Section 21 repeal? Be careful what you wish for

One hundred years ago most of us lived in rented accommodation – it housed about 80% of households. Few people owned their own homes and social housing mostly did not exist.

During the first half of the 20th century, social housing increased and strong rights for tenants were developed, . Tenants rights were consolidated in the Housing Act 1977:

• Long-term security of tenure – ie it was very hard for landlords to evict
• Rent control in the form of ‘fair rents’, which tended to stay low, mainly because there was no true market rents to compare them with, and
• The right for spouses and also family to inherit the tenancy after the death of the tenant

One of my clients described it as ‘expropriation without compensation’.

The problems that came with strong tenants rights

Now, this was all very nice for the tenants – they had a secure home and an affordable rent. However, people can only be tenants if there are properties to be tenants of.

There was little or no incentive for anyone to invest in property to rent out to tenants at that time. Such rented properties as existed were often in poor condition, largely because the landlords could not justify or even afford the cost of anything more than the bare minimum repair or upgrade, due to the low rents.

Many property owners effectively lost their property by allowing someone to move in on what they assumed would be a temporary basis and then finding that they were stuck with them for many years.

Partly as a result of this, the percentage of households living in rented properties dropped dramatically and by the late 1980’s was in the region of 7 or 8%.

This all meant that for those unable to buy or obtain social housing

• It was difficult to move to another part of the country
• Young couples struggled to find somewhere to live
• Such rented accommodation as was available was often in poor condition

This was not as bad as it sounds. Buying your own home was more affordable in those days and more Council houses were available. However, it was hard to find good quality private rented accommodation.

Mrs Thatcher’s new broom

This all changed with Mrs Thatcher’s government which introduced the assured shorthold tenancy in the 1988 Housing Act which came into force in January 1989.

It was the AST, where landlords are entitled as of right to recover possession after the end of the tenancy fixed term and the buy to let mortgage which allowed people to invest in property to rent, which started the development of the current buoyant private rented sector.

Now private rented accommodation houses some 20-25 % of households. Still not as many as 100 years ago, but considerably more than in 1989 when the new rules came in.

Misconceptions under the Act

It took a while before ASTs and the private rented sector really took off though. And I can remember that when it first came in there was a perception that the assured tenancy, which is largely similar to the old protected tenancy in that tenants get long-term security of tenure, was going to be the more important tenancy type and that the short-term assured shorthold tenancy would only be used occasionally.

The main reason for this view was because of what we were all used to at that time. Security of tenure was the norm.

However, this turned out to be completely wrong,  Now it would never occur to a private sector landlord to do anything other than give ASTs to their tenants. Indeed it became the default tenancy type eight years later in 1997.

So what about abolishing section 21?

What is in it for landlords?

I have gone over the history as many people reading this will not have been around in the 1970’s and 1980’s and may be unaware of all this.

Let’s take a look at what might happen if section 21 were removed, as has been suggested.

The private rented sector is made up largely of ‘small landlords’, people owning between one and five properties. Most of those people, although comfortably off, are not what you might call mega rich. Many of them are not rich at all.

At the moment they have:

• Legal obligations to keep the property in repair and comply with health and safety standards
• Increasing regulations generally with greater enforcement powers now given to Councils to enforce them – along with punitive penalties
• Less favourable treatment under the tax regime
• An overstretched court system where landlords are increasingly finding it harder to recover possession under the statutory ‘rent arrears’ ground

Landlords one security is that if necessary they can recover possession as of right (provided they comply with the conditions and follow the proper procedure) under section 21.

For example:

• If their tenant is failing to pay rent
• If their tenant is providing unsatisfactory for example due to anti-social behaviour
• If they want the property back to sell

Already many landlords are considering selling up  and leaving the sector. If section 21 were to be taken away, it is likely that many more will do so.

There will only be a private rented sector so long as people are willing to be landlords.  Being a landlord is a business.  If it becomes too onerous and/or if it ceases to be profitable, then people will invest their money elsewhere.

Considering a future without section 21

We are all used to a strong private rented sector now, and it is normal for us. But that doesn’t mean, of itself, that things will stay the same. We all thought that long-term security of tenure was normal in 1988.

Now I understand all the arguments against section 21 and I have a lot of sympathy for tenants whose landlords use it inappropriately. However, landlords’ power when using section 21 to bully tenants comes because their tenants have nowhere else to go, because of the housing crisis (eg in London).  It would not be a problem if there was ample alternative property for people to move to.

But if we were to remove section 21, this could have a serious effect on the letting industry itself:

• Many landlords may sell up and leave the sector
• Banks may no longer be willing to provide buy to let mortgages, thus limiting the number of new landlords coming into the sector

There would obviously be the same amount of property in existence but that property may no longer be available to people who wish to, or can only afford to rent.

You can never be 100% certain what the effect of any legislation will be. Removing section 21 may have little effect (although I am not the only person worried about it). After all, property should still, as an investment, give a good return compared to other investments, so long as you are careful who you let to.

But there is a danger that this will be the last straw that breaks the camel’s back. In which case the private rented sector could contract. Which could cause problems as now

• It is considerably more difficult for people on average salaries to buy property than it was in the 1970’s and 1980’s
• There is less social housing available due to ‘right to buy’
• Local Authorities rely on the private sector to fulfil their statutory re-housing obligations

Of those landlords willing to let, many would, as happened before in the days of the Rent Act, do all that they can to ensure that occupiers have licenses rather than tenancies. Which would result in fewer rights for the occupiers.

So be careful what you wish for.