RENTING NORTH WEST · the way inflexible tenancies are preventing people from taking up new job...

RENTINGNORTH WESTAN EXAMINATION OF THE REGIONAL RENTAL MARKETMAY 2019

CONTENTS

EXECUTIVE SUMMARY

HOW CAN THE RENTAL OFFER BETTER SUIT TENANTS’ NEEDS AND LIFESTYLES?

HOW CAN WE OFFER A BETTER RENTAL SERVICE?

CONCLUSION: A NEW MODEL OF HOUSING DELIVERY

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EXPERIENCE OF RENTERS IN THE NORTH WEST HOUSING MARKET

WHAT RENTERS WANT

EXPANDING THE ROLE OF HOUSING ASSOCIATIONS

THE COST OF LOST OPPORTUNITY

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PROBLEMS WITH THE CURRENT RENTAL OFFER

3Creating more places for people to thrive and be recognised as a sector leading landlord

FOREWORDI’m CEO of one of the North’s biggest housing associations. I’m also one of the growing number of people who rent the home they live in. With more people renting than ever before, it is crucial we understand whether the rental offer in our region is good enough: whether it meets the needs of modern lifestyles; how we feel about the quality of the actual service offered by landlords.

That is exactly why we commissioned this research. Unfortunately, it does find some problems: lots of people in our region are unhappy with their landlords, and we also uncover some real issues with the way inflexible tenancies are preventing people from taking up new job opportunities. This has huge implications for our economy – and it’s costing North West renters over £1,000 a year in lost wages. That’s an estimated £173.6m in earnings every year.

But there are some good messages in here, too, on constructive ways forward for the rental offer to adapt to modern lifestyles. It shows big appetite for more flexible tenancies, for example, it allows people to trade up or downsize, or even move locations, within a single tenancy offer. Some people also like the idea of the longer-term or lifetime tenancies that are more common in other European countries.

The biggest picture this research points to, however, is a need to develop more housing for rent – preferably affordable rent – and for this to be delivered with a much more professional rental offer that better meets modern lifestyles. And this is where I believe housing associations could come in and play a major new role.

We build homes where they’re needed – not where they’ll deliver the highest investor return – and we manage them professionally, and to a consistently high standard of quality. The challenge for the future, therefore, is how to really expand the amount of good quality, professionally-managed rental housing our sector delivers. This means looking for imaginative ways to fund new development, through pension funds, for example, and this report sets out some pointers for the kind of thinking we will be bringing forward in future work.

Creating more places for people to thrive and be recognised as a sector leading landlord4

1. EXECUTIVE SUMMARY

This research focuses on these issues, looking specifically at the North West of England, a region that has seen a rapid increase in renting in recent years. It seeks to understand the rental market on offer to people: whether landlords are offering a decent service in return for the rents they charge and whether tenancies meet the needs of people’s lifestyles today.

WE FOUND SOME VERY CLEAR PROBLEMS: • First, the major underlying problem is the fact that our regional housing

market is too reliant on a small group of private sector builders who focus on relatively high-value homes for sale that increasing numbers of people simply cannot afford. House prices in the region are relatively high for the North of England, averaging at over £180,000, but there are some pockets where price rises have rocketed way faster than earnings: Trafford, Salford and Manchester, for example, have experienced the fasted gains over the past decade, at 30%, 27% and 25% respectively.1

• This has led increasing numbers of people in the North West to rely on the private rented sector, especially as social housing has reduced, but similar issues affect this sector. Not only do we have a shortage of homes to rent, but rents are high: equivalent to nearly a third (26.7%) of the gross average salary in the region.2

THE PERSISTENT LACK OF HOUSEBUILDING IN THE UK IS NOT ONLY PRICING MORE AND MORE PEOPLE OUT OF HOME OWNERSHIP. IT IS INCREASING DEPENDENCY ON A PRIVATE RENTAL MARKET WHERE SIMILAR AFFORDABILITY PROBLEMS ARE BECOMING ENTRENCHED. RENTS ARE RISING FASTER THAN INCOMES IN MORE AND MORE AREAS, AND WITH RISING PRESSURE ON THE SECTOR, CONCERNS ARE FREQUENTLY BEING RAISED OVER THE ACTUAL QUALITY OF SERVICE ON OFFER FROM LANDLORDS.

