§ 3.6 p.m.
§ Lord Best rose to call attention to the potential of the private rented sector in tackling the United Kingdom's housing problems; and to move for Papers.
§ The noble Lord said: My Lords, I count myself as very lucky to have been successful in the ballot for a debate and I hope that this discussion will indeed raise awareness of the private rented sector and its role in tackling the UK's housing problems.
§ I must begin by declaring various interests in this subject. First, I am the director of the Joseph Rowntree Foundation, which invests about 5 per cent of its assets in private rented property. Secondly, I have a long-standing family interest in private renting. My grandparents invested in this sector, which they believed to be an "ethical investment", because it produced a satisfactory return but also gave others a roof over their heads. As with so much privately rented property, these homes have been sold over the years as they became vacant. Today, only a small residue remains, owned by members of my family, although not by myself. Thirdly, I chair—jointly with Chris Holmes, the director of Shelter—a commission on the private rented sector. That includes representatives of all the major bodies representing landlords and their agents, as well as key organisations representing tenants' interests. Our commission is seeking a consensus and will be publishing its report and recommendations in the spring.
§ Let me place before your Lordships my central proposition. It is that an expansion in private renting could ease two major problems facing the UK: first, the problem of severe shortages of accommodation, particularly in London and the South East; and secondly, the need for regeneration in the cities of the Midlands and the North, where the issue is not one of shortages but of people moving away, with unfortunate economic and social consequences.
§ The private rented sector in the UK today represents about 10 per cent of the total housing stock. Three-quarters of the rented homes are owned by individuals, not by companies, and two-thirds of those individuals have private renting as just a side-line, representing less than one-quarter of their income.
§ The sector had declined from some 90 per cent of the nation's homes before the First World War to less than 9 per cent in the late 1980s. Modest growth returned when, after 70 years of rent controls, the Housing Act 1988 removed those restrictions from all new lettings and the requirement that tenants should have lifelong security of tenure. The removal of those restrictions came just when the property boom in the owner-occupied sector turned to bust and many people who could not sell their homes could let them instead. From the mid-1990s this phenomenon subsided, but new investment—almost all by private individuals, many taking advantage of the low interest rates for buy-to-rent mortgages—has injected more than £2 billion each year into the sector, helping it to sustain its modest growth.1447
§ But the UK remains firmly out of line with other advanced economies. The percentage of its homes in the private rented sector is less than half of that in most European countries and still less compared with Germany and France, let alone the USA, with all those apartments that we see in "Friends" and other TV series. It is a very small private rented sector that marks out the shape of housing in the UK as quite different from other countries. If the UK could expand its stock of private renting to comparable levels of competitor countries, the economic and social gains would be immense.
§ In relation to housing shortages, we know that to meet the Government's projections of household growth we need to create well over 200,000 extra homes each year in England alone. Yet house building, both by speculative private house builders and by the housing associations, is producing fewer homes than in any peacetime years since the 1920s. A deficit is now appearing of some 50,000 homes a year. As this shortfall accumulates and the gap widens, very severe problems, reflected not just in high house prices and long commuter journeys but in severe overcrowding and homelessness, are bound to escalate. London and the South East will continue to be the worst affected areas in terms of housing shortages.
§ The Government's figures, however, show that 40 per cent of all the extra households are likely to be for just one person of working age. Those represent a huge market-place for private renting. In France, for example, an average of over 40,000 extra homes have been provided each year by the private rented sector over the past 15 years. Why are we missing out on this stream of investment? It could finance, for example, 100 apartment blocks in East London, close to the jobs in the City. It is estimated that the number of people working in London may rise from the present 4.5 million to 5.5 million by 2025. Many of London's workforce are single people for whom high-density living, which may be unsuitable for families, is more than acceptable and for whom private renting is often ideal.
§ But while the value of the private rented sector in easing pressures in the South may be obvious, your Lordships may find it harder to believe that private renting could also help with the other problem that I identified; namely, that of the need to regenerate many of our cities in the Midlands and the North.
§ Perhaps surprisingly, it is my contention that the time is right for large-scale investment in private renting to attract and retain middle-income people in the centres of many of our older industrial cities. We need to prevent inner cities becoming segregated areas just for the poorest households instead of containing the kind of social mix which any thriving neighbourhood requires.
§ After undertaking market research among single people on middle incomes working in urban areas, my organisation, the Joseph Rowntree Foundation, has built two blocks of apartments—one in Birmingham and one in Leeds. We call them "CASPAR" schemes, which stands for city-centre apartments for single 1448 people at affordable rents. The developments are on recycled, somewhat uninspiring Brownfield sites close to the centre. But both are the subject of high-quality architecture aimed at fashion-conscious. trendy, single young people looking for a city lifestyle.
§ Those developments at market rents, of 46 and 45 apartments respectively, have proved to he very popular and very profitable investments for us. They have outperformed the rest of our substantial investment portfolio, with immediate income returns of over 6 per cent net per annum, indexed probably in line with earnings, plus prospects of excellent capital growth. We plan to undertake further CASPAR developments, and there is no reason why other investors should not do just as well as we have and thereby boost regeneration efforts in cur older cities.
§ Why is it that the institutional investors— the big investors such as pension funds and insurance companies—stay away from residential property? First, for many years antipathy to the sector was undoubtedly based on so-called "political risk". When rent controls were lifted at the end of the 1980s, the fear of institutional investors was that the position might be reversed by a new Labour government. However, in the 1980s the noble Lord, Lord Rooker, as shadow housing Minister, had the sensitivity to seek to reassure potential investors that an elected Labour government would not overturn those changes, as did successive shadow Ministers and the then government Ministers after 1997. The Government's assurances in their housing Green Paper in the year 2000 were absolutely explicit. It is impossible now to believe that "political risk" should deter investment.
§ Secondly, investors in the 1980s came to believe that equity investments on the stock market could continue to appreciate without limit. We now know better and property may well appear a safer and more sensible bet in the future.
§ A third turn-off for major investors has been the poor image of the sector. Since the days of Rachmann, the stereotype of the "wicked landlord" has persisted. A small minority of bad landlords is linked to criminal activities—not only housing benefit fraud but also harassment, drug dealing, prostitution and intimidation. The sector needs to be rid of those elements.
§ Local authorities need the resources to do more to help in positive ways with the regulation, accreditation and education of smaller landlords and in supporting both landlords and their tenants. I am hopeful that the Commission on the Private Rented Resitdential Sector will help to promote a new settlement for the sector which could enhance its reputation and improve its public image. But these issues should not concern institutional or individual investors using properly qualified managing agents.
§ Fourthly, there are issues of taxation. The final abolition of mortgage interest tax relief has now levelled the playing field in tax terms between renting and owning. Tax incentives could bolster private renting. That technique is common in other countries. The business expansion scheme here created 81,000 1449 private rented homes in the 1990s but it cost the Exchequer £1.7 billion, and many of those properties have now been sold into owner occupation.
§ UK Chancellors are likely to prove resistant to introducing any more tax incentives; and, indeed, they can distort investment decisions. But private renting deserves simply not to be taxed at higher levels than comparable investments or equivalent businesses. For example, the British Property Federation would like to see fairness over the rates of stamp duty, which can currently mean the Exchequer receiving far more if a block of apartments is purchased by one investment institution for letting rather than being bought by a whole number of separate individuals. That is not fair.
§ More important than special—probably temporary—tax incentives is a shift in attitude by all the key players. The shape of housing requirements has changed. A new market has opened up of more mobile people who settle down 10 years later than the generation before them, or who are now divorced or separated. House builders need to recognise that renting can suit that new market. Some builders are already selling to individuals who buy to rent. It is not a big leap to expect partnerships between developers and investment institutions. Selling a whole development to a single investor achieves economies for both.
§ Housing associations should certainly receive more support to help those with the highest priority needs, but some housing associations want to diversify. They have the capacity to organise CASPAR-style developments in more places. They should be encouraged by the Housing Corporation and local authorities. Sometimes they could build up portfolios of apartment blocks that institutional investors could then buy off-the-peg.
§ Pension funds, insurance companies and trade unions which continue to invest in office blocks need to seize the new opportunities in the residential property sector. That ethical and profitable investment could ease growing shortages in London and the South and could produce the attractive apartment blocks needed to revive city centres in the Midlands and the North.
§ I hope that this debate calls attention to the potential of an effective private rented sector in tackling the UK's housing problems. I beg to move for Papers.
§ 3.21 p.m.
§ Lord Graham of Edmonton
My Lords, I welcome the noble Lord, Lord Best, to the housing repertory company. Some members are present. They perform regularly. However, I am sorry to see that I am the only Labour Member to speak in this debate. After all the years in which I have been involved in the subject, I would never have believed that only one Labour Member was prepared to speak in a debate on housing.
What noble Lords have heard so far cannot be bettered. I hope that at the beginning of the Minister's notes are the words, "Give this a very warm welcome". 1450 I do not see how any noble Lord can add detail to the authoritative introduction to this debate that we have heard from the noble Lord, Lord Best. He comes to the House with a lifetime's work in this area.
When I saw the subject of the debate, I said to myself, "That is my subject; I shall speak on that". The noble Lord has drawn my attention to the main theme in his address, which is quite simply that there has been change. When I was a boy I lived in a place called Sutton's Dwellings, Barrack Road, Newcastle upon Tyne. I was never lucky enough to be a council tenant. Those who were council tenants had a stroke of luck in getting their tenancies.
