I suspect I’m going to regret this, but there is so much flawed analysis and (wilful) misunderstanding around the policies announced by Labour to deal with the housing and Coronvirus crisis, that I think I should write something. In the spirit of full disclosure, I’m one of the (many) people that were consulted about the policy.
What is the problem?
The problem caused by the Coronavirus pandemic is easy to identify. There are millions of tenants (whether private, social or any of the myriad range of “intermediate” rental products that exist) who are presently not working. It is unclear when they will work again. Some will be entitled to welfare benefits but (a) not all will and, (b) in any event, in the vast majority of the country, housing related welfare payments (whether HB or the housing element of UC) will be nothing like sufficient to cover the full rent.
Presently, there is no prospect of any of those tenants being lawfully evicted. Practice Direction 51Z means that, in simple terms, there can be no possession claims progressed in such cases. But that is due to expire towards the end of June 2020. It might be extended. Or it might not. Or, on Monday, when the Court of Appeal gives judgment in Arkin v Marshall, the whole Practice Direction might be quashed.
Regardless of the position under the Practice Direction, the Coronavirus Act 2020 (Sch.29) gives some temporary relief. Again, in simple terms, it has extended the notice period of the vast majority of tenants from the normal two months to three months. But it doesn’t stop the subsequent possession proceedings nor does it provide any answer to what to do about the rent arrears.
What, then, needs to happen?
(a) Provision needs to be made to stop evictions where the reason for the eviction is Coronavirus related rent arrears. That requires reform to both s.8, HA 1988 (especially Ground 8, although I’d also probably extend it to the other rent arrears grounds) and s.21, HA 1988 (otherwise landlords will just use s.21 to evict and then seek to cut their losses on the unpaid rent by deductions from the deposit). I’d also extend the same protections to tenants of local authorities and amend the rent arrears grounds under the HA 1985. And, although they are now rare, I’d certainly want to protect Rent Act 1977 tenants in the same way.
(b) A policy decision has to be made as to what to do with the rent arrears.
(c) An “anti-avoidance” scheme needs to be created so that a landlord who cannot use a ground for possession does not simply resort to other legal means to put pressure on the tenant (e.g. bankruptcy for unpaid rent).
So what is the proposal?
The press release identifies five policy proposals.
- Extend the temporary ban on evictions for six months or however long is needed to implement the legal changes below.
- Give residential tenants the same protections as commercial tenants, by protecting them from being made bankrupt by their landlords for non-payment of rent.
- Bring forward the government’s proposal to scrap Section 21 ‘no-fault’ evictions and outlaw evictions on the grounds of rent arrears if the arrears were accrued because of hardship caused by the coronavirus crisis.
- Once evictions are prevented, grant renters at least two years to pay back any arrears accrued during this period.
- Speed up and improve the provision of Universal Credit, as Labour recently called for, and consider a temporary increase to the Local Housing Allowance to help prevent risk of homelessness.
As far as I can see, those five more than answer the three problems above. Policies 1 and 3 deal with problem (a). Policy 2 deals with problem (c). Policies 4 and 5 deal with problem (b).
And what are the criticisms?
So far as I can see, the criticisms are all directed at policy 4. Taking the broad criticisms in turn
Why can the rent arrears not just be cancelled?
There are a number of obstacles to such a course. Let us look first at social landlords. Cancelling rent arrears owed to local authorities will play havoc with the Housing Revenue Account. That is the ring-fenced fund that local authorities use to pay for repairs, maintenance and build new properties. Abolishing rent arrears means that money that the authority were expecting to have for those purposes has vanished, so that repairs get postponed, properties don’t get built etc. In addition, as a result of changes made to the Housing Revenue Account Subsidy System by the Localism Act 2011, many HRAs are actually heavily indebted. Adding to that debt has significant implications for the business plans of authorities (i.e. it means they can’t build new homes).
The position is similar for housing associations. Although not regulated in quite the same way, most associations have significant borrowing (often at a relatively generous rate), all of which is predicated on rental income. If that income is simply abolished then it impacts on the ability to provide services and new housing. In an extreme case it could even put the association in breach of the terms of its loans. That would be a very bad thing.
As for the private sector, the position is even more complicated. The right to receive rental income from your tenant is a property right protected by Art.1, Protocol No.1. Abolishing it would almost certainly be considered to be a deprivation of property and, as such, would require the state to provide compensation to the private landlord. The sums involved would be eye-watering and, perhaps, not the best use of public money. In any event, it is far from clear how many landlords can afford to absorb a period without rental income. One of the biggest structural weaknesses in our private rented sector is how unsophisticated it is. Around 60% of landlords own just one property. One of the biggest growth areas in the PRS is the lodger market. Such landlords are not equipped to deal with a lengthy period without receiving rental income.
In short, abolition just isn’t on the cards given the current legal framework and structure of our housing market. Now, you can argue about whether or not that framework and structure is the right structure, but changes will take years and require very complex legislation.
Why two years to repay?
Well, if you can’t simply abolish rent arrears (see above), you need some repayment mechanism. Two years is as good a starting point as any. More importantly, it buys time for the government, landlords and tenants to decide what to do. For example, suppose that we are still in lockdown a year from now. The scale of the arrears is likely to mean that, in many cases, repayment is unrealistic. At that stage, a further policy choice would need to be made. Some landlords might want to negotiate a “clean break” approach on arrears (say, tenant pays 10p in the £ or similar). The government might want to offer tax breaks if arrears are written off (which would meet my A1/P1 concerns). This is a proposal for emergency legislation. It isn’t necessarily the whole answer. It’s an answer to an immediate cliff-edge problem that arises once PD51Z lapses.
There is also some suggestion that this is somehow putting tenants in debt to landlords. But that is wrong. The moment the tenant failed to pay the rent, they were already in debt. The landlord was free to take any enforcement mechanism permitted by law (eg bankruptcy, court order for the money to be paid and, hence, a CCJ against the tenant). That debt has nothing to do with this proposal. What this proposal does is hugely ameliorate the position of the tenant by giving them a window of time in which the landlord *cannot* take certain enforcement proceedings). To put it another way – if you are reading this and have missed a rental payment, your landlord is presently free to take court proceedings against you (albeit not for possession). What this proposal does is prevent that for a period of time.
Why not nationalise the PRS and have the local authority provide social housing for all?
Aside from the enormous cost of nationalising the private rented sector (see the A1/P1 discussion, above), and the years that it would take (Compulsory Purchase proceedings are slow enough as it is), I cannot see that this is attractive whilst the right to buy exists. Why would you want to spend billions on acquiring private property, just to have the tenant buy it at a fraction of its market value? Now, I suspect most readers of this blog would support abolition of the RTB, but that is not presently on the cards.
Why does the policy not include [insert suggested policy idea]
Unless your policy idea can be enacted before PD51Z expires (and enacted by this government) then your policy is not what matters at the moment. The Right to Buy is bad. It should be abolished. It won’t be abolished by this government and even if it was, it wouldn’t address the immediate problem. Rent controls are probably a good thing. But they won’t help people who can’t pay their rents *now* (to say nothing of the government not supporting them). Building more social housing is good (‘tho a local authoritiy should do it via a special purpose vehicle so as to ensure that the RTB doesn’t attach to the property), but won’t solve the immediate problem that we have to face *now*.