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 SLL: Proposals for Housing Law Reform

The Society of Labour Lawyers (SLL) has produced a think-piece Proposals for housing law reform, containing ideas from the SLL’s housing law sub-group. Our focus is on detailed proposals for legal reform. We hope that it complements Labour Housing Group’s publication The Missing Solution: Council Housebuilding for 21st century.

SLL’ s Proposals can be read here:

https://societyoflabourlawyers.org.uk/2021/09/21/out-now-proposal-for-housing-law-reform/ .

In order to help councils purchase land and embark on significant council house building, we suggest that the Land Compensation Act (LCA) 1961 should be amended. Land could be bought at current value without additional ‘hope value’ (the ‘hope’ of estimated increased value if residential planning permission were to be granted to the landowner).

The current Empty Dwelling Management Order powers should be strengthened, so that empty properties in private ownership would be transferred to public ownership after they had stood empty for a certain number of years (one or two) (see Housing Act 2004).

Council tenancies should always be granted for life, so the power to grant flexible tenancies (fixed-term tenancies for a minimum period of two years) in the Localism Act 2011 should be repealed (not least because the Government has already announced its intention not to implement the subsequent legislation requiring flexible tenancies).

Right to Buy should be abolished in England, as it has been in Scotland and Wales, or at least very severely restricted. We call for substantial benefit reform by repealing the Bedroom Tax and benefit cap, linking Local Housing Allowance to the retail price index, Discretionary Housing Payments funded in full by government, and ending the two-child limit.

The SLL has been working with Labour’s front bench on building safety proposals. We propose that a Labour Government should follow Australia’s lead on fire safety. That would involve conducting a full audit of all residential multi-occupancy buildings regarding fire safety, assessing which buildings are the highest risk and need to be prioritised for remediation without delay, and funding remediation works in full, without reclaiming the costs from leaseholders.

Leaseholders would assign the right to sue those responsible for the defects to Government. The Limitation Act 1980 needs amendment to allow so that developers can be sued for building defects installed earlier than six years previously (the current position) or 15 years (as proposed in the Government’s Building Safety Bill).

We call for legislation so that those responsible for installing defective products can be traced, through a sometimes complex network of dissolved companies. Some costs could also be recouped by a levy on developers and product manufacturers.

We call for reforms in the area of home ownership, including a holistic review of housing costs so that home ownership becomes more affordable. The contributors support the Law Commission’s proposals to reform leasehold and make commonhold much more widely available.Specifically, planning legislation should provide that consent for new flat building would carry a legal presumption that units (including communal facilities and shops in the residential development) are held under a commonhold agreement, not leasehold.

We also call for wealth-based property taxation, through progressive council tax, and penalising owners of vacant properties (with the aim of those properties either being transferred to the public sector or available for private letting). We support London Mayor Sadiq Khan’s call for councils to buy back homes that were bought under right to buy.

In relation to the private rented sector, the SLL supports the commitment to abolishing ‘no fault’ evictions under Housing Act 1988 s21. Once section 21 possession claims are abolished, then private residential tenants will be assured tenants. In effect, therefore, there would be security of tenure in the private rented sector.

We propose that existing defences to section 21 possession claims should apply to all possession claims brought against private rented tenants, so that if the landlord has failed to comply with tenancy deposit regulations or gas safety or energy performance certificate requirements, or where possession proceedings are in response to a complaint about the condition of the property, possession cannot be ordered.

We also propose repealing the mandatory Ground 8 possession claim for assured tenants who have accrued eight weeks’ rent arrears. All grounds for possession concerning rent arrears should be discretionary, so that courts can consider the reasons for the arrears and the personal circumstances of the tenant. Along with security of tenure, Labour should introduce rent controls, with rents set by a locally based expert tribunal, taking into account the condition of the property as well as market scarcity. Labour should take steps to abolish all aspects of the ‘hostile environment’ discriminatory measures against migrants, including ending the right to rent.

The best way to reduce homelessness is to increase the supply of affordable houses, delivered through the social rented sector, and to invest in genuine homelessness prevention. With more affordable homes, the numbers of people sleeping rough or seeking homelessness help from local authorities should diminish. For those who do face the catastrophe of homelessness, