The private rented sector has faced many pressures recently, but with Labour now in power will their policies kill the PRS for good or could they be the boost the sector needs?
Certainly, the evidence so far suggests that Labour is on the side of renters and this bias could impact the sector. In pre-election campaigns the then Shadow Housing Secretary and Labour Deputy Leader Angela Rayner said that the Tories had “failed to stand up for renters”.
Increased regulations
Since then Labour has unveiled the broad outline of its new Renters Rights Bill, outlined in the King’s Speech in July. More details are expected in October. The bill will revise regulations around the reclamation of properties by landlords, set new timeframes for dealing with mould and damp and improve protection for tenants from unfair evictions and unfair rents.
The government has also pledged raising minimum energy efficiency standards to EPC C by 2030 within the private rented sector. It’s part of its warm homes plan to improve housing insulation and cut domestic emissions. However, it has promised that landlords won’t be forced to rip out boilers to meet its requirements.
The details of such changes aren’t yet clear, leaving landlords in limbo. However, as the government looks to tighten standards in the PRS landlords will inevitably face additional regulation.
Financial pressure on landlords
Rental yields hit their highest level since 2014 in July, according to Paragon’s latest PRS Trends Report. They reached 6.3%, up from a 15 year low of 5.2% in the first and second quarter of 6.7%. However, increased regulation will cost and so could impact those yields, placing further financial pressure on landlords already under strain. Under the previous government’s plans to raise the minimum energy performance target of rental properties from EPC E to EPC C, for example, landlords faced bills of up to £10,000. Financial support has been proposed for Labour’s 2030 target but it’s still unclear how much landlords will be expected to contribute.
This is concerning for the PRS. Rental prices have little room for further increases. Tenant affordability has been stretched to breaking point with the cost-of-living crisis and high interest rates. Inflation and interest rates may be falling but that makes it even more unlikely that consumers will accept rent increases, meaning that it will be landlords who bear the cost.
Changes to tenants’ rights
Many of the changes within the Renters’ Rights Bill also offer increased rights for the tenant and little for landlords. This includes greater power to stay in their rental properties – rather than face no-fault evictions under Section 21 of the Housing Act 1988. The right to have pets will also be strengthened, while changes around the ability of landlords to introduce rent increases and for tenants to challenge unfair price hikes will see a further power shift.
Impact on landlords and availability of rental properties
The danger is that for many landlords the increased legislation and financial pressures could be enough to push them out of the sector entirely – especially for those with smaller portfolios where it’s harder to realise economies of scale.
Some landlords are already limiting or reconsidering the expansion of portfolios, while others will be considering quitting. The consequence is that the pool of properties available within the private rented sector shrinks further, impacting availability for tenants and threatening to push up rent prices due to the limited supply.
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