged by any form of tax shelter to build properties for rent by ordinary people.
Therefore, the first conclusion to which I have come is that private landlords in Britain are treated worse than they are anywhere else.
§ Mr. Hordern
I have mentioned that. Security of tenure was allowed in those countries, and I shall deal with that later.
Rent control has existed in Britain since 1915. I accept that improvements have been achieved in the Housing Act 1980, in the form of both shorthold and assured tenancies. But if one looks at the small amount of private rented accommodation that is available—now only about 10 per cent. of all rented accommodation—it is clear that there are many bogus lets. There are holiday lets, licences, and what one can only call bogus company lets.
A survey carried out some little time ago among students in Leeds revealed that 60 per cent. of their temporary agreements were in the form of licences. In their evidence to the Select Committee on the Environment, witnesses from Liverpool suggested that 50 per cent. of all new lettings might be in the form of non-exclusive licences. The Small Landlords Association, in its evidence to the Select Committee, said that not one of its members who re-let property ever let it out again under the terms of the Rent Act. The same proportion, about 50 per cent., was found by the GLC when it made a survey.
In contrast to both the owner-occupier and local authority sectors, there is no incentive for the private landlord to invest in his property. Therefore, rent control is not the only reason—although it is certainly the most important—why the supply of rented accommodation has dried up. The lack of incentive for landlords has also exacerbated that effect. The difficulty is that the fair rent regime has done nothing to encourage demand to provide accommodation for rental, although, of course, the demand has always been there.
Therefore, the second conclusion that I reach is that there is a substantial demand for privately-rented accommodation, which, under the present arrangements, there is no prospect of meeting.
It is generally agreed that there is a shortage of housing, and that the quality of our housing stock is not what it should be. There is a substantial incentive for people to become owner-occupiers and there are further substantial subsidies for council house tenants. But the effect of mortgage tax relief has been to increase the price of houses, and the cost of subsidies to councils has restricted the number of council houses that have been built.
Furthermore, the effect of low council house rents is to freeze the population in their present homes. It is not possible for them to move freely from one part of the country to another. It is particularly harsh on those who live in areas of high unemployment, who are encouraged by my right hon. Friends in government to move from those areas to places where work can be found, only to find that there is nowhere for them to live when they get There. It is almost impossible to escape from places like Liverpool to other parts of the country because of the difficulty of finding accommodation to rent. Except at high rents, there is no free unsubsidised market in rents. That accounts for the rapid decline in rented accommodation, which now represents about 10 per cent. of the total.
There is no question but that the present position has been brought about by the Rent Acts. There seem to be two difficulties about the Acts. First, there is not enough rent for landlords to care for their properties and there is not enough property to let. Secondly, we have the problem of no security for the landlord. I do not think that it is possible to interfere with present arrangements and contracts, but 1345 if the Rent Acts were repealed for new lettings—as was the position in France and Germany in the 1960s—rents could be de-controlled.
Of course, rents would rise. I know that the Government are conscious of the effect of a rapid rise in rents in the private sector. As it is, some 35 to 40 per cent. of council tenants now receive housing benefit, and the costs of that would also rise. I believe that the costs have already risen from about £278 million in 1979 to £2,780 million in 1985–86. That is a tenfold increase.
What do the Government think will happen if and when the councils are allowed to spend the £5 billion that they have from the sale of their council homes? What is certain is that there will be a big increase in building and a large extra demand for housing benefit. However, if the Rents Acts are repealed, the rent in the landlord's hands will be taxable for income tax, and if the property is let by a company corporation tax will apply. It must be much cheaper for the Government to increase the supply of rented accommodation in the private sector than to have a vast expansion of rented accommodation in the public sector.
I do not think that there would be much effect on the public sector borrowing requirement if the Government were substantially to increase, or to allow an increase in, the amount of property available in the private sector. It would surely be better to encourage more privately rented accommodation and to replace housing benefit with a minimum guaranteed income, but not until the Rent Acts have been repealed. It would also be better to allow the housing market to conform more closely to demand. As the House will know, there is no rent control in the United States and there is a substantial shift of people and work from one part of the country to another—notably from the north to the south. In the United States, people are prepared to build for rent, and in West Germany there are subsidies for landlords to improve their homes. But in the United Kingdom there is no subsidy, and the landlord cannot offset loss of rental income against other income. Therefore, there is positive discrimination against the private landlord in the United Kingdom. There is no incentive whatever to let, and consequently there is no temporary housing market.
