Estate agent HOP, which lets properties across Bradford, has written an open letter to Michael Gove, urging the Government to address the chronic shortage of rental properties available in the private rented sector (PRS), which is driving rents up and making life increasingly difficult for tenants.
The letter to the Secretary of State for Levelling Up, Housing and Communities, follows a consultation with HOP’s landlord clients, tenants and other industry professionals working in the PRS. As well as addressing the current challenges, the letter offers recommendations about how the Government could slow the exodus of landlords who are selling investment properties and exiting the market.
HOP manages one of West Yorkshire’s largest rentals portfolios, worth more than £245 million, and expects rents to increase by another 7% in 2023, which follows a 10% rise in 2022.
The company’s recommendations include:-
Luke Gidney, managing director at HOP, which has offices in Leeds city centre, Horsforth and Pudsey explained: “Legislation, red tape and tax changes that were all designed to make buy to let (BTL) properties less appealing to landlords, have had a bigger impact on the rentals market than anyone could have imagined. Unfortunately, Chancellor Jeremy Hunt had an opportunity to address this in the Budget but failed to do so.
“We’re now in a position where demand for rental property is higher than it’s ever been, and tenants are finding themselves in fierce competitions for available properties and having to pay record rents, which comes against a backdrop of sky-high energy bills and the cost of living crisis. Plus, tenants now often find themselves stuck wherever they’re living and are moving less regularly, for fear of not being able to find and secure another suitable home.
“More housing stock in the private rented sector would give tenants more choice and ease the burden on rents. It’s a critical situation and although we primarily represent our landlord clients, it’s also important that our tenants, and thousands like them, have a voice as well. We hope the Government will listen to the views of the industry, as well as our recommendations, and take steps to ease the problem.”
The open letter reads…
Open letter to Secretary of State for Levelling Up, Housing and Communities regarding the private rented sector in the UK.
Dear Michael Gove,
I am writing to you as the managing director of one of Leeds’ largest letting agents, which manages a large property portfolio in the area.
Although we manage these properties on behalf of our landlord clients, I’m actually writing on behalf of our tenants, and millions of people like them in the UK, who live in the private rented sector.
In recent years the raft of legislation, red tape and tax changes designed to make buy to let (BTL) properties less appealing to landlords, combined with upcoming rental reforms, Section 24 tax, changes to capital gains tax thresholds and EPC legislation, have had a profound impact on the rentals market, with huge numbers of landlords selling their investment properties.
Although this was the aim of these changes, and some former tenants have had the chance to get on the housing ladder as a result, the shortage of available homes in the private rented sector has now reached a critical point.
Research from estate agency data specialist, TwentyEA, shows that during 2022, supply volumes reduced by 8% year-on-year and 25% since 2019. Analysis of HMRC data by chartered accountant, UHY Hacker Young also found that the UK lost 116,000 BTL properties in the last year alone, and as landlords face being squeezed by rising mortgage costs, we can already see that this exodus will continue in 2023.
Eroding landlords’ margins has had the desired effect and made BTL a far less appealing asset class, but tenants are suffering as a result. This includes the many people who live in private rented property, either because they specifically want a short-term home, or enjoy the freedom it offers, or they don’t have a deposit to get on the property ladder.
Tenant demand for rental property is up by 10 to 12% nationally according to Rightmove, and this has pushed rents up by 10% annually in recent years and we’re forecasting that they’ll increase by a further 7% in 2023 in West Yorkshire alone.
Potential tenants now regularly have to bid against each other to secure rental properties, which is driving rents up further, and it’s a similar story across the UK.
Plus, when all this is combined with soaring energy bills and the cost of living crisis, it’s likely that more tenants could slip into arrears and find themselves in financial hardship.
The problem is predominantly due to a chronic undersupply of private rental stock due to landlords leaving the industry. Void periods between tenants are now just five days on average in West Yorkshire and tenants are generally staying longer in properties and moving less, for fear of being unable to find a replacement property. Approximately half of tenants now report being worried about the difficulty of finding a home to rent.
This huge imbalance in supply and demand is also allowing unscrupulous landlords to get away with letting out poor quality homes and generally leading to a decline in the quality of rented housing, as landlords don’t need to upgrade properties in order to secure suitable tenants for their properties.
If there was more housing stock available in the private rented sector it would give tenants more choice and ease the burden on rents.
A petition is now calling on the government to reverse the Section 24 tax changes for BTL landlords, which prevent them claiming mortgage interest against their tax liability. However, after consulting with our team and landlord clients, we have an alternative and potentially more workable recommendation.
One immediate way to stem the tide would be to remove the 3% additional homes stamp duty and instead charge landlords selling additional homes the 3% stamp duty levy. This would incentivise landlords to purchase new BTL properties.
I would also recommend incentivising the transfer of BTL property into limited company ownership by removing the 3% stamp duty levy for a 12-month period. This would enable landlords to pay tax on profit rather than revenue and would help to professionalise the industry further.
As well as this, landlords would benefit from more certainty over upcoming rental reforms. Streamlining and simplifying the Section 8 eviction process so that landlords can evict bad tenants would help to remove the concerns landlords have about the removal of Section 21s.
Finally, simplifying the planning process so that small builders and developers can build more homes would also benefit and support tenants and buyers, alongside whole swathes of the wider economy.
I hope you find this letter constructive and look forward to hearing of any progress made and of course, if you, or any of your colleagues, would like to discuss further, please feel free to contact me.
HOP provides residential sales, lettings and investment services, as well block management, across offices in Leeds city centre, Horsforth and Pudsey. For further information about HOP, visit www.hop-property.co.uk.