During my working life in housing, there was, first, predominantly rented accommodation or council housing and then gradually owner occupation. Over the years, as the noble Lord, Lord Best, has told us, the percentages of those types of accommodation have changed and the private rented sector, which once was dominant, has faded gradually. Under the 1924 Wheatley Act, councils used their powers of slum clearance and rebuilding, and repaired some of the damage caused by neglect in the private sector. In the 1960s we found that the urge for owner occupation came to the fore. Sadly, in the 1980s the ravages that were done to affordable housing by the right-to-buy legislation resulted in the modest growth of housing associations.
The noble Lord, Lord Best, has declared some interests, as I shall. As a councillor, council leader and chairman of a housing committee, I say that there is no single activity of a council that bears more upon the quality of life of the people that it seeks to represent than housing. Considering that the Government want to improve health and education and to reduce crime, I say to the Minister, who has my highest regard and respect, that no single factor will help the Government to achieve those aims more than improving the quality of housing, whether private, rented, co-operatives and so on. The quality of a house in which a family is brought up has a major bearing on those issues, and on people's quality of life and satisfaction.
In regard to the state of housing, the noble Lord, Lord Best, in a roundabout way, mentioned that the Government have produced statistics to show that £20 billion needs to be found to make habitable the housing that is currently unfit for habitation. Much of the money spent by the Government by subvention to the Housing Corporation has not been spent on building new houses, but on trying to keep in decent repair neglected housing.
I have here the English Housing Survey of 1996 which starkly points at the sector of housing where most damage has been done and where most money needs to be spent. In 1996 it reported that of housing unfit for human habitation, 17.9 per cent was in privately rented homes, 6.8 per cent in council housing, and 3.9 per cent in housing association property. That is partly due to the age factor. Housing associations are fairly modern; council housing can be up to 100 years old; and much privately rented accommodation may be even older than that.
1451 My attention was drawn to a well researched brief from Shelter, for which I am grateful. Shelter is pre-eminent in keeping the pot boiling, in reminding the Government of what is needed and in coming up with suggestions. Shelter says that there is a need for reforms to housing benefit, incentives to promote greater investment in the sector, modernisation of the legal framework for private renting, support for best practice in management, and better regulation.
Shelter gives a good illustration of where it should be possible to move faster. It says:Over £2.25 billion a year in housing benefit is paid to 750.000 tenants in the private rented sector".That number is declining, partly due to landlords who have pulled out of letting to housing benefit claimants due to poor administration. In other words, because it can take so long for the benefit to be determined, people lose the house they are after. That is chaotic administration. Between 1995 and 2000 the proportion of new claims that took more than the statutory requirement of 14 days to determine rose from 18 per cent to 37 per cent.
I cannot believe that the Minister and his advisers are not aware of what will be said in this debate. They must be aware. I do not raise these issues in order to castigate the Minister or his staff; I do it as a peg upon which to point a plea. When the Minister is wondering what initiatives may be taken, can he look to see whether the position of those who wait is the same—that is, a doubling from 18 to 37 per cent—or whether something can be done.
That brings us to the role of the local authority. As a previous local government man, I am well aware of the burden and responsibility that is placed upon councillors. I have previously told the House that when a Member of Parliament, more than once I left my surgery, got into my car and cried because of the hopelessness that I felt at my inability to ease the housing problem in a place such as Edmonton. I cannot believe that it has changed very much. The councils' need to have weapons to deal with the problem that still exists.
The noble Lord, Lord Best, drew my attention to this phenomenon. At one time private rented accommodation and the landlord were well known, but the sector was not very big. There are a number of people, as unlike Rachman as one can get, who are not in the business of buying rented accommodation or of buying accommodation to rent, purely for the sake of making the lives of those who occupy it a misery and of making a profit. They are genuine modern businessmen and women who see a role for their business in providing good accommodation under guidance and control by the local council.
Can the Minister say something helpful about the initiatives that the noble Lord, Lord Best, referred to, whereby there is an opportunity for local authorities, tenants, estate agents and others to come together to get a better deal for the people who need housing? We know the extent to which people who are made redundant and lose their homes or who come to this country as immigrants, asylum seekers—call them 1452 what you like—need accommodation at the lower end of the scale. I should like the Government to encourage individuals, with the sanction of the local authority, to do something in this area. The local authority has a strategic role to play in policy and planning. It has an enabling role in advising, guiding and regulating those who want to invest in private sector properties and in regulating and promoting well-managed rented homes.
There have been some self-inflicted wounds. One was the right-to-buy legislation. I hear colleagues on this side of the Chamber, particularly those from rural areas, bemoan the fact that affordable accommodation is no longer available. It was built by the local authorities, then bought by the tenants and has disappeared. It will never come back. The Minister and his colleagues are well aware that the ability of a council to build new housing is virtually non-existent.
Therefore, one must look at alternatives. The private rented accommodation sector is one. But there are others. I declare an interest. I am the chairman of a body called the United Kingdom Co-operative Council, which is the all-embracing body for the co-op societies—housing, the bank and insurance. In that capacity I keep in touch with these issues. I was particularly struck by remarks made by David Rodgers, the executive director of CDS Co-operatives, a co-operative housing association of which I am pleased to serve as honorary president. He tells me that the CDS Co-operatives is working with the New Economics Foundation. Its chief executive is Ed Mayo, the former adviser to the Chancellor, the right honourable Gordon Brown. It is studying the feasibility of developing a new sub-market form of cooperative housing for key workers.
The study, which they hope will be jointly financed by the Housing Corporation, is a response to the excellent report by the Greater London Authority's Affordable Housing Scrutiny Committee, chaired by GLA member, Meg Hillier, into the need for key worker housing in the capital. The study will look at the prospect of giving key workers in high cost housing areas the same opportunity to invest in their homes through membership of a limited equity housing cooperative as key workers living in lower cost housing areas.
That is only one of the possibilities. The Minister, in a very busy life, gives maximum attention to these matters. I allude to other aspects of housing— to those who live in mobile homes, park homes and so on. I believe that he will not only look upon this debate as one which is worthy of his attention, but one from which he can produce some ideas along the lines of the initiative taken by the noble Lord, Lord Best. I congratulate the noble Lord on setting the scene and the tone. I am certain that the Minister will give a sympathetic reply.
§ 3.37 p.m.
§ The Earl of Caithness
My Lords, I am extremely grateful that the noble Lord, Lord Best, succeeded in the ballot because this is a debate that this House 1453 needed to hold. Although there are not many speakers, it will be a high-quality debate because those who do speak, such as the noble Lord, are highly qualified and well respected within the profession.
Like the noble Lord, I declare an interest. I am a surveyor. I am a consultant to a firm of residential agents in Chelsea. Therefore, I advise clients and have friends who are directly affected by the current law.
As the noble Lord, Lord Best, has said, the UK has only a small, by international standards, PRS with a large number of owners with small portfolios. Fifty per cent of all landlords in England let seven or fewer homes. Over a quarter of landlords have only one letting, and many are "accidental" landlords; for example, as a result of inheriting a property, or having difficulty in selling one or needing to move abroad for employment reasons. These landlords have little chance of becoming expert property managers and turn to letting agents for help, whose standards of competence and probity vary greatly. Others have entered the sector as an investment, but have done so only very recently as mortgages for the acquisition of properties to let have become available on attractive terms through "buy to let" schemes. They are still very inexperienced.
As the noble Lord, Lord Best, said, something like £10 billion of new investment has come into the sector in the last six years. That is very welcome. But we need to be very careful that we do not increase a raft of amateur landlords to the market. We do not want to go back to that state of affairs. Managing property is not like managing stocks and shares or having a broker to manage stocks and shares. Property is a much more complicated exercise. Only by continued training of landlords and agents will one get the standards that are sadly missing at the moment.
I know that the noble and learned Lord, Lord Falconer, would be very upset if I did not once again remind him that it is high time that agents were licensed on a proper basis and were trained on a regular basis. That, too, must apply to landlords.
About 60 per cent of the private rented sector comprises lettings to people under the age of 30, many of those being corporate lets. At the other end of the spectrum, in poorer areas, many tenants are on housing benefit. In some areas, investment values are sustained exclusively by the availability of housing benefit at levels that bear little or no relationship to housing supply and demand.
The Royal Institution of Chartered Surveyors recently highlighted the issue of the 760,000 homes currently empty in England. That is a greater number of homes than the population of Leeds, which is England's third largest city. That is a disgraceful and unwarranted state of affairs, which has three effects. First, there is a strong body of evidence to suggest that areas that include significant pockets of empty homes suffer from higher than average levels of crime and associated problems. Secondly, during the period 1991 to 2016, we need to accommodate 3.8 million households within the UK. Empty homes could fulfil 1454 a percentage of that. Thirdly, by allowing 50 per cent council tax relief to owners of empty homes, the Treasury loses an annual income of the order of £75 million. Those empty homes represent a considerable wasted asset to the UK in terms of the investment already made in constructing them, the ongoing maintenance and security cost of keeping them empty and the cost of bringing them back into use.
First, will the Minister consider extending the role of the Empty Property Advisory Group and making it accountable to a specific Minister? Secondly, will the Government formulate a strategy setting out targets to reduce the number of empty homes and establish a benchmark against which government agencies and local authorities can be required to act? What have the Government done? They published a housing policy statement, The Way Forward for Housing, on 13th December 2000. It was one of a linked series of policy statements on regeneration and social exclusion, including the urban and rural White Papers, the National Strategy for Neighbourhood Renewal and the planning policy guidance for housing published that year. Sadly, that did not convince anyone that the Government understood the private rented sector. Furthermore, it gave the impression that they do not have the time or resources to acquire such an understanding or to think deeply about the matter. As a result, they fall back on gut instincts, political preconceptions, and token gestures. The only point on which I differ from the noble Lord, Lord Best, is that I do not believe that the political risk from government is all but dead. I say firmly that it is alive and kicking and is a major deterrent to investors—not only in the private rented sector.