For those who cannot afford to buy, or who cannot find council homes, the only alternative is to depend upon their councils—as they do to an increasing extent—for bed-and-breakfast accommodation. Hon. Members should recognise the cost of such accommodation. From the answer given by the Parliamentary Under-Secretary of State for Health and Social Security, I believe that the cost of such board and lodging has increased from £166 million in December 1982 and now, together with the cost of private and voluntary residential care, is about £570 million a year. That figure is expected to increase by 50 per cent. by the end of the year.
It is a rotten kind of market if those who want to move home or those who want to set up home on their own for the first time, and who are unable to afford to buy or to get on a council house list quickly enough, find that the only alternative is bed-and-breakfast accommodation at very great cost to the country. I do not have to remind the House about the recent case of a family staying at the Ade1phi hotel in Liverpool.
1346 People are stuck in an institutionalised housing market. There is no attempt to generate competition to give people what they want at a price that they can afford. It is perfectly respectable to rent rather than to buy and, to the extent that people did so, there would be less mortgage tax relief. The Treasury has not sufficiently explored the financial consequences—I believe that they would be beneficial, compared with the present situation — of making possible a substantial increase in rented accommodation.
I believe that there should be security of tenure, provided that the landlord is allowed to charge the economic rent at a time of rent review. Should there be any dispute at that time, there should be the right to go to arbitration.
The repeal of the Rent Acts would do more than any other measure to enable people to move freely about the country. At present, people are tied to their council homes, many of them with little hope of finding jobs. Alternatively, they have to fall back on bed-and-breakfast accommodation if they wish to move.
Repeal would do more than any other measure to boost the construction industry at no cost to the Exchequer. It would also give thousands of young people the opportunity of having a roof over their heads — something that at present they have no prospect of achieving.
I do not ask for any restraint in the building of council houses. I ask only that it should be supplemented in the private sector. The Rent Acts have caused too much misery to too many young people for too long. It is time that they were swept away, to enable thousands of young people to find their first home and have some hope for the future.
§ Mr. John Fraser (Norwood)
The hon. Member for Horsham (Mr. Hordern) has made a thoughtful speech. He recognises that owner-occupiers receive a massive subsidy by way of mortgage interest relief—£3.5 billion to £4 billion this year, compared with a sum only one seventh or one eighth as large which goes to council tenants. The hon. Gentleman also conceded that there is, at present, evasion of the Rent Acts on an extraordinary scale by means of licensed and other lettings that leave people with no security, as well as lettings to students, corporate lettings and so on. The hon. Gentleman recognises—as anyone who looks at the problem of rented accommodation must recognise—the problem of lack of mobility in this country. I often feel that those who live in rented accommodation in my constituency are trapped. At the poor end of the market, they cannot buy accommodation, and if they want to move in order to be with relatives, to seek work or to retire, they find themselves in a trap. The arrangements for mobility in local authority accommodation do not work sufficiently well.
The hon. Gentleman recognised the enormous and wasteful cost of bed-and-breakfast accommodation and finally conceded that, under any regime under which the Rent Acts were repealed, there should be security of tenure. One of the extraordinary contradictions of the Conservative Governments in the 1950s was that they repealed security of tenure in 1957 for many Rent Act tenants while in 1954 they gave security of tenure to business tenants.
Any suggestion that the Rent Acts are to be repealed is likely to make hackles rise on the Opposition Benches, but 1347 I must concede—although I disagree with him—that the hon. Gentleman spoke thoughtfully and with good intentions. The problem—as the hon. Gentleman had to concede—is that the abolition of the Rent Acts involves the abolition of any form of rent control. That is the nub of the difficulty.
Those who look for rented accommodation are at the lower end of the wage scale. They will tend to take on commitments beyond their means if there is no rent control, or they will not find accommodation. The housing market is not homogeneous, even for owner-occupiers. The poverty, deprivation and lack of capital to carry out repairs among owner-occupiers is rapidly emerging. The English house condition survey showed that 1.1 million homes were unfit and that another 500,000 needed a substantial amount of money spent on them. Many such homes are concentrated not among private landlords, of whom there are few, but poorer owner-occupiers.
Examination of who occupies council estates reveals that Lambeth is not unusual in having about 66 per cent. of its tenants in receipt of housing benefit. We shall not help those who need rented accommodation by abolishing the Rent Acts because it will not result in their finding access to the accommodation that they need. In some parts of the country, of course, there is no acute housing shortage. In those circumstances, the fair rent provisions do not apply as the fair rent is the market rate. The Rent Acts merely remove the scarcity element. Acute shortages of accommodation in city areas will not be solved by abolition of the Rent Acts. Indeed, I believe that abolition would do more harm than good.
