Contrary to the views expressed by Ryan Bourne of the IEA, Labour’s reforms to the private rented sector are designed to address the chronic instability faced by families up and down the country.
However, I agree wholeheartedly with his analysis that addressing the shortage of homes is paramount, and that’s why Labour has committed to a near doubling of house-building to 200,000 homes a year by 2020. Over the coming weeks, we will set out the conclusions of Sir Michael Lyons's Housing Review which will provide the next Labour Government with a road map of how we will achieve that much-needed step-change in house building.
Building more homes is essential to ensuring rents are affordable and young people can fulfil their dream of home ownership. Yet building more homes will not tackle the chronic instability that the increasing number of renters, including more than 1.3 million families with children, face every day. This new generation of renters needs the security to settle down, get their children in local schools and build a life for themselves in their community.
So the rental market has changed, but government policy has not kept pace with it. Just shy of half those renting are under the age of 35 and many families now settle in the private rented sector. But, renters typically get short-term tenancies of six to 12 months. The cost of renting has increased markedly over the past few years and now on average makes up 41 per cent of renters’ income, double the average mortgage payment. The impact of these unpredictable hikes is taking its toll on family finances and half of families renting say they are worried about unaffordable rent increases. Tenants are also being hit by unfair letting agency fees for services that are provided to landlords.
Labour would make the relationship between landlord and tenant fairer by legislating to make three-year long-term tenancies with predictable rents the norm and to ban letting agency fees being charged to renters.
Under our proposals, tenancies will start with a six-month probation period. If the renter passes this period then the tenancy will automatically run for a further two-and-a-half years, giving people the security they need - in particular those parents who worry if their children will be in the same school in a year’s time.
We will also pass legislation to stop excessive hikes in rents which are out of sync with the market. Landlords and tenants will set initial rents based on market value and conduct a rent review no more often than once a year. Rents could be reviewed downwards, upwards or stay the same, subject to market conditions. But there would be an upper ceiling on any rent increases based on a benchmark, for example, inflation or average market rents.
Our plans for reform will not just be good for tenants, they’ll be good for landlords too. After all, what landlords want are good tenants who pay the rent each month and take care of the property as if it were their own. They also want to avoid periods when the property is empty.
Our critics claim our plans are implausible, but the fact is it has been tried and shown to work in many European countries. In Ireland, a country with a very similar housing market, similar legislation was put in place 10 years ago. They amended a system similar to ours, to introduce four-year tenancies. Far from seeing a collapse in the sector, it has continued to grow and crucially renters have more stability and peace of mind.
We have one of the most short-term, unstable and expensive private rented markets in Europe. It is characterised by poor standards with over a third of homes not meeting basic criteria. Renters need and deserve a far better deal. Our plan to reform private renting will provide stability for the nine million people who rent and bring an end to the uncertainty that they face. We don’t need to wait until we are building enough homes in order to accomplish that, a willing government could act now, and if we are elected in 2015 a Labour government will.