What is the law of unintended consequences?

The Renters Rights Bill had its second reading in the House of Commons on 9 October and the debate amongst the MP’s present was interesting.

One thing that struck me was a consistent suggestion that there will be unintended consequences of this proposed legislation. It is something I have been considering more and more as I have read the proposals, and I was almost certain that our elected MP’s might not have considered some of these things.

Among the suggestions as to what these unintended consequences might be included gridlock in the justice system, an increase in short term lets by tenants and a reduction in supply causing an increase in rents. There is some evidential basis for this, Scotland introduced similar legislation in 2017 which included ending a landlord’s ability to evict a tenant without giving a reason, making all tenancies open ended and extending notice periods.  There has been a 5-year study funded by the Nationwide Foundation which completed this year and to which reference was made in parliament. I decided to read this lengthy tome and here is what I found.

Supply and demand

Across Great Britain there are around 5.4m PRS properties, since 2017 England has seen an increase of 2%, Wales a decrease of 5% and Scotland a decrease of 13%. Scotland has seen a drop in the stock available and a reduction in the number of landlords which means that rents have increased, and tenants find it harder to find a home. Landlords, especially those who have not been in the arena very long ( 5 years or less) and small-scale landlords especially felt overwhelmed by the high costs, burdensome regulation, complexity, and uncertainty. Although other factors such as mortgage rates have not helped.

Rent

There have been higher than average rent increases in Scotland compared to the average in England. The legislation has not stopped high advertised market rents. Lower income and disadvantaged groups are finding it more difficult to find a home.

Rent increases

In Scotland, the legislation provides that rent is increased only every twelve months, previously legislation was silent on the issue. This has meant that rents are in fact increased on a yearly basis although most increases are still at the start of a new tenancy. Letting agents are more likely to increase the rents year on year than a landlord and landlords are moving towards using letting agents to manage their stock due to the complexity of regulation and perceived risk.  As a result, the report says, “ None of the legislation since 2017 has had the impact of protecting most tenants against excessive rent increase or high market rents”.

Security of tenure and access to justice

The vast majority ( 80%) of tenants surveyed were confident that they would be able to stay in their current property for as long as they wanted, the drivers for that include financial stability and trust in the landlord including whether the landlord is unlikely to sell. Tenants rarely mentioned legal rights as a source of confidence. Confidence as renters grew over time especially if they had lived in the same place for a long time. Most landlords were supportive of security for tenants and many preferred stability over uncertainty however the rent control proposals led to increasing dissatisfaction.

Tenant empowerment and enforcement

One of the conclusions in the report is that changes cannot be made by legislation alone. There needs to be a focus on information and advice for tenants and stronger enforcement measures. The number of tenants pursuing formal justice is very small and the Tribunal (where rent challenges are brought)was found to be a lengthy process. Over the time of the study only a few tenants knew they had more rights but said that a lot of the feelings around increased security come from service standards and the attitude and relationship with the landlord. What matters is whether landlords take their responsibilities seriously.

What about the future of PRS and can we expect the same here in the years following a change in the legislation?

In Scotland there has been a lowering of confidence from landlords and agents in relation to the future sustainability of PRS. In 2019 confidence levels were at 41% and in 2024 at only 17%. A lot of the reasons cited for that were the extended notice periods and restrictions on evictions. Whilst 45% of landlords said that they planned to sell as opposed to 23% in 2019 more say they will exit than do, regardless there is more stock flowing out of the sector than coming in during recent years.

The report makes some recommendations. I have not recited them all here, but this gives a flavour of the suggestions.

• Deliver a greater supply of affordable housing. It is harder for lower income tenants to find good quality properties and the best solution is access to good quality affordable housing.
• Create stronger deterrents for wrongful evictions, landlords should have to prove that they are selling the property rather than a tenant having to prove that their eviction was unlawful.
• Provide early information and advice for tenants by way of information leaflets and a verbal walk through by the landlord or agent.
• Give tenants real access to justice. Increase capacity in the FTT

We cannot say that what has happened in Scotland will stand here but this is important for all in government to bear in mind as this bill progresses through parliament. The committee stage is set to end on 29 November with a 3 reading of no more than one day. We will keep you informed of all updates.