I agree that we need much more rented accommodation. That is why we decry the Government's attack on making property available to rent. We do not quarrel quite as much as we used to about the right to buy, but about 800,000 homes out of a stock of about 5 million council dwellings have been lost and the amount of money made available to housing associations has been cut rapidly, again reducing the amount of money available to build new homes to rent.
We should consider carefully some of the hon. Gentleman's suggestions about investment and tax treatment. There is no point in a tax regime that disadvantages the landlord, the tenant and the country. The main thrust must come not from repealing the Rent Acts, which should be strengthened to deal with abuses, but by encouraging greater investment by local authorities and housing associations. Ultimately, the problem of lack of housing to rent is the problem of those who are not rich enough to buy accommodation or who, for various reasons, do not want to buy. Despite some malfunctions, the Rent Acts have served the country well.
§ Mr. Peter Lilley (St. Albans)
I support my hon. Friend the Member for Horsham (Mr. Hordern) and congratulate him on presenting a motion on this important subject with his customary lucidity and eloquence.
I was still in my political pubescence when I was jolted into awareness of the problems caused by rent control by a speech delivered in my constituency by the right hon. Member for South Down (Mr. Powell) with his characteristic flamboyance. He described rent controls as a great evil which was the mother of five other evils. His predictions have been confirmed. Although he seemed 1348 characteristically to overstate the case, the evidence shows that he understated the extent of the damage that can be done by rent controls.
The first evil which the right hon. Gentleman described was under-occupation in the rented sector. When children leave home, families do not move to smaller accommodation because they cannot afford to leave a rent-controlled property.
The second evil is the encouragement and artificial inducement that exists for landlords to sell rented property to owner-occupiers, thereby diminishing the stock of property available to rent. Although the Conservative party supports owner-occupation, we do not support the artificial stimulation of it at the expense of the necessary continuation of an adequate rented sector.
The third evil that is the result of rent control is the immobility that it imposes on people. My hon. Friend the Member for Horsham made that the point of his motion. With 3 million unemployed, and with jobs available in some parts, not least in my constituency, those who oppose the abolition or reduction of rent controls must square that with the fact that in so doing the} are perpetuating and prolonging unemployment, which is a greater evil than any evils with which rent controls may deal.
The fourth evil still persists and is the continuing disrepair and dilapidation into which private rented accommodation is inclined to fall if landlords cannot charge the market rent.
The fifth evil is the injustice between tenants and non-tenants, and between tenants and landlords. Often a landlord is poorer than the tenant of his controlled property.
Since those days, evidence has accumulated to show that a further two evils exist. The Milner Holland report in 1965 made it clear that because of rent controls landlords have an inducement to harass and winkle out tenants so that they can sell their properties with vacant possession. That is bound to persist so long as rent controls keep rents below the market level.
A further problem caused by rent controls is the discrimination against newcomers to the housing market, including discrimination against immigrants, young people, those who have no capital, and those who have newly formed separate households because of divorce or because they have recently left home. Plenty of evidence is accumulating to show that discrimination is the inevitable consequence of rent controls. A study by Doling shows that, whereas in Birmingham 10 per cent. of those in rented accommodation are immigrants, none was in rented property with registered rents. In other words, they all had to escape into the residual free market which we tenuously allow to exist alongside the regulated sector. That is characteristic of the problems created by rent control.
Wherever a landlord is forced to set his rent below the market level, he will have a queue of applicants and be able to discriminate between them. He will often discriminate against immigrants, the young, families with young children, and so on. We must ensure that that cannot exist.
The problem is especially acute in my constituency, which is comparatively prosperous. For that reason, because of the development of the M25 and the Ml, and so on, people try to move in and thus drive up the prices of owner-occupied houses. Local people, and others who 1349 would like to move in the area for jobs, and would be prepared to pay a market rent for a room or two, cannot do so, so long as rent controls persist.
Even if we are forced to keep the present structure of rent controls, I hope that we shall ensure that new lettings are exempt from rent controls and that the problem of housing benefit is tackled by not making new lettings eligible for full housing benefit, so that the problem is not impossible to finance.
