Contribution
My Lords, I will speak to Amendment 173 in this group. I declare my interest in the private rented sector, with cottage lettings in Buckinghamshire and Lincolnshire. I thank the noble Lord, Lord Truscott, for tabling Amendment 173, and I am very keen to support it.
The reasoning behind my support is twofold and comes from the desire, which is shared by most, that this Bill be an opportunity to make sizeable reforms to the PRS—not only in tenant security but in improving housing and its management. This is predicated on the need, first, to encourage private long-term institutional investors into the PRS and, secondly, to differentiate between the private rental sector and short-term holiday lets, typified by Airbnb.
The Bill’s proposal that tenants should be able to give notice after only two months of occupation, rather than the four proposed in the amendment, severely limits these objectives as the addition of a two-month notice period means that a tenant might be in residence for only four months, rather than six months, which is the key to bank finance and institutional investment. It is also a question of the balance of fairness between landlord and tenant, as the costs of establishing a tenancy, renovation and redecoration need a longer timeframe for payback than that which the current suggestion would provide.
This is also an important financial point: lenders to the PRS are concerned that mortgage payments will be missed if the revenue stream ends in under six months and will therefore be wary of lending to the sector. The downside to this, over the longer term, is the risk of tenants being trapped. To deal with this issue, a tenancy agreement should include exceptions for mis-selling, poor or unsafe living conditions, breach of PRS ombudsman regulations, death, domestic abuse, et cetera, during the first four months.
It is very important to use this opportunity to increase the supply of housing in the PRS and, at the same time, to increase the standard of the product to conform with the decent homes standard and to raise the standard of management. The key to this is encouraging institutional investment and build-to-rent investors.
BTR—build to rent—is distinct from the broader PRS because BTR homes are new builds which have been constructed specifically for the rented sector, reflecting the priorities of modern renters and funded by institutional investors. BTR results in rental-focused developments that are owned and managed by a single, professional, accountable landlord. This mitigates against many of the issues plaguing the PRS, such as poor-quality homes, unscrupulous landlords and poor value for money. Bringing in private sector institutional investors will increase the rental housing stock and provide high-quality, energy-efficient homes available for long-term rent at affordable cost. However, long-term institutional investors such as pension funds are looking for predictable returns over the long term and are therefore anxious to avoid the risk of short-term tenants, which the Bill may encourage.
The second major issue that arises from serving a two-month notice on the landlord from day one of the tenancy agreement, rather than after a four-month period, as suggested, is that it risks opening a back door to misusing rental homes for short-term two-month lets. If a renter can sign their tenancy and submit their notice on the same day, tenants will be able to use a property meant for long-term rent for short-term purposes. This loophole risks undermining the work done to reduce short-term lets and their social consequences. Legally, a landlord would have no ability to prevent abuse or to prefer a long-term renter and their family. The result would be the loss of rental homes, with fewer local homes available for local residents.
The risk of this misuse is particularly high in the institutional and build-to-rent sector, because of the turnkey attractiveness of these homes. They are built so that they are easy to move into and out of, with good furnishings, free wifi and high-quality facilities.
With this loophole, a landlord could not be sure if their tenant proposed to stay for two months or a significant period. The short-term letting problem represents a barrier to investment in the delivery of new rental homes, as lenders, institutional investors and developers would have no certainty about the occupancy levels and revenue base underpinning the scheme. To address this, in 2023, the Levelling Up, Housing and Communities Committee recommended this same amendment that we are suggesting now.
Failure to address this issue will result in a significant loss of investment in new rental homes, as well as an inadvertent upward pressure on rents, particularly in cities, making it harder for people to find homes that they can afford. For the sake of an expanding and healthy PRS, which satisfies a clear market demand for the rental sector, I urge the Minister to consider and accept this amendment.