5Creating more places for people to thrive and be recognised as a sector leading landlord

1 Valuation Office Agency and Annual Survey of Hours and Earnings, Office for National Statistics, 2018 2 IBID

7Creating more places for people to thrive and be recognised as a sector leading landlord6

• The second set of major problems arises from the fact that much of the available rented housing is held by a very fragmented market of ‘amateur landlords’, where the quality of the service being offered is extremely variable. New polling we carried out for this report showed one in six renting households3 - or 18% - in the North West, equivalent to 205,818 households,4 believe they get a poor landlord service.

• Renting can also be very insecure, as these landlords tend to want the flexibility to take back their asset if needed at fairly short notice. Our research shows widespread support for the idea of longer-term tenancies: 47% of renting households polled in the North West – equivalent to 537,415 households - want a longer-term tenancy.5 83% of respondents say that “security” was the main reason for this.

• Renters are foregoing career progression because of rental insecurity. Longer tenancies should not mean inflexible ones: renters in today’s labour market of more frequent job changing clearly need a tenure offer that is portable, allowing them to move to take new opportunities without fear of excessive exit penalties or not securing a tenancy in the new location. Our polling shows that 15% of renting households in the North West – equivalent to 171,515 households - have been forced to turn down a job opportunity because of worries over terms of their tenancy. This could include the fear of costs associated with early termination, or loss of deposit. This has a huge impact in terms of lost potential for the economy, as well individuals’ life chances: the average loss of earnings is £1,012 a year (see more below).6

While it may seem a poor choice to forego a career progression for the sake of, for example, losing a short-term tenancy deposit, the figures indicate this may be a perfectly rational choice for many. The £1,012 benefit will come to around £800 after tax for the average basic rate taxpayer. The typical minimum deposit required by a landlord is 4 – 6 weeks, which, based on average rental prices in the North West, could cost between £530 - £800, plus any further exit penalties and fees.7 These costs have the potential to undermine the appeal of moving for work.

In terms of what the solution is to all of this, there is an urgent need for more good rental stock – a well-known problem linked to the under-delivery of housing nationally. Allied to this, the rental offer needs to improve radically if it is to meet people’s needs.

Rather than piecemeal policies trying to accelerate building rates or to improve regulation affecting tenants, we believe something much simpler and more impactful would be to encourage a developer sector that can (a) challenge the dominance of the handful of commercial volume builders who are simply failing to deliver, and (b) provide a more professional management service than the preponderance of amateur landlords in the market.

This is where the housing association sector provides a simple and very clear solution to improve radically the rental market on offer to people.

Housing associations are increasingly developing, as well as managing housing, and they also tend to offer longer, much more secure tenancies than private landlords. Because many also own different types of housing over several different locations, we can also see a future where opportunities within portfolios for people to upscale, downsize, or even move geographically could be created within a single tenancy.

The key is allowing housing associations to play a much bigger role in the housing market, with new policy thinking around how to attract investment from reliable sources with a long-term outlook, such as pension funds. This way the sector does not only rely on public funds or a restricted amount of debt finance.

This report therefore calls on all politicians to develop new thinking with the sector on how to bring land and investors together with housing associations so that development can start to happen at the speed and scale necessary to help tackle the housing crisis.

Your Housing Group has been developing new ideas on this front and will soon be publishing policy proposals in this space.