Let us consider the Homes Bill, which many of the your Lordships will remember. At a recent meeting of the National Association of Estate Agents. the Government official responsible for the Bill was given a severe grilling. On a show of hands, three quarters of those present voted against the proposed seller's pack and people left the meeting with the distinct feeling that the Government do not understand the housing market at all.
I shall now consider in a little detail the problems that prevent the private rented sector from playing the role that it should in this country. The private rented sector is possibly the only sector of the economy in which the tax and regulatory systems work to prevent the growth of small and medium-sized enterprises into larger businesses. That is the consequence of several discriminatory anomalies within the tax system in how private landlords are treated compared with other businesses.
First, let us take the anomaly of trading status. Property letting is one of the few business activities that is not treated as a trade for tax purposes. Income from property is taxed under Schedule A as investment income, regardless of whether the income is generated from pure investment or from a property ownership and management business.
Then there is the question of management costs. Because this form of business is not regarded as a trade, a landlord managing his own property is unable 1455 to claim the costs of managing his property and lettings business against tax. However, he would be able to claim those costs if he were using the services of a managing agent. As I said at the outset, the high percentage of landlords who have a small number of dwellings to let do not want to employ managing agents. The tax position is discriminatory.
Then there is the question of capital gains tax rollover relief. Unlike other businesses, because they are not regarded as a trade, lettings businesses are unable to claim roll-over relief from capital gains tax when they sell a capital asset with the intention of reinvesting the funds realised in their business. I am sure that your Lordships would agree that that severely limits the flexibility, mobility and above all the efficiency of investment, particularly among smaller investors. as the decision to sell to reinvest carries with it the same tax penalty as the decision to sell to take the profit.
Then there is the anomaly of earned income. Full-time landlords, whose sole activity is managing their property and lettings business and who have no other source of income cannot contribute to personal pension schemes because tax relief on contributions is permitted only on earned income and excludes investment income. That is provided by Sections 639(1) and 644 of the Income and Corporation Taxes Act 1988. It may be argued that the property holdings offer a more than adequate substitute for a pension fund. However, the snag is that that implies that the owner will sell the portfolio on retiring, thus preventing business passing from one generation to the next. Even if I he portfolio is sold, the landlord will still face a substantial capital gains tax liability on the proceeds.
I turn to self-investment personal pension schemes. Some landlords have generated Schedule D income, usually through trading properties, and have used that to contribute to SIPPS. The SIPPS rules allow investment in commercial property and allow it to be let, but expressly forbid direct investment in residential property or land connected with such an investment, except where commercial property includes a residential element that is either occupied by an employee as part of the job or is an integral part of the business premises and is occupied by a person who has no family connection with the owner.
The result of that has been that professional residential landlords have bought commercial properties, often shops with flats above them, and have been compelled to leave the flats vacant, despite their having a residential lettings business, because of the potential adverse impact on their pension arrangements. That restriction is equally frustrating the other way round, because some small pension fund investors who are looking principally to invest in commercial property are frustrated from making the most effective use of their funds because the flat above a prospective investment is tenanted. So people are caught both ways.
I am sure that the noble and learned Lord would expect me to raise the anomaly of value added tax. Residential rented property is an exempt supply for 1456 VAT purposes, so any payments of VAT made to suppliers of goods or services—for example, building contractors or managing agents—are irrecoverable. That increases the cost to the landlord and, when combined with the tight margins under which smaller landlords operate, can act as a disincentive to repair.
I turn, as did the noble Lord, Lord Best, to stamp duty. Stamp duty has quadrupled from 1 per cent to 4 per cent. Perhaps I can give an example to illustrate the point made by the noble Lord. If, as an investor, I wanted to buy 20 flats, I could buy all 20 individually and pay no stamp duty if the flats were valued below the threshold—say at £50,000 each. If I bought all 20 flats as an investment, I would have to pay £40,000 in stamp duty, which is a windfall to the Government that practically equates to the value of one of the flats. So, I am deterred right from the beginning from making the purchase.
Then there is the problem with developers, which was touched on by the noble Lord, Lord Best. There is no incentive for developers to develop a property for investment purposes. They are likely to get more profit from selling partly to investment people and partly to owner-occupiers. There is a great opportunity being blighted at birth, and, as a result, no developers have taken it up.
It is clear that housing investment trusts, which were introduced in 1995, will not work. The structure that was put in place is too complex. No trust has been launched successfully to date, and no one seriously believes that one will be introduced in the future. However, there is a need for a tax-transparent securitised vehicle for indirect property investment, following the 2000 Budget.
The industry has spoken to the Government about it, and the Government said, "No" to the industry's proposals. It is no good the industry trying to come up with another set of proposals and trying to second-guess what the Government really want: it is time for the Government to identify the areas in which the industry has something to offer, specify the help that they will give and recognise that the private rented sector can play a significant part not only in reducing the number of empty properties but in reducing the shortages in the South East and providing better accommodation in the North, as the noble Lord, Lord Best, said. The Government must say, "This is what we want you to do to help us. We are the enablers; you are the professionals. Get on and do it". Sadly, under current legislation, with the current anomalies, that will never happen.
I hope that the noble and learned Lord. Lord Falconer of Thoroton, will, as a result of the debate. grasp the opportunity to do something revolutionary and take a major step forward for everybody.
§ 3.52 p.m.
§ Lord Ezra
My Lords, like other noble Lords, I shall declare an interest. I am president of the National Home Improvement Council and, until recently, I was patron of National Energy Action, both of which organisations are committed to improving the quality of the housing stock in this country.
1457 I am therefore delighted to take part in the debate so ably initiated by the noble Lord, Lord Best, and I fully support the thrust of his remarks, namely that the private rented sector could and should play an increasing part in meeting the country's housing needs. We heard from the noble Earl, Lord Caithness, about the difficulties, particularly of a fiscal nature, that he, as someone who is familiar with the property market, sees in the way. No doubt the noble and learned Lord, Lord Falconer of Thoroton, will cover some of those points in his reply.
I shall deal with a different aspect, which was raised by the noble Lord, Lord Graham of Edmonton, who referred to the most recent House Condition Survey. He said that it demonstrated the relatively poor quality of a large part of the private rented sector, compared with the rest of the nation's housing. There is little doubt that the sector contains a large amount of poor housing. Under the general heading of poor housing, as defined in the English House Condition Survey of 1996, 31 per cent of private tenants are in poor housing, compared with 14 per cent overall. That is on page 76 of that report. Both those figures are well in excess of those for comparable European countries. We have a relatively high proportion of poor housing in Britain, and it is particularly noticeable at the lower end of the private rented sector.
Because of my particular interest in energy, I shall deal with that aspect of private rented property. Poor housing equates to poor health, and poor health is largely due to inadequate heating. There is a sombre statistic for this country that is often quoted in debates such as this: the rate of winter mortality is higher, relative to the rest of the year, than in any other west European country. Our rate is something like 15 per cent or more above the normal rate, whereas elsewhere it is an average of 6 per cent. In some countries, such as Denmark, where they pay particular attention to housing quality, there is no difference between the rates of summer and winter deaths.
We have a long way to go to improve the quality of our housing. Regrettably, in the private rented sector the proportion of poor housing is greater than elsewhere. To be fair to the Government, they have made efforts to deal with the problem of heating in poor homes. The Home Energy Efficiency Scheme, now known as the Warm Home Front, seeks specifically to improve heating and insulation in houses, particularly those of the elderly, that are poorly equipped in that respect. Unfortunately, the proportion of funding from HEES that has gone into the private rented sector has been much smaller than elsewhere. In fact, something like 5 per cent of HEES funding has gone to improving the private rented sector, when at least 10 or 15 per cent should have gone in. There are many reasons for that. In some cases, it is the reluctance of the landlord; in others, it is the tenant's lack of knowledge. Whatever the reason, there is a slower rate of improvement at the lower end of the private rented sector than elsewhere.
1458 My noble friend Lady Maddock was responsible for successfully introducing in another place the Home Energy Conservation Act 1995—known as HECA—the objective of which was to improve the standard of heating in homes throughout the country. Unfortunately, progress under that Act has not been as great as was anticipated, and, for that reason, Dr Desmond Turner introduced a further Bill in another place—the Home Energy Conservation Bill—which was strongly supported at Second Reading. Unfortunately, the Government proposed several amendments in Committee that severely weakened the Bill's impact. I know that my noble friend Lady Maddock will refer to that matter. I hope that the Government will use all possible forms of legislation and fiscal measures to stimulate improvements in the quality of the private rented sector.
The relative energy efficiency of buildings can be assessed using energy ratings. There is a well-established system of energy rating known as the standard assessment procedure or SAP. Estimates were made of the SAP value of different types of housing in the English House Condition Survey. SAP estimates are made out of 100—the nearer to 100, the more energy efficient the house. The SAP standard laid down for new buildings is 80. That is in Building Regulations. However, the estimated average for the whole housing stock in England—I refer to the English House Condition Survey—is 44. That is about half. In the private rented sector, it is 35, and what is worse is the fact that one in three elderly households in that sector occupy properties with a SAP rating below 20. In severe winter conditions, anyone who is elderly and lives in a house with a SAP rating of 20—a quarter of what is estimated to be desirable for new housing—could get very ill, if indeed they survived. That is a deplorable situation. We must sort it out in contemplating a major expansion of the private rented sector. At the very least, we must ensure that that end of the sector does not continue to suffer from these disadvantages.
