The terms of the debate on longer-term tenancies are well set.
On the one hand, tenants deserve to feel at home in their rented accommodation. On the other, there needs to be a stock of rented housing, and if landlords are too penalised, they will leave the market.
The debate is now reaching a crunch point, driven by well-known macro trends. Homeownership among young people continues to decline: the number of owner- occupiers in the 25-43 and 35-44 age groups has fallen by 20 per cent in the past 10 years.
Meanwhile, about 80 per cent of tenancies in England and Wales are set at six or 12 months, meaning that those shut out of ownership can’t feel stable in their homes and communities.
As the constituency of long-term renters grows, and without a clear solution to housing affordability at hand, it’s no surprise that the politicians are taking an interest in living standards in private rented accommodation – with three-year tenancies at the top of the list.
However, the horns of the dilemma remain – can tenants be provided stable living without the commercial downside driving landlords out of the market?
Yes, this is absolutely possible. In fact, longer-term tenancies can actually be commercially beneficial for landlords.
In practice, we would like to see three-year assured shorthold tenancies by default, with rent rises inside that period capped to inflation. Any provision would have to include potential for a six-month break clause for the tenant (after all, flexibility can be a great advantage of renting). It should also include the potential for the landlord to sell the property in exceptional circumstances, so they are not locked in.
Though this structure will never provide cast-iron guarantees to a tenant, it constitutes a significant improvement on the status quo and a statement of intent on the part of the landlord.
This means that tenants could plan to stay in their home, while retaining the option to leave earlier if the need arises. The costs of moving property – or even just renewing an existing tenancy – are significant, and moving less often would put much-needed cash back in renters’ pockets.
Capping rent increases inside tenancies would also make revenge evictions much more difficult for that small minority of landlords tempted to try it. But for the most part, landlords would be better off too. After all, landlords with stable, happy tenants earn better returns as properties are not left empty. They also pay letting agents less often.
Evictions for problem tenants against fairly-written contract terms would remain a central landlord protection in any workable solution.
We’ve been offering this proposition to our tenants for a year already, based on precisely these commercial benefits. Many of our investors (including those who used to be landlords themselves) are glad that we’re squaring the circle on treating tenants well, while delivering strong rental returns.
As with any change, some constituents in the property market won’t like it. Letting agents, for example, could see declining business from tenants moving home less often.
Meanwhile, landlord groups would rightly point out that buy-to-let has recently taken a policy battering, and that this is yet another challenge which amateur landlords must contend with.
These issues need to be addressed, and it will come down to the will of MPs to act. With eight housing ministers in just over eight years, clear steps forward will require a degree of stability in the role we haven’t seen in recent times.
That said, with Generation Rent growing as a political constituency – the prudential case is certainly there.
If we are right that longer-term tenancies can drive superior commercial returns for landlords, as well as being the right thing to do, we think there will be real action.