3 Polling commissioned by Your Housing Group from Populus: fieldwork undertaken January 2019 4 English Housing Survey 2017-2018 establishes there are 1,143,438 households renting in the North West; all percentages

established using this figure5 Polling commissioned by Your Housing Group from Populus: fieldwork undertaken January 2019 6 Assuming the 171,515 working age renters in the North West who have been restricted from taking a new work opportunity

because of the terms of their tenancy are currently either employed full-time, employed part-time or unemployed (with the split of these categories based upon numbers in the English Housing Survey) the model calculates what renters would have gained in income increases from taking up a new work opportunity, i.e. full-time and part-time employees moving into new, higher-paid roles and the unemployed moving into employment. Earning increase established using the following sources: Resolution Foundation, August 2018, The growing ‘disloyalty bonus’ establishes typical pay bump; Public Health England, October 2017, Movement into employment: Return on Investment Tool – demonstrates the typical income gains in income from moving into employment to unemployment

7 Valuation Office Agency data establishes average monthly regional rent in the North West is £568; 4-6 weeks’ worth of rent at this rate would cost £524-£786

Creating more places for people to thrive and be recognised as a sector leading landlord

2. EXPERIENCE OF RENTERS IN

THE NORTH WEST HOUSING MARKET

With this in mind, we set out to explore the state of the rental market in the North West region, from a perspective both of affordability of rents and also the service people receive in return for the rents they pay.

To contextualise our analysis, it is worth setting out that North West has seen house prices rise rapidly over recent years and with social housing in decline, the result has been a rapidly-growing private rental sector. The number of households renting in the North West has grown to 1,143,438.8

Rents in the North West are rising in relation to people’s incomes in the North of England. Rents rose by 1.7% last year, whilst wages in the region remained largely static.

Previous analysis undertaken on behalf of Your Housing Group revealed that ‘liveability’ and affordability within the region is highly variable.

IT IS NOW WELL-UNDERSTOOD THAT BRITAIN’S HOUSING MARKET IS IN CRISIS. WHILE THE FOCUS IN DEBATES ON HOW TO TACKLE THIS TENDS TO BE AROUND LOW HOUSEBUILDING AND RISING HOUSE PRICES PUSHING PEOPLE AWAY FROM HOME OWNERSHIP, THE EXPERIENCES OF THE EVER-GROWING NUMBERS OF HOUSEHOLDS WHO ARE RENTING DESERVES A GREAT DEAL MORE SCRUTINY.

8 Ministry of Housing, Communities, & Local Government, English Housing Survey 2017 to 2018: private rented sector; Survey in question establishes that there are 1,143,438 households renting (via a variety of tenures) in the North West; all equivalents of percentages generated using this figure

9Creating more places for people to thrive and be recognised as a sector leading landlordCreating more places for people to thrive and be recognised as a sector leading landlord8

For instance, Oldham is the most difficult place to live in the region for average earners, despite affordable-seeming average rents (£551 vs £568 regional average per month). This is because of the lower average earnings of local residents (£23,803 vs £25,538 regional average), plus a lower employment rate (67.4% vs 73.7%). ‘Affordability’ of rents is relative to where you live, and how much you earn.

With more people in the North West renting than ever before, and rents consuming a rising proportion of people’s incomes, it is vitally important that we understand whether today’s rental offer meets people’s needs.


10 Ministry of Housing, Communities, & Local Government, English Housing Survey: Private rented sector, 2017-1811 Citizens Advice, It’s broke, let’s fix it: Improving redress for private renters, Mette Isaksen, July 2017 12 University of York, Centre for Housing Policy, Vulnerability amongst Low-Income Households

in the Private Rented Sector in England, David Rhodes and Julie Rugg, 2018 13 IPPR, The Case for Reforming Private Renting: Interim Report, Darren Baxter and Luke Murphy, December 201814 Citizens Advice, Touch and go: how to protect private renters from retaliatory eviction in

England, Caroline Rogers, Mette Isaksen, and Beth Brindle, September 201815 Calculated from regional households data in Ministry of Housing, Communities, & Local Government, English Housing

Survey 2017 to 2018: private rented sector, July 2018. Survey in question establishes that there are 1,143,438 households renting (via a variety of tenures) in the North West; all equivalents of percentages generated using this figure