I should like to propose that, in that part of the private rented sector where the Government are contemplating the introduction of licensing, such as in areas of low demand and in houses in multiple occupation, they should include an obligation to have an energy rating. Thus, when the properties are registered, levels of energy efficiency will be known and can be improved as necessary. I believe that such a simple measure, added to the points which other noble Lords have made, could help to achieve better standards in the private rented sector and could contribute to the objectives referred to by the noble Lord, Lord Best, in introducing the debate.
§ 4.1 p.m.
§ Baroness Gardner of Parkes
My Lords, I am delighted to be able to join in with the debate and I thank the noble Lord, Lord Best, for bringing forward this subject. I shall start by declaring an interest. I do not know whether I would describe myself as an "accidental landlord", although I like the description coined by my noble friend Lord Caithness. I think that 1459 I probably did start in that way. However, I do not agree with my noble friend that it is not possible to learn through the process.
I had a spare basement and so I let it out. I have many memories of that basement. I let it out in the days when Harold Wilson's government froze all rents. I cannot tell the House how damaging that rent freeze was. It stopped everything dead in its tracks. Later, when one wanted to re-let a property or to increase the rent, the increases appeared to be huge to those who had to meet them. Smaller, more regular increases would not have been as bad. During the period when no increases were allowed, it was not even possible to meet basic overheads such as the supply of heating and other services.
It is no wonder that commercial enterprises are not moving into residential lettings; people have long memories. The noble Lord, Lord Best, stated that it was impossible to believe that anyone could consider it to be a political risk. I believe that everyone still considers it a political risk to build or buy a large structure to let out at reasonable rents to those who desperately need such places. That is a great pity, because until we achieve large-scale ownership, small landlords really only comprise "potterers" like myself. That is not the way positively to address housing need.
In the days of statutory tenancies, rent levels were not even sufficient to cover repairs or maintenance. The noble Lord, Lord Ezra, drew our attention to the poor state of a great many properties. The Housing Act 1988 made a big difference and assured shorthold tenancies have worked well.
The noble and learned Lord on the Front Bench knows that I have referred to the situation in Australia on previous occasions. When I was in Australia on 11th September and afterwards, I inquired into what renting and letting was like over there. While in the United Kingdom an agent is paid 10 per cent, 15 per cent or even more, plus VAT, for managing a property, in Australia the cost amounts to only 4 to 6 per cent for full management, while the letting fee is set at one week's rent. In this country, tenancy agreements can be extremely complicated. Although it is possible to buy a standard form from a legal stationery office, if one has had any kind of unfortunate experience then it is wise to have a lease prepared properly. To do so will set the landlord back at least a couple of hundred pounds. Even then there is no way of ensuring that the tenant will actually pay.
I heard the statement with regard to the deposit scheme that is to be introduced. That scheme is already in place in Australia and rental deposits are secure. I am very much in favour of the proposal and I am delighted that the pilot scheme is to be continued. However, if such a system is ever established, it will be essential to put in place a safeguard, as is the case in Australia. If tenants fail to pay the last month's rent due on their tenancy agreement, there must be a way of securing an eviction within 14 days. It is now a common ploy for tenants, having paid the deposit, perhaps to trash their accommodation or even damage things acidentally—who would know whether the 1460 damage was deliberate? The tenants then fail to pay the last month's due rent, knowing that the original deposit could not possibly cover both the damage and the rent. Thus, on a year's tenancy, the landlord can be left thoroughly out of pocket, receiving rent for only 11 months out of the 12—if that, after seeing to the repair of any damage. If we are to introduce secure deposits then we must also be fair to landlords. Instead of landlords having to wait many months to regain possession of their properties, a procedure must be put in place to ensure that it is done quickly.
I turn now to another way of providing good accommodation in London. This city presents a particularly difficult problem because of its high property values. Those building large developments in London are now obliged to provide a certain amount of social housing. In the past it was possible to buy out those rights. The price of a buy-out per unit rose from around £40,000 a time to £80,000. However. on the whole, most local authorities now insist that social housing should be provided on site. Of course that means that it can be provided only by a registered social landlord. That is because those building large new developments do not want the bother or nuisance of coping with a small number of social tenants.
There are special difficulties in London. I turn to those encountered in sheltered accommodation. If such accommodation is provided by a large charity or enterprise such as the Joseph Rowntree Foundation or the William Sutton Housing Trust or Land Securities, then the philanthropic attitudes of those organisations ensure that funds are put in. However, if other people are to be attracted into providing rented residential accommodation, the businesses would have to he self-financing. People are looking for a return on their money and want to be confident that they will be able to carry on their businesses successfully.
I understand that housing associations are permitted only very restricted rent increases each year and that some of them are encountering difficulties. The position is not too bad at present because interest rates on loans are fairly low, hut if they rise housing associations may find themselves in great difficulty. If they have to borrow on the open market, that money will be linked to the London InterBank Offered Rates, LIBOR, which is an important factor.
Perhaps I may emphasise the importance of the point made by my noble friend Lord Caithness with regard to the tax situation. If property rental were to be reclassified as a trade or a business, more people would move into the sector, which suffers from the great disadvantage of not being so classified. That is why some people are regarded as "amateurs" in the field; rented accommodation is not considered to be a business and does not enjoy any of the associated advantages.
I personally consider the greatest disadvantage to be the fact that it is not possible to "roll over". If one has a house in which one flat is let, that cannot be rolled over to something that might be let to two people, or from two to four people. Nothing is done to encourage that kind of practice. That would not happen in any 1461 other business. If I sold my dental practice, I could move into another dental premises, using the money from my original business to set up a continuing enterprise. However, because rented accommodation is not classified as a business, it is constantly at a great disadvantage.
I wonder whether the future for London accommodation will lie in flats such as the tiny units I recently saw advertised. I do not suggest that we go to the Japanese extreme, where I understand that such accommodation is like the sleeping compartment in a railway carriage into which one can move for the night. However, I read that a number of micro-flats are being built. Perhaps there is a future in such flats because so many people in the nursing profession, in the police and so forth, have seen the accommodation that was available now disposed of.
We are crying out for people to come and work in London. I have seen blocks of police flats sold off all over London. When I was chairman of the Royal Free Hospital, the nurses' home was sold off because nursing had changed and we no longer had to provide accommodation for nurses. Because they had all become university students, we had to accommodate them for only one year. The local council had put such huge orders on the properties that it was not viable to do them up, and therefore the property was sold. Once sold it was gone forever. I do not know about the situation of a person needing accommodation now—I am not involved in that area any longer—but nurses' homes all over London have been disposed of.
The noble Lord, Lord Best, referred to the CASPAR scheme. It sounds most interesting and I should like to hear more about it. I wonder whether it works only because it operates in an area where house prices are low and possibly rents are low. The major problem in London is how to provide essential properties for rent when property prices are as high as they are at the moment.
Mention has been made of housing benefit schemes. Again, these are a problem. Questions have been raised previously in your Lordships' House about the huge backlog and the time it takes to deal with applicants for housing benefit. Very often the landlord gives up totally and says that he cannot possibly let the property because of the time an application takes to process and because of a lack of confirmation and a sense of security about the tenants taking the property. Something will have to be done about that.
I declare an interest—not a financial one—as an honorary vice-president of the National House Building Council. Reference has been made to people building estates and so on. It must be made clear that these people are in business—as I would like to be in regard to my lettings
Many kinds of people would like to rent. There are many older people who would like to release the capital in the house that they own, move into a pleasant rented place and be able to use their capital for healthcare, holidays, to help others and so on. 1462 Many people would like to do that. In London at the moment, they have the option of paying an expensive rent in an expensive area or very little else.
The high-rent sector in London has been very hard hit since 11 th September. The same thing happened during the Gulf War. Virtually no tenants arrived and there was a period of about six months when one was lucky if one could get anyone to rent anything. At the moment the agents are saying that this is exactly the situation in London and that there is a huge surplus.
But it is not the kind of accommodation that will help those in need at the bottom end; it is luxury accommodation that is available in London at the moment. There are many properties vacant in Mayfair, for example, but they are largely in foreign ownership and, although they are little used, we have no control over them. People are entitled to do what they want with their own property. If they keep it empty and use it for only six weeks a year, it is not something with which we can deal.
I do not think that those kind of people would accept an incentive to enter the rental market, but, if we reclassified property rental as a trade, it would be a first step. If we then encouraged people to provide accommodation and made it easier for them in terms of tenancy agreements and the costs involved, that would be a big factor.
§ 4.14 p.m.
§ Baroness Byford
My Lords, the private rented sector caters for those who do not want or do not qualify to live in council housing, and for those who do not want to buy or are waiting to buy their own homes. As we have heard today, as the demand for homes grows, so, too, does the demand in the private rented sector.
Like others, I should declare a humble interest—again, as a part-timer—in that at home I have two cottages that are rented out and on the farm in Suffolk we have cottages that are rented out and cottages that are rent-free for employees and past employees.
