Think tank Civitas's private renting report calls for reduction in subsidies for housing benefit tenants

Posted: 12/01/2015

The think tank Civitas has published a policy paper on private renting entitled “Sharing a fairer market for tenants and taxpayers”. Its proposals call for a shift in public policy to reduce the large amount of money currently spent subsidising rents for housing benefit tenants in the private rented sector. 

The report argues that the likely increase in welfare claimants living in the private rented sector and the limited supply of properties will make the sector an increasingly dominant part of the housing market and efforts are needed to improve the outcome for the taxpayer and for private tenants. 

The rejuvenation of private renting

Four million homes were privately rented at the time of the most recent English Housing Survey (2012/13) accounting for almost one in five households. This rejuvenation began with the passage of the 1988 Housing Act which scrapped rent controls and introduced shorthold tenancies to make the sector more attractive to potential investors. These reforms were followed in 1996 by the introduction of buy-to-let mortgages making it easier for small investors to buy property for private rental.

The result has been the doubling of the number of homes owned by private landlords to 3.6 million by 2011 and a decline in owner-occupation to 64%. Private rented sector is predicted to grow to 35% of the housing market by 2032.

Affordability issue

Deregulation has led to concerns about the affordability and security for tenants who have no choice but to live in rented accommodation. Rent now costs private sector tenants 40% of their household income compared with just 20% of an owner-occupier’s income and 30% of a social housing tenant’s. 

Civitas’s proposals for reform

Civitas believes that the challenge of the housing market is to achieve security and affordability and puts forward four reforms: 

• Introduce indefinite leases as the norm

Tenants should be allowed to remain in the property for as long as they wish (subject to observing the terms of the lease). This would give them the security of tenure found in the owner-occupied sector.

• Restrict in-tenancy rent increases to an index-linked ceiling

Rents should not normally be allowed to rise above inflation. The measure used could be CPI or average wage growth. Such a reform could exert a downward pressure on rental prices and help to curb the growth of the housing benefit bill.

• Use a wider range of incentives for private landlord investors 

Since deregulation landlords have been incentivised by the prospect of making large capital gains and the ability to increase rents and evict tenants to suit their interests. To balance out a move to greater regulation, incentives to landlords could include a combination of capital gains tax exemptions, depreciation allowances and making rental losses tax deductible.

• Encouraging private landlords to channel their investments into new stock 

Future investment in the sector should be strongly guided towards new-build accommodation, to increase the cash being channelled into new constructions while reducing demand (and so price inflation) for existing homes.

Commenting on the proposals Martin Codd, head of Penningtons Manches' property entrepreneur group, said: “Any form of rent control is likely to act as a brake on future investment in this sector. With these proposals, we run the risk of going back to the situation which existed under the Rent Acts before the 1988 Housing Act came into effect when investment dried up and renting became scarce as a result. 

“However, if such proposals are offset by increased tax incentives to investors, then perhaps the market will accept such restrictions being imposed. Policy makers will need to calculate if there will be an actual saving to taxpayers as the cost of tax incentives may end up equalling the saving to the housing benefit budget. 

"Is this a case of robbing Peter to pay Paul and not dealing with the underlying problem namely that we need to build more affordable housing?"

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