There has been much written about the removal of section 21, but very little of it has considered why protected shorthold and assured shortholds were introduced in 1980 and 1989 respectively. Reading the Government White Paper and Hansard reports of 1987 and 1988 gives an insight – in the briefest of terms; at the time there was a shortage of rental accommodation because landlords had lost patience due to the inability to effectively manage their tenants. Problem tenants and rent arrears resulted in court cases lasting several years with the consequential expense. As a result lots of properties were simply left empty. The Housing Act 1988 solved this problem as empty properties were bought back into the rental market. A win/win situation – more housing for the rental sector and income for landlords.
The 1988 Act has since been tweaked and from 2006 onwards there have been a very significant number of legislative provisions introduced to increase landlords' duties and costs. By and large landlords have adopted to these changes and standards have rightly increased. Cumulative legislation has made the private rental business model less attractive and since 2016 the evidence from the ONS and Hamptons shows that the cumulative effect is a reduction of over 250,000 properties from the rental sector. The question is whether the changes proposed by the Rental Reform Bill will result in even more properties being removed from the sector? I believe it will because letting agents have told me so.
There is already a shortage of housing generally and there is a lack of rental accommodation in the private residential sector. The Scottish experience last year demonstrated that if landlords leave the market there will be adverse consequences for tenants. The reduction in available property leaves people unable to find a home and for those that are able to secure rental accommodation the cost has risen significantly.
Anecdotal evidence from agents in our region is that landlords are starting to leave the sector – some firms reporting that 8% of their portfolio have served section 21 notices with the intention of selling their property. The law of supply and demand means that the reduction in available property will increase the costs for tenants. If rent limits are imposed in due course even less rental property will be available, as more landlords decide to sell up.
Those landlords that decide to remain in the sector are likely to secure vacant possession where their current tenants are not been "perfect" tenants.
My firm, I suspect like all other firms, have clients who rent property with the intention of having 100% occupancy. Landlords do not like tenants leaving as this creates voids. There is no income and the landlord has to pay council tax. In my experience when a landlord instructs us to serve a section 21 notice it is because there is a problem with the tenant; most usually rent arrears. Section 21 is used for two reasons. It is cheaper and quicker (but as the courts become more inefficient the word quicker is relative) than Ground 8 (rent arrears) but, very importantly, from the tenants' perspective, section 21 does not carry the taint of possession under Ground 8 or Ground 14.
As section 21 is available landlords have been prepared to take the commercial risk of a tenant who is looking for new accommodation following a section 21 notice. However, if the section 21 procedure goes the landlord will necessarily have to resort to fault-based reasons. If this occurs agents will tighten their referencing process. The result is most likely to be that any tenant subject to a fault based notice will find themselves excluded from the private rented sector because landlords will no longer be prepared to take the risk. This will create an underclass of tenants whose only source of housing will be the public sector, thus increasing the burden on the public sector even more.
The UK has a more mobile workforce than in the 1980s and a vibrant private rental sector remains necessary as the cost of buying and selling homes means that renting is cheaper if you only intend to stay in area of a short time, say a few years.
Arguably, while the cost of buying and selling a house has increased significantly, the real problem is simply the lack of housing available to a population that is increasing at a faster rate than houses are being built. The problem is not going away overnight, but I cannot help think that the removal of section 21 is going to have a greater long term adverse effect on tenants and public authorities than landlords. Those landlords that stay in a smaller market will take greater care selecting tenants and improve yields, but tenants that get into financial difficulties may well find themselves unable to rent in the private rented sector again. The removal of section 21 is a political response to pressure without understanding the reasons for the introduction of the Housing Act 1988. It is shortsighted and unfortunately will not be the right solution for tenants.