I should not like anyone to run away, however, with the idea that the growth in private rented accommodation is caused by population expansion. Here in the UK, annual population growth runs at less than one-quarter of 1 per cent per year. As other noble Lords have said, the increased demand for housing is caused by people choosing to live alone, by others forced to live alone after the death or abscondment of their partner and by families splitting up because the main breadwinner moves jobs. Many such moves are caused by companies, government departments and agencies shifting their operations closer and closer to the seat of power here in London and the South East, or to the burgeoning centre of excellence, for example, at Cambridge.
The lack of balance involved creates a vicious circle: too many people in a popular area chase too few houses, and so prices rise; back from where they came, too many houses wait for too few people, and so prices fall. Caught in a chain, many have to rent—but the prices in the rented sector continue to rise.
1463 As people flood in to one particular area or region, the number of "caring" professionals required also rises. They come into an area to find that house prices are often too high for their income, and so they turn to the rented sector. The rest, as we have said today, is history.
One answer to the problem would be to build affordable homes to meet the demand. In a housing shortage, developers, by and large, do not want to build such homes, and so they offer alternatives. When building estates, they do not provide affordable homes but offer new schools and other facilities which the area needs. They often build three, four and five-bedroom houses, but they do not build affordable housing.
A more sensible answer would be to encourage companies, government departments, agencies and others not to build offices and factories on green belt land but to move to where such buildings already exist. They could also look at the question of their distribution centres and warehouses, which are often built on green belt land. In areas where there is a high housing demand, they should not build on brown field sites that are suitable for housing.
The noble Lord, Lord Graham, referred to previous housing debates in which we have both spoken. I should like to draw the attention of the House to a development in Leicestershire where, on a 32-acre redundant brown field site, surrounded by a canal, the old Pex textile factory site was converted into one and two-bedroom flats. It is bang in the middle of Leicester and ideal for people who wish to live in the rented sector. I suspect that had it been another time it would have been pulled down and office accommodation erected. It is a very good example of where warehouses and industrial buildings can be converted to suitable one and two-bedroom houses.
Incentives could be offered to persuade some companies to move to areas where jobs are in short supply and where abundant housing is ready for renovation and conversion of the kind we have seen in London. Most noble Lords will remember that it was not that many years ago that the housing in certain parts of London that are now considered very fashionable was thought to be of fairly poor quality.
On 13th December 2000 the Government published The Way Forward for Housing. It listed six key measures which it claimed would promote a healthy private rented sector. I hope that when the Minister comes to reply he will give examples of what has happened since then. In recognising that an inability to remove unsatisfactory tenants is a disincentive to potential private landlords, a point made by my noble friend Lady Gardner of Parkes, one of the specific targets in that document was for all evictions to be carried out within four weeks of the bailiff receiving the warrant. Can the Minister give us a list of examples? If not, perhaps he will write to me later. The matter may have progressed so that people who seek to remove unsatisfactory tenants are achieving that. Will the Minister say whether the time involved in dealing with this issue is becoming shorter or longer?
1464 Urban and rural regeneration programmes were intended to bring into occupancy empty houses and vacant units above shops. Will the Minister say how many have been filled as a result of those regeneration incentives?
The Way Forward for Housing names administration of housing benefit as the fundamental challenge in improving housing availability in the private rented sector. Does the Minister have any idea about the position today? Has it worsened, or is it better? Is he aware of the growing number of evictions caused solely by non-payment of housing benefit entitlement? Has he read the report from the CAB on the growing reluctance of private landlords to accept as tenants people on housing benefit? Despite the claims in paragraphs 10.15 to 10.55 of the document, does the Minister accept that the severity of the problem is acute and will he tell us whether any practical measures are under way to improve the position?
I remind the Minister that the Housing Corporation issued a clear warning in July 2000 in reply to The Way Forward for Housing policy document. Paragraph 9.11 on page 23 states:There is strong evidence that the delivery of housing benefit is getting worse".I shall share some figures with the House.
In a Written Answer on 19th December last year, the Housing Minister, Malcolm Wicks, provided figures on the number of housing benefit regulations, statutory instruments and circulars issued year by year from 1988 to 2001. In those nine years, up to and including 1996, there were some 36 housing benefit regulations, 81 statutory instruments and 316 circulars—an amazing total to a paper-hater like myself. In the past four and a half years up to 2001, there were 29 housing benefit regulations, 90 statutory instruments and 400 circulars. I shall repeat that because in half the time there were 29 housing benefit regulations as against 36, 90 statutory instruments as against 80 and 400 circulars as against 316. No wonder housing benefit is running late. Perhaps officials are reading government literature instead of paying the clients.
The CAB stated in a recent briefing:Over four million tenants rely on housing benefit to pay their rent, with average payments of £48.30 per week".The briefing continued:In many parts of the country the housing benefit sy stem is in crisis. DSS figures show that between 1998/9 and 1999/2000 there was a drop of 10% in the number of claims processed within the statutory 14 days. The Audit Commission has indicated that only 56% of local authorities are administering housing benefit efficiently and the Local Government Ombudsman reported a 73% increase in housing benefit complaints in his 1999/2000 annual report".I think that all noble Lords would agree that that is unacceptable and I wonder whether the Minister will respond to that specific issue.
1465 I turn to rural housing, and affordable rural housing, in particular, which in some areas is as crucial and under pressure as it is here in London and the South East. In a White Paper on rural issues, produced in November 2000, the Government said:We will promote more flexible lettings policies by local authorities, so as to take more account of specific rural needs in their area. We propose changes to social housing lettings to promote a more customer-focused approach giving applicants more say and greater choice in where they live".They continued:Over the next three years, we will be providing £1 1m to support pilot schemes involving local authorities and registered social landlords which test choice-based lettings policies".I wonder whether the Minister has information about how many pilots have begun and what progress has been made.
The White Paper also touched on the question of empty homes. It stated:We are funding the Empty Homes Agency to work with local authorities to bring more empty rural property back into use".Questions have been asked both in your Lordships' House and the other place about the disgraceful number of empty properties in our stocks. Perhaps the Minister will refer to that matter, too, when he replies.
The Benjamin Foundation was referred to in the White Paper. It stated:The Foundation will now be able to set up a rent deposit and housing support service for young people who are vulnerable to homelessness. This will provide practical help to enable young homeless people to find and secure accommodation locally, close to their natural support networks".Again, I ask the Minister to respond to that issue when he replies to the debate.
I return to a comment made by the noble Lord, Lord Graham. Our previous debates on these issues in this House have always shown the strong link between the welfare of the people living in the houses and the quality of such houses. Whether one lives in one's own home or a rented one, regardless of whether it is privately rented, it is important that the standard of the house is acceptable. We have heard this afternoon that the private rented sector offers tremendous potential. I am extremely grateful to the noble Lord, Lord Best, for giving us the opportunity to debate some of these issues and to make suggestions to the Government which we hope will be taken forward quickly and urgently.
I add my congratulations to the noble Lord on highlighting the changes that have taken place in the work force. In the olden days, people used to stay in jobs for perhaps 10, 20 or 30 years, but today people change jobs and homes several times. The rented sector has a great role to play.
§ 4.27 p.m.
§ Baroness Maddock
My Lords, I add my congratulations to the noble Lord, Lord Best, on introducing the debate and on setting the scene so well. Although not many people are taking part in the 1466 debate, it has been extremely wide ranging and well informed, making it quite difficult to come in at this point.
Like other noble Lords, I declare my usual interest. I am president of the National Housing Forum Trust, vice-president of the National Housing Federation and patron of the Empty Homes Agency. I have also recently agreed with my noble friend Lord Ezra to become a vice-president of the National Home Improvement Council.
The debate has brought out two reasons why the private rented sector does not play as important a part in contributing to a flexible housing system in this country as it could, although it is important to have such a system. We have created a flexible economy, about which the Government are quite proud, but we have failed to achieve flexible housing to go with it. That is why this debate is very important.
The issues that have been highlighted are the size of the private rented sector, which is very small, and how to create conditions in which to increase its size. Another problem, to which many noble Lords have referred, is the condition of much of the sector and the problems surrounding its management. Only 11 per cent of housing is in the private rented sector, and the people who live in it tend to be rather polarised. The noble Earl, Lord Caithness, has been reading the same briefing, which tells us that many of the people who live in this sector are under 30. However, there is another large group of tenants living at the poorer end of the sector who are on housing benefit. A further consideration is the quality of the housing in this sector. It is very varied. We have heard graphic descriptions of some of the worst housing, not least from my noble friend Lord Ezra, particularly in reference to energy efficiency. The noble Lord, Lord Graham of Edmonton, also touched on the matter.
The housing Green Paper published in 2000 identified the need to improve this sector. Chapter 5 was headed "Promoting a healthy private rented sector". In the Green Paper the Government identify the need to bring forward many of the matters that have been referred to. There is not enough social rented housing. We have not managed to expand this sector in a period of two governments. Sometimes it is not appropriate for people to buy, or there is no affordable property. Therefore, there is a great need to develop this sector.
The Green Paper identifies some of the measures that could help in this regard. It accords with many of the points made in the debate. We need to encourage good landlords and to assist them to raise standards. We need to persuade more people to invest in this sector. In particular we need to raise the standards of some of the worst landlords. The debate then arises as to how that can be achieved.
There was an interesting section in the Green Paper on the role of taxation, and the noble Earl, Lord Caithness, made some interesting proposals in that regard. Perhaps the Minister will enlighten us as to where we have arrived on this issue in the past two years.