16 IBID9 Ministry of Housing, Communities, & Local Government, English Private Landlord Survey 2018, January 2019

PROBLEMS WITH THE CURRENT RENTAL OFFER

One major feature of the private rental sector in this country is the preponderance of properties owned by landlords who rent out property as a ‘sideline’: a source of supplementary income or trying to build up assets that can be used in retirement. 45% of private landlords own just one property, and 48% of England’s tenancies are drawn from the 17% of landlords who own five or more properties. Only 4% of private landlords became a landlord in order to let property as a full-time business.9

This makes for a very fragmented market where the security of tenancies and the service offered by landlords can vary wildly. Renters typically report the following problems:

• Poor quality accommodation: The English Housing Survey10 found that 750,000 rented homes have at least one very serious hazard (such as exposed wiring, mould, or vermin). Moreover, Citizens Advice research found that 41% of renters say they are forced to wait an unreasonably long time for landlords to undertake repairs they are legally obliged to complete.11

• Precarious tenancies: Around 1 in 10 tenancies come to an end because the landlord has terminated it, typically through a ‘no-fault’ eviction.12 Tenancies ended by landlords were the biggest cause of homelessness acceptances in England in 2017, accounting for 28% of all local authority homelessness acceptances.13 Citizen’s Advice research reveals renters who complain about problems with their home are 46% more likely to be evicted.14

• Bad service: new polling we commissioned for this report revealed that one in six renting households in the North West – equivalent to 205,818 households15

- believe they get a poor service from their landlord.

• Inflexible tenancies limiting life chances: Our new poll for this report uncovered that 15% of renting households in the North West – equivalent to 171,515 households16 - have been restricted from taking up a job opportunity due to inflexibility in the terms of their tenancy.

The fact that renters are losing out on the chance to take up new jobs merits closer examination - the cost of these lost opportunities is borne by both individual renters and the North-Western economy.


19 Ministry of Housing, Communities, & Local Government, English Private Landlord Survey 2018, January 2019 20 Valuation Office Agency data establishes average monthly regional rent in the North

West is £568; 4-6 weeks’ worth of rent at this rate would cost £524-£786

17 Resolution Foundation, August 2018, The Growing ‘disloyalty bonus’; Public Health England, October 2017, Movement into employment: Return on Investment Tool

18 Earning increase established using the following sources: Resolution Foundation, August 2018, The growing ‘disloyalty bonus’ establishes typical pay bump; Public Health England, October 2017, Movement into employment: Return on Investment Tool – demonstrates the typical income gains in income from moving into employment to unemployment

THE COST OF LOST OPPORTUNITY

Secure tenancies should not mean inflexible ones: renters in today’s labour market of more frequent job changing clearly need a tenancy offer that is portable, allowing them to move to take new opportunities without fear of excessive exit penalties or not securing a tenancy in the new location. Renters looking to relocate for a job are forced to weigh up the hidden costs of lost opportunity; the cost of moving.

We undertook a quantitative modelling exercise to assess the financial implications of the ‘opportunity cost’; exploring the typical employment circumstances of a renter, and how these circumstances might change if they weren’t constrained by the terms of their tenancy:

• Renters who are restricted from taking up a new job opportunity would, on average, lose out on an annual income increase of £1,012.17

• Assuming that around 171,515 renters were restricted from taking up a new job, the total lost income for these renters would be £173.6m per year – that’s £173.6m that could otherwise be spent in the North-Western economy.

To arrive at this figure, we looked at the typical employment circumstances of a renter, and how these employment circumstances might change if they were not restricted by their tenancy. Assuming that there are around 171,515 renters in the North West who have been restricted from taking a new work opportunity because of the terms of their tenancy, and that they are of working age, are currently either employed full-time, employed part-time or unemployed, we then calculated what these renters would have gained in income increases from taking up a new work opportunity.18

Naturally, if the earning potential of a new role outstrips the cost of leaving a tenancy early, then the rational economic choice would be to take the job. However, for many renters, those sums may simply not add up.