One reason why we have been so reluctant to move in that direction is that we thought that if we abolished rent controls, even on new lets, landlords would not respond by bringing forward properties because they would be afraid that a Labour Government would reimpose rent controls. That fear has diminished because people no longer take seriously the prospect of a Labour Government, and that threat is consequently not so damaging as previously. The evidence of the British Telecom flotation shows that more than 1 million people are prepared to put their money on the belief that there will never be another Labour Government. I believe that landlords would be prepared to do the same. If we had the courage to tackle the problems, we could overcome the great evils that rent controls have spawned. I hope that the House will support the motion.
§ The Parliamentary Under-Secretary of State for the Environment (Mr. William Waldegrave)
I have a very few minutes in which to respond to a compressed but thoughtful and interesting debate, in which big concepts have been clearly put before us.
The Government recognise, as I think my hon. Friend the Member for Horsham (Mr. Hordern) knows, a good many of the problems. In particular, we sympathise with the emphasis on mobility in his motion. That is why we have framed our housing policies around a mobility package in both the public and private sectors. There are the right to exchange, the tenants' exchange scheme and the national mobility scheme in the public sector. For owner-occupiers, we are trying to make the process of buying and selling a house less complex and expensive. I know that my hon. Friend supports that effort.
We have introduced a range of low-cost home ownership initiatives, which will help former tenants who want to move and take up a new job, and also a new form of tenure. It will help existing owner-occupiers seeking to overcome differences in housing prices.
I have little argument with the basic analysis of the history, going back to Lloyd George — the wartime increase of rent and mortgage interest, and the war restrictions Act, which in its title so clearly describes the conditions and the unusual origins of that measure. The steady decline in the rented sector since that period is a matter that is not challenged from either side of the House.
I was pleased to see that the Opposition spokesman, the hon. Member for Norwood (Mr. Fraser) wanted to restore the rented sector, although by different means from those favoured by my hon. Friend the Member for Horsham. I think that the difference as usual, between our two parties rests in the fact that the hon. Gentleman wants to expand the public rented sector, while we see needs being more flexibly and economically met by the private rented sector.
1350 The much diminished private rented sector still meets a vital public need, even in its reduced form. Without it, young people and others would be in very great difficulty, even at the level at which it exists today.
The other main aspect of existing Government policy to which I want to draw attention is the package of measures in the Housing Act 1980. In that Act we specifically took action to remove disincentives to letting and thereby to encourage an expansion of the sector. Many of those measures were designed with the needs of the mobile in mind. In particular, we introduced the shorthold scheme, which enables non-resident landlords to let their property in the sure knowledge that they can regain possession on the expiry of a fixed term, which must be not less than one year and not more than five years. The House will know that the Labour party has done its best to undermine the scheme by threatening to repeal the Act — a threat only diminished by the unlikelihood of its ever being in a position to carry it out. None the less people investing their money have to look at even the most unlikely events, and the Labour party's attitude has probably done something to damage the scheme
The Housing Act 1980 also saw the introduction of the assured tenancy scheme, a much needed initiative to encourage the provision of newly built property for private renting, an activity which for too many years has virtually ceased. One hundred and sixty-three landlord bodies have now obtained approval to let on assured tenancies. The schemes they have undertaken, although still only limited in number, have demonstrated without doubt that there is a strong market for good quality housing for rent, and that it can be provided outside the Rent Acts on a basis that is acceptable to both landlord and tenant. I think that the measure has reminded us of that fact.
The Act introduced other changes designed to encourage landlords to make more accommodation available. Unfortunately, time does not enable me to go into them all. Collectively, however, the measures taken in the Housing Act 1980 add up to a package which significantly improved the prospects for private renting. But that is only, perhaps, the beginning of the story. I want to say to my hon. Friends—including my hon. Friend the Member for St. Albans (Mr. Lilley), who also spoke today — that the Government have considerable sympathy with the principle of the views expressed. I do not think that I can do better than to quote my hon. Friend the Minister for Housing and Construction, who said at our last party conference:The Rent Acts have injured the very people that they were designed to help. They have contributed to what has been virtually the drying up of private rented accommodation. They have harmed the interests of both landlord and tenant alike.It is with these considerations in mind that we have engaged in a further review of private rented sector legislation. I do not want to leave anyone with the impression that the Government are about to repeal the Rent Acts, full stop. It is only right that we should assess the impact of our earlier initiatives and consider what more can be done to encourage private landlords to meet the demand for rented accommodation. Those with knowledge of the Rent Acts and related legislation will know that this is an extremely complex, not to say highly controversial, subject. Therefore, I hope that my hon. Friends will be patient when I say that I cannot—
§ It being half-past Two o'clock, the debate stood adjourned.