1467 A further area in relation to tax and business is the situation of small landlords. Many landlords own fewer than seven properties. I have great sympathy with the points made by the noble Earl, Lord Caithness. More support is needed for small investors. The noble Baroness, Lady Gardner of Parkes, touched on the matter. Private landlords who operate to professional standards should be treated in the same way as others who have small businesses. I hope that the Government will respond. I believe that they are considering certain proposals.
One important approach would be to reduce the rate of VAT on all refurbishment works to the level of that for newly built homes. It would be extremely helpful also if tax relief could be introduced to offset the cost of improvements as well as the cost of repairs and maintenance—a point touched on by other speakers.
The noble Earl, Lord Caithness, talked about extending tax relief—currently available to landlords using a managing agent—to those who manage properties directly. I have some sympathy with the idea, but there is a difficulty. We are all saying that we want to encourage landlords to manage properly and to use managing agents if they cannot do it themselves. Therefore, we need to be careful as this is a difficult area.
One approach that could help on the tax front would be to simplify capital allowances on the costs of converting flats, particularly those over shops and other commercial premises. I read with interest that the Minister is very interested in the concept of people living over such premises in London. Some of us in t he housing world have been talking about this for a number of years. There have been some very good schemes. I am glad that, having taken up his new portfolio, the Minister is keen on the idea. That is good news. Many of the properties in this category are empty. In northern Europe and Scandinavia people live in town centres; they are happy to live over shops. It means that there are people living locally who use the restaurants. The towns do not become empty in the evenings with people being afraid to go out. The Minister has signalled that he thinks this a very good idea: I wait to see whether he will offer anything concrete.
People may inherit a house. Or they may have one or two properties but are not sure how to manage them. There is talk in the Green Paper of registered social landlords taking on this role. The point was touched on by the noble Baroness, Lady Gardner of Parkes. It is a problem in some ways for registered social landlords. They are in the business of social letting and it is not easy for them. However, there have been some very good schemes whereby registered social landlords have taken over empty properties in their area and managed them for the people who own them. It is an excellent idea and we should continue to encourage such schemes. None of the regulations surrounding registered social landlords should prevent them from doing that.
Various other approaches could help. One that has been touched on at the edges is the modernisation of the legal framework for private renting. Since the 1468 introduction of the Housing Act 1996 it has been lawful for properties to be let on shorthold tenancies without a written tenancy agreement between landlord and tenant. The idea is not promoted by those who want this area to be very professional. It mitigates against tenants being aware of their rights and responsibilities and is often the cause of landlord and tenant disputes. Agreements between residential landlords and tenants should be regarded in the same way as other professional agreements between businesses and their customers. That reflects comments by other speakers about this area being a proper business. Therefore, such agreements should he subject to written contracts.
I understand—the Minister may be able to explain the matter further—that the Office of Fair Trading is working with the Law Commission to develop a model contract for pre-formed standard assured and assured shorthold tenancies. I believe that the law should oblige landlords to provide written tenancy agreements at the start of all tenancies. I hope to hear reassuring noises from the Minister on this matter when he replies.
Reference has been made to the tenancy deposit scheme. That is a positive approach taken by the Government and I welcome the fact that the pilot scheme will continue. However, I am rather disappointed in regard to the regulation of houses in multiple occupation. It is one of the worst areas in this sector in relation to the condition of the houses. Such regulation has not been forthcoming from the Government—in the previous Session or in this one. We are talking about a period of some five years.
As my noble friend Lord Ezra said, the Home Energy Conservation Bill is attempting to build on the Act that I was able to see through another place in 1995. But attached to that is a proposal about regulating houses in multiple occupation. This was a manifesto commitment by the Government at the previous two elections. I ask the Minister if he will study carefully what happened in Standing Committee in another place yesterday to the proposal attached to the Home Energy Conservation Bill. I make that request because the definition of a house in multiple occupation has been deleted from the face of the Bill and will now be dealt with by regulation. Moreover, the threshold—that is, the number of occupants, or perhaps storeys, above which a house in multiple occupation must be compulsorily registered— has also been deleted from the Bill's provisions and left to regulations. The timescale for introducing this seems to be slipping back.
As this happened only yesterday, it is possible that the Minister is not in a position to say as much as I would wish. Nevertheless, I hope that he will give an assurance that he will seriously consider what is happening in this area. One aspect that concerns me is the fact that the Bill will be placed before the Delegated Powers and Regulatory Reform Committee. I hope, therefore, that the Minister will also consider my request and look into the matter.
1469 Other speakers mentioned housing benefit, the administration of which is often a hindrance. Sometimes it is an advantage to landlords, but sometimes it is not. An awful lot of public money has been going into substandard housing over the years. I know that this problem was referred to in the Green Paper. I do not say that it is easy for the Government to deal with housing benefit, but progress has been very slow; indeed, it is a bit of a stop-start process. We often hear that it will be reformed and that everything will be wonderful, but then the Government backtrack, partly because it is such a difficult area to reform. In the Green Paper, consideration was given to whether there was some way that housing benefit could be used to help improve the condition of property.
Today's debate has ranged far and wide. I believe that there is general agreement between us, as well as among bodies outside like the Royal Institution of Chartered Surveyors, Shelter, and the Empty Homes Agency. I am sure that all those participating in the debate are grateful for the information that we receive from such bodies. All those people, across parties, and local authorities want to see more investment in this sector so that standards can be raised. There should be measures to ensure effective management and regulation. It is important that the management, or any regulation that is introduced, should be carried out in such a way that we do not drive people out of this sector. When the Minister responds, I hope that he will be able to update us on all that was said in the Green Paper, which was published nearly two years ago, and tell us where we stand at present.
The noble Lord, Lord Best, is always very generous in the way that he perceives governments. He was very hopeful about what might happen, while other noble Lords were a little sceptical. Over the past five years I have become more cynical myself. I had hoped that this Government would move faster on housing matters. I was most interested in the observation made by the noble Lord, Lord Graham of Edmonton. He pointed out that he is the only person from the Labour Party, apart form the Minister, talking on housing in today's debate. This was the big issue for past Labour governments. I am sure that I do not need to point the Minister in the direction of The House Magazine where, just recently, his honourable friend in another place, Austin Mitchell, the Labour MP for Great Grimsby, said:Every Labour Government since 1945 can be proud of its record in housing. Not this".It is for the noble and learned Lord, Lord Falconer, to prove him wrong.
§ 4.44 p.m.
§ Baroness Hanham
My Lords, I should like, first, to thank the noble Lord, Lord Best, for being successful in the ballot. I shall not congratulate him because I think it is a matter of thanks that he should have managed to promote such an extremely interesting debate this afternoon. I also thank the noble Lord for bringing some fresh and original thinking to the 1470 subject. One would not really expect anything else from the noble Lord. He has immensely long experience in housing. Indeed, having listened to what he said, I believe that his current chairmanship of the Commission on the Private Rented Residential Sector ought to be bearing, or about to bear, good fruit.
One of the areas to which the noble Lord drew particular attention is the difference between the amount of housing in the private rented sector in this country compared to that elsewhere. Indeed, my noble friend Lady Gardner gave us some very good examples of what happens in Australia. Clearly, we are very deficient in this country in terms of the way that we deal with the private rented sector, especially as regards our encouragement of it.
I welcome the thoughts expressed by the noble Lord, Lord Best, and his premise that large-scale institutional investment into housing for rent should be encouraged. It would certainly provide new resources for a sector that currently accounts for some 2.3 million tenancies. As other noble Lords have pointed out, 53 per cent of those tenancies are provided by individual landlords, with rather less than 8 per cent of investment being provided by corporate or institutional means. The sector quite often serves a mobile, short-stay population, or, increasingly plays an important part in the requirements of those on low incomes who are finding it difficult to find accommodation at a price that they can afford. Indeed, in many instances, they are supported by housing benefit.
I see that the noble Lord, Lord Graham, is no longer present in the Chamber. He rightly drew attention to some of the problems that have occurred with housing benefit, so I do not need to venture any further into that aspect. However, had the noble Lord stayed long enough, I should have congratulated him on representing the Labour Party extremely well; indeed, because of his very wide-ranging experience in such matters, one voice in the shape of the noble Lord, Lord Graham, is probably sufficient to encompass the Labour Party's views on housing. My noble friend Lady Byford also drew attention to the problems experienced not only in the administration of housing benefit but also by those to whom it applies.
The participation of the corporate or institutional investor is not new. When I first came to London, most of the mansion blocks were owned by large insurance companies—indeed, companies such as the Prudential and Norwich Union were wide owners. The flats were all on leases, which were usually quite short. Those companies divested themselves of all their properties. In many instances they sold them to overseas, absentee investors who often reaped the fast return by selling the flats on long leases, while, in others, they left no managing agents so that repairs went undone and tenants did not know who was responsible for the maintenance of the property. Consequently, a very substantial proportion of the rented sector dried up.
As we heard this afternoon from all the speakers who have taken part in this debate, the absence of the latter is now manifested by a dearth of housing that 1471 can be afforded, especially by those on low and middle incomes. My noble friend Lady Gardner drew our attention to the problems experienced by key workers. As a director of a hospital, I well remember being forced to sell housing that was designated for staff on the basis that it was "paternalistic" to maintain it. It seemed to be an extraordinarily curious way of looking at the situation, but I suppose that nurses' homes and places of residence for medical students and doctors at that time had hostel-like status. None the less, the loss of such housing is now coming home to roost. Indeed, much police housing has also been sold. This means that there is no housing sector to assist those who need to live and work within the metropolitan areas. It has also led to the necessity for us to talk, again, about providing housing for key workers, and to look to the affordable sector in order to do so.