The £1,012 ‘new job benefit’ calculated will – for the average tax-payer – come to around £800 after tax. However, those looking to move need to reckon with the cost of paying a new deposit upfront whilst waiting for the return of their current one. The latest private landlord survey revealed that for their last letting, 61% of agents took a deposit of between four and six weeks’ rent.19 Based on the average rental prices in the North West, this would set a job hunting renter back by circa. £530 - £800.20

This, coupled with potential exit penalties and fees (which will not be banned as part of the Tenant Fees Act) could completely eradicate the potential financial benefits of a new job. For many renters, these costs are just not feasible, and nullify the ‘new job benefit’ they could otherwise enjoy.


3. HOW CAN THE RENTAL OFFER BETTER SUIT

TENANTS’ NEEDS AND LIFESTYLES?

Today’s tenants are more likely to have to move for work and education far more frequently than previous generations21 - making renting the more adaptable, flexible choice, rather than owning a home that may need to be sold before the occupier can move. Older age groups also need flexibility – potentially needing to downsize in later life, for example.

Tenancies should offer this flexibility, but have simply not kept up with the pace and way that people’s lifestyles are changing.

It’s time to think about how we can reduce the burdens and inflexibilities imposed upon renters – measures that would help both individuals and our wider economy and society.

THE FACT THAT RENTERS ARE BECOMING AN EVER-GROWING PROPORTION OF HOUSEHOLDS UNDERLINES THE FACT THAT RENTING SHOULD NOT BE SEEN TO BE A POOR SUBSTITUTE FOR HOME OWNERSHIP. THERE CAN AND SHOULD BE PLENTY OF ADVANTAGES TO RENTING. FOR INSTANCE, ONE OF THE GREAT ADVANTAGES OF RENTING SHOULD BE FLEXIBILITY.

WHAT RENTERS WANT

Our polling shows that many people support the idea of long-term tenancies: 47% of renting households polled in the North West – equivalent to 537,415 households - want a longer-term tenancy. 83% of respondents say that “security” was the main reason for this.

People’s needs change with age. Our polling revealed that the “security” offered by a longer tenancy – whilst popular with all age groups – was most important for those between the ages of 55-64.

With more people from every age group renting, it’s time for a tenancy that reflects the tenant’s needs at every stage in their life – from when they leave home to when they begin to think about how they’d like to spend their old age.

In comparable European countries, the rental market offers options beyond the typical short-term tenancy seen in the UK. Federal statistics from 2014 reveal that 54.6% of German households are comprised of tenants22, and longer tenancies – even lifetime tenancies – are common. These long-term tenancies give tenants more control and flexibility over where they live and the choices that they make regarding their personal and employment opportunities.

A life-long “passporting” tenancy could be the solution. In offering every renter a lifelong tenancy, with the opportunity to transfer (or “passport”) it to other properties, housing associations and professional landlords could offer tenants a rental offer that adapts to meet their needs at every stage in life. A family of four have very different needs to the city-dwelling singleton, or the pensioner who wants to marry independence with practical assistance. A lifelong “passporting” tenancy would deliver a home to suit each scenario – and at varying price points and tenures.

22 Housing Europe, the European Federation of Public, Cooperative and Social Housing, The State of Housing in the EU 2017, Alice Pittini, Gerald Koessi, Julien Dijol, Edit Lakatos, Laurent Ghekiere21 Total Jobs survey of jobseekers, Half of Brits willing to relocate within the UK for work, July 2018


4. HOW CAN WE OFFER A BETTER RENTAL SERVICE?

Tinkering around the edges of the private rented sector won’t deliver this. Clamping down on the outdated legislation that allows for no-fault evictions, and legislating for higher minimum safety standards could drive some improvements. However, tenants would still be effectively reliant on the goodwill of their landlords to behave professionally and responsibly. A recent survey of landlords found that “most (said) that they often learned about the regulations governing the sector reactively, often when they were informed by a tenant.”23

Given the scale of the issues at hand, it’s clear that piecemeal reform will not be enough to improve the private rental offer. It’s high time we began to think seriously about the role of professional landlords, such as housing associations, in ensuring that renters get the homes and tenancies they deserve.

Organisations like Your Housing Group own different types of housing in different locations, and in future it could feasibly be much more common to see providers creating new opportunities for tenants to upscale, downsize, or even move geographically – and all within a single tenancy. We are currently looking into this and are already offering longer tenancies across sections of our stock.

What’s more, housing associations are also increasingly innovating, offering added services such as gardening and laundry.

Clearly, there is an urgent need for drastic change in the rental sector. For too long, failure to build more homes has resulted in people from every kind of background forced into an increasingly costly private rental sector that is not fit to accommodate their needs. Tenancies are insecure – yet inflexible – prices escalating, and service levels poor.

THE PICTURE OUR RESEARCH PAINTS IS VERY CLEAR: TENANTS WANT HOMES THAT ARE SAFE AND SECURE, WITH SECURE TENANCIES THAT ALSO OFFER FLEXIBILITY.

EXPANDING THE ROLE OF HOUSING ASSOCIATIONS

Housing associations have a pivotal role to play in raising the standards of the UK’s rental offer. They have a proven track record on building to demand, and delivering safe, secure, quality housing of all tenures. As renting becomes the ‘new normal’, more people deserve to benefit from a rental experience of this quality.

Politicians are increasingly recognising the role that housing associations can play in building more housing and Government has pledged more money to the sector to fund this. Public funding and support is always welcome, but in order to really tackle the housing crisis and deliver the homes Britain needs, we need new policy thinking. Housing associations are eager to accelerate the building of more affordable and social homes, and the introduction of investment from reliable and long-term funding sources – such as pension funds – could really unlock the potential of the sector to build at scale and speed.

However, building homes on a serious scale demands land. We need a much more strategic approach to land assembly – working collaboratively with local authorities to bring in multiple sites on which to build.

This points us to what the future could look like: a new model of housing delivery and management that is not dependent on public funds.

23 IPPR, The Case for Reforming Private Renting: Interim Report, Darren Baxter and Luke Murphy, December 2018

Creating more places for people to thrive and be recognised as a sector leading landlord18

5. CONCLUSION: A NEW MODEL OF HOUSING DELIVERY

The ingredients we believe are needed are below:

• A funding pot comprising additional money for house building that debt-constrained housing associations can access to build homes. This should be facilitated and regulated (but not funded) by central government.

• An investment proposition – mix of risk and reward – which the fund can offer institutional investors, delivering returns that suit the needs of pension funds.

• An opportunity for local authorities in England to generate cash from their land holdings without having to sell it to private developers, thus reducing their reliance on central government money and the antiquated grant formula mechanisms.

• Encouragement for the rapid innovation of modern methods of construction as the means to grow both the capability and capacity for mass-manufacture of homes at lower cost than traditional new build.

We will be coming forward with proposals outlining the above in more detail soon, but welcome comments and suggestions from interested parties.

We are confident that the housing association sector can help tackle the crisis afflicting our rental market today, offering the secure, flexible, and tenant-focussed service people want from the rental sector. What we need is for policymakers to act to help bring this about: this is our call to action for politicians of all parties.

YOUR HOUSING GROUP HAS BEEN IN CONSULTATION WITH POLICYMAKERS AND INDUSTRY FIGURES AROUND WHAT A FUTURE MODEL OF EXPANDED HOUSING ASSOCIATION DEVELOPMENT COULD LOOK LIKE AND CRUCIALLY, HOW IT COULD BE FUNDED.

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Your Housing Group602 Aston AvenueBirchwoodWarringtonWA3 6ZN

yourhousinggroup.co.uk @your_housing /yourhousing

RENTING NORTH WEST · the way inflexible tenancies are preventing people from taking up new job...

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