As we have heard, London and the South East have particular pressures to address in this respect. Land for new development is becoming increasingly expensive. The result can be seen in the spiralling cost of housing.
The first question that we need to ask is whether there could he enough incentives and enough return to make it worth while for investment companies to come back into the market for rent. If not, what might be required to enable them to do so? We have talked about some of the measures that might be necessary. Any renewal of the rented market may be possible only if the Government are prepared to consider further enticements such as those proposed by the previous government—the scheme for tax credits, lower VAT on brownfield developments or conversions and reductions in corporation tax. My noble friend Lord Caithness went into considerable detail about those measures. I bow to his expertise in that area, as his professional life encroaches on it.
As my noble friend said, it is important that incentives do not encourage amateur landlords who find business management difficult, but encourage those who can, on a long-term basis, manage a property portfolio, tenants, links with the local authority if necessary and the repayment of mortgages.
My noble friend Lord Caithness also rightly drew attention to the fact that an enhanced private rented sector will require more management and letting agents. During our discussions on the Commonhold and Leasehold Reform Bill, amendments were moved to try to ensure that there was a regulatory basis for management and letting agents because of the problems that have been caused all over the country, but specifically in London, by those who were not up to it and who, in some cases, were corrupt. I hope that the Minister may be able to tell us that attention is being given to providing a regulatory framework for such agents, who will inevitably have a larger role if the private rented sector increases.
As other noble Lords have said, there is some evidence that the private sector is remaining robust, particularly on the back of buying to let, when mortgages or finance are provided for property specifically for rent. However, without the ability to 1472 ensure an adequate return to maintain the standard, that market could provide a false dawn. The last Conservative government made strident efforts to increase the proportion of private sector tenancies from the existing low base of 9 per cent of households by introducing shorthold and assured tenancies to speed up the process for a landlord who needs to repossess a property and introducing pre-tenancy determinations of rent eligibility for housing benefit, as well as introducing new housing benefit rules. All those measures continue, as do the housing investment trusts that were introduced. My noble friend Lord Caithness drew our attention to the limited success of those trusts, which may be due to the rules being too complicated. Despite all those measures, the proportion of private rented sector lettings has risen to just about 11 per cent.
Reverting to one of the main points made by the noble Lord, Lord Best, I suspect that the lack of enthusiasm for institutional investment stems from the difficulties with management costs, maintenance, service charges and the adequacy of the return on the investment. If the sector were re-enthused, would investors be satisfied with the amounts of rent that they could charge, which would almost certainly have to be set with rent assessment panels in mind? If the rents were too low, it would not be worth the investment. If they were too high, the whole purpose of such provision would be lost.
I was interested in the comments of the noble Lord, Lord Best, about the Rowntree Trust's success with the CASPAR scheme, which seems to show that there can be a return on investment that would encourage institutional investors. I very much hope that that will be developed. We may hear more about it in due course.
Like all those who have spoken, I have no doubt that there would be demand for such accommodation. Reliance on the "For Sale" market has in general been a successful investment for most people over the past 10 or 20 years, but it inhibits mobility. The long processes involved in selling and buying in many instances prove to be a deterrent to those seeking to move to job opportunities in other parts of the country. However, home ownership is becoming less accessible, not only because of the increasing cost—the National Housing Federation has estimated that across half of England home ownership is beyond the reach of those earning less than £30,000—but also because of the Government's policies, which have brought about higher stamp duty and council tax and the abolition of mortgage income tax relief. The revivification of a reliable and affordable private sector in housing would be welcome and valuable. My noble friend Lady Byford also referred to the problems in rural areas, where affordable housing is greatly lacking and where the rented sector could play an increasing part.
My noble friend Lord Caithness and others have also drawn attention to the 750,000 homes that are currently empty in this country. This is not an easy problem. We laboured with it in my clays as chairman of a local authority housing committee and it is still 1473 prevalent. When we are looking to provide more than 100,000 new units a year in a country in which land is becoming less and less available, 750,000 empty units represents seven years worth of renewing our assets and requirements.
I by no means wish to be negative about the proposals put forward by the noble Lord, Lord Best. If incentives and investment returns could be provided that would entice such institutional interest back to the housing market, providing a nucleus of professional landlords, we might see a major improvement in that sector of housing and thus further choice across the country. I welcome those proposals and look forward to seeing how and whether they can be implemented. I also look forward to the other suggestions coming from the noble Lord's commission, which will be of great interest to all those who have had an opportunity to take part in this enormously interesting and important debate.
§ 4.57 p.m.
§ Lord Falconer of Thoroton
My Lords, I join other noble Lords in congratulating the noble Lord, Lord Best, on initiating this very interesting debate. It comes on a particularly apposite day, because today is the first day after the Homelessness Act received Royal Assent. The noble Baroness, Lady Maddock, asked what the Government had done about homelessness. I do not want to sound remotely churlish, but I must point out that the first legislation that we introduced after winning the election was the Homelessness Bill, which she played a significant part in improving in this House. This is an auspicious day.
Secondly, this is a time when there is huge pressure on housing in London, the South East, the South West and other parts of the country. The private rented sector has an important role to play in seeking to reduce those pressures. The noble Lord has raised a particularly apposite subject today.
The noble Lord's basic proposition was that an expansion of private sector renting could ease the problem of shortage of accommodation in London and other areas of high demand and could assist with the problems of regeneration in the North and the Midlands. I entirely agree with that basic proposition. We also all agree on the need for improvements as far as necessary in the standard of landlording in the private rented sector, the need for improvements in the quality of the properties in the private rented sector and the need to attract as much investment as possible into the private rented sector. We all agree on those propositions. The question is how to achieve those particular aims. I shall therefore first go through the debate's main themes and then deal with the specific points that noble Lords have made in a debate that has been of the highest possible quality.
How does one attract investment into the private rented sector? Political risk was the first issue raised by the noble Lord, Lord Best, and it is important to touch on it. The lower the political risk in relation to the private rented sector, the more a landscape will be 1474 created for investment by both smaller landlords and institutional investors. The private rented sector is sensitive to changes in regulation. Although the Government have made it clear that they will act on houses in multiple occupation and on the selective licensing of private landlords in areas of low demand—to cover unscrupulous landlords, particularly in the North where there is abandonment, who put in tenants who are very frequently guilty of anti-social and criminal behaviour and destroy communities—the Government have no intention of changing the regulatory framework covering the private rented sector.
The political risk is therefore low, as was emphasised both by shadow spokesmen when Labour was in opposition and by spokesmen and Ministers since the party has been in government. I entirely agree with the comment of the noble Lord, Lord Best, that the political risk is low.
How do we attract investment in a context of low political risk? I shall first outline tax measures affecting both individual small landlords and institutional investors. First, however, I should declare an interest. I and/or my wife are owners of properties that are rented out. We are therefore, as it were, accidental landlords. I should have made that clear at the outset and apologise for not doing so.
I shall deal first with the point on tax raised by the noble Earl, Lord Caithness, and others, particularly the noble Lord, Lord Best. We want reputable investors to expand the supply of decent rented homes. Buy-to-let schemes may now have brought 160,000 better quality properties into the private rented sector. Measures in the May 2001 Budget which, were introduced in response to the urban White Paper provide for 100 per cent capital allowances for conversion of redundant space over shops into flats and zero or reduced VAT rates for refurbishment of empty properties and residential conversions. I think, however, that the noble Earl would agree that although financial institutions are showing a growing interest in the sector they have yet substantially to commit funds.
There is a clear reluctance among institutions to become involved in property management. One solution which the noble Earl mentioned is a tax-transparent vehicle for onshore indirect investment—the so-called US-style real estate investment trust. Although, as he said, that solution has been rejected because of the distortion it might create between the tax treatment of industry and of property, we have not completely dismissed such a vehicle specifically for investment in private rented property. The noble Earl effectively said, "We, the market, have tried; now it is for you, the Government, to present ideas on how to take it forward". Although such decisions are ultimately for the Chancellor of the Exchequer, I should think that the right course is to continue discussing with the industry whether vehicles can be developed to encourage institutional investors without falling foul of the types of distortion to which I have referred. It is very important that we continue that 1475 discussion, as we have committed to do in the Green Paper. It is sensible for discussions to continue with an open mind on both sides.
The noble Earl also raised the slightly different issue of the tax treatment of landlords. Although, as I said, we are keen to encourage institutional investment in the private rented sector, we also value the contribution of small landlords—who, numerically, as all speakers have recognised, form the backbone of the sector. The fact that residential landlords are classed as investors rather than traders for tax purposes—which was the noble Earl's point—has long led to calls for a level playing field. The noble Earl added to those calls in his excellent speech. Although we have some sympa thy with that view, we cannot ignore the fact that landlords do not face the same degree of risk as traders because of the asset value of their business. Nevertheless, we remain open to sensible suggestions for tax changes.
As we said in the housing Green Paper, we do not want artificial tax breaks that distort investment choices and do not tackle the problems faced by the sector. It is another sphere in which we have taken some action, to which I referred at the outset of my speech. We recognise, however, that other action may be possible. Let us sit down together and see if there are real options not only in the tax treatment of landlords, but in relation to institutional investors. We believe that, in the medium and long term, to encourage the private rented sector, it is very important both to attract institutional investors and to encourage small landlords.
The noble Lord, Lord Best, also referred to house builders and partnerships between house builders and investors. Of course we would encourage that, as we would encourage CASPAR-style developments. Noble Lords who have seen those developments will know how successful they can be. I thoroughly support the comment of the noble Lord, Lord Best, about the potential of such development.
I have dealt with the issue of attracting more money. As for the quality of landlording, we would thoroughly support helping well-intentioned landlords to improve their expertise. We would encourage it through local authority accreditation schemes and other best-practice initiatives. We also believe that various separate but connected initiatives such as tenancy deposit schemes are a thoroughly good idea. I was very glad that, on 13th February, I was able to announce that the tenancy deposit pilot scheme will continue for another two years while we determine whether take-up can be proved, how the scheme can be made self-sufficient, and what legislation might be required to support it in the long term. We all support the idea of improving the standard of landlords.
A connected and very important issue is raised particularly strongly, although not only, in the north of England—where people in areas of low demand frequently say that they are most concerned about antisocial behaviour and criminal activity. As the value of property decreases in areas of non-social housing—which is owned by private landlords—landlords buy 1476 property and put in tenants who have no regard for the community, commit criminal or anti-social behaviour and cause a rapidly accelerating flight from that community. We have issued a consultation paper, and we are keen to obtain views and act on the issue as quickly as possible—to permit the licensing of property and landlords and to stop landlords from obtaining housing benefit while watching the community be destroyed because of tenants' behaviour. We consider that an issue of considerable urgency.
As the noble Baroness, Lady Maddock, made clear, houses in multiple occupation were the subject of a Government manifesto commitment in both 1997 and 2001. As was said recently— I recommit myself to it now—we shall legislate on houses in multiple occupation as soon as a legislative slot is available to do so. It is an important issue. All the statistics show that the largest proportion of bad quality property is in the private rented sector. Within that sector, the largest proportion of had quality property is composed of houses in multiple occupation.
§ Baroness Maddock
My Lords, I am slightly worried by the Minister's statement that the Government will legislate when time is available. A Private Member's Bill is going through the other place at the moment which has a section on houses in multiple occupation. Are we to understand that the Government will not support that and will introduce a separate measure?
§ Lord Falconer of Thoroton
My Lords, we have given support to that Bill but it does not contain full provision for the licensing of houses in multiple occupation. It only contains provisions that pave the way for that. I do not know what happened at the Bill's Committee stage yesterday as I am not as up to speed as the noble Baroness in that regard. Although that Bill goes some of the way, it does not go all of the way to provide a licensing scheme for houses in multiple occupation. That will have to be provided by a subsequent Bill and that is why I say that legislative time is needed to complete the process.
The question of the quality of homes was also raised by the noble Lord, Lord Ezra. He referred to the importance of energy efficiency and gave terrifying statistics on the percentage of homes in the private rented sector with ratings which he rather modestly described—these were not exactly the words he used—as ones that would seriously damage the health of an elderly or vulnerable person who had to live in them during the winter. What is being done? There is grant assistance. We provide help from public funds largely through grants. These are targeted by local authorities on occupiers of poorer condition housing w ho cannot afford to keep their homes in good repair. Renovation grants are given for structural work and average about £10,000 per dwelling. Home repairs assistance grants are given more frequently and tend to be used to pay for non-structural work such as rewiring or essential upgrading. We estimate—this is local authority distributed money—that local authorities will spend annually an average of £280 million of their housing investment programme money on private sector renewal over the current spending period.
1477 The grants regime currently is constrained by a complex set of rules. We are in the process of sweeping those away by means of a regulatory reform order currently before Parliament. Under the simplified rules local authorities will have greater flexibility to aid home owners by means of grants, loans and loan guarantees. As the noble Lord knows from our conversation on the subject this morning, we also help to fund the Home Improvement Agency which comprises small teams attached to local authorities who help primarily elderly and vulnerable people to identify necessary repairs and improvements. The noble Lord also referred to the warm front zones. He said that when we introduce legislation to license houses in multiple occupation and in relation to the private rented sector we should consider incorporating an energy efficiency requirement in the licensing. That is a sensible idea which we shall certainly examine in considering those two areas of licensing. The three main areas mentioned were: investment, quality of landlords and quality of property. Those are issues that we need to keep under constant review. I have mentioned the steps that we are taking to advance those further.
I believe that three other areas were emphasised. As regards housing benefit noble Lords should make no mistake that we recognise the effect that the poor administration of housing benefit can have on tenants in the private rented sector. It is not just a question of constant difficulties for the landlord making housing benefit tenants unattractive but also the fact that from time to time housing benefit tenants are evicted because housing benefit is so slow in being paid. Delays in payment seriously affect both tenants and landlords. Steps are now being taken to help authorities improve their performance in that regard. The Department for Work and Pensions has developed and consulted on the first ever set of national performance standards. We have increased administration funding for the first time in eight years and established a help fund for local authorities. The new DWP help team has given direct practical support to individual authorities. A pilot scheme has involved social landlords in verifying tenants' claims in order to speed up processing. Last year a more realistic single room rent definition was adopted so that young people can obtain decent privately rented accommodation. This is an important issue. We recognise that more work needs to be done on it. However, we recognise the consequences of not getting it right. We are trying to get it right.
I touch briefly on other issues that were raised. The noble Lord, Lord Graham of Edmonton, was not present when the noble Baroness, Lady Hanham, bewailed the fact that there was only one speaker from the government Back Benches but said that the noble Lord, Lord Graham of Edmonton, was the equivalent of 20 members of our party. The noble Lord's experience in the field is second to none. He gave a warm welcome to the proposals put forward by the noble Lord, Lord Best. He also said that there was no single factor more important than housing in 1478 contributing to this Government's aims in relation to health, education and fighting crime. I thoroughly agree with that. The noble Lord emphasised the importance of the reform of housing benefit, incentives to encourage greater investment, better management and better regulation. Those are all points with which I agree subject to the point that the regulation must not, as it were, unhinge the political risk. The noble Lord emphasised that local authorities have a role in encouraging investment in the private rented sector. I agree with that. They have a strategic role as regards housing right across their boroughs whether that be in relation to social housing or the private sector. The noble Lord said that the right-to-buy was a self-inflicted wound. However, it is now part of the landscape and we shall not fundamentally change it. We must consider the problems of housing in that context.
I believe that I have dealt with many of the points made by the noble Earl, Lord Caithness. However, I refer to one other point that he made. He said that I would be disappointed if he did not refer to an effective refrain of his during the passage of the Commonhold and Leasehold Reform Bill; namely, the licensing of agents. During discussion on that Bill he said that although there are many extremely reputable and competent agents a few rogue agents of a low standard bring the whole profession into disrepute. As I indicated, we shall consider the question of licensing agents. We shall shortly produce a consultation paper to enable a whole range of options to be considered without giving a particular steer one way or the other.
The noble Earl referred to empty properties, as did a number of other speakers. He mentioned the figure of 760,000 empty homes. He asked whether we would expand the role of the Empty Property Advisory Group. That group, which the department set up in 1999, was established to make recommendations to feed into the Urban White Paper. It was disbanded after the White Paper was published. We are working closely with the Empty Homes Agency to take forward many of the recommendations, including the production of good practice research for local authorities in establishing empty property strategies. The Empty Homes Agency and its partners in the research project are setting up an advisory group of experts which will have a similar role to that of the Empty Property Advisory Group. As I say, the Empty Property Advisory Group was disbanded but a similar body will be set up.
I believe that I have dealt with the main point that the noble Lord, Lord Ezra, made. The noble Baroness, Lady Gardner of Parkes, described herself rather unfairly as a potterer in this area. Having heard her contribution to this debate and to the debates on commonhold and leasehold reform, she may be a potterer as a landlord but she has an extremely effective understanding of the private rented sector. She referred to the benefit of tiny units. In so far as density is an important issue in relation to dealing with the problems of a shortage of affordable housing, I entirely agree with that comment. She mentioned tax, as did other noble Lords. She also mentioned the 1479 regulatory framework within which private landlords operate. I reassure her that there is no political risk in the private rented sector.
The noble Baroness, Lady Byford, referred to The Way Forward for Housing and sought an update of how that is progressing. I hope that my comments on the quality of landlords, the quality of property, trying to seek institutional investors and encouraging the small landlord have covered many of the points that have been made. I shall read her speech to establish whether I should reply to her in writing about how we are getting on in relation to the Green Paper, The Way Forward for Housing.
I pick tip the point that the noble Baroness made about the importance of affordable housing in rural areas. I thoroughly endorse what she said. Two weeks ago, Mr Alun Michael, the Minister responsible for rural affairs, and I went to visit a rural affordable housing scheme in Lewes. All of the points that the noble Baroness raised were strongly and effectively made by the local authority down there and by the housing association that was setting up the scheme. That matter can all too easily be overlooked. I hope that she will recall that in our 2001 manifesto we committed ourselves to a specific number of affordable houses in rural areas for a number of years—I cannot remember the exact figures—because we recognise precisely the problem that she identified.
I believe that I have dealt with all of the points that were raised by the noble Baronesses, Lady Maddock and Lady Hanham. Once again, I congratulate the noble Lord, Lord Best, on an effective and important debate.
§ 5.21 p.m.
§ Lord Best
My Lords, I thank all noble Lords who have contributed to this debate. It has been a joy to be part of it. I especially thank the noble and learned Lord the Minister for a very full response to all of the matters that we have discussed and in particular for saying on four occasions that he is open to bids and offers and is very willing to sit down and talk through a number of issues, including regulation, taxation and much more. I assure him that his offer will be accepted, not least in relation to the report from the commission on the private rented sector, which will come out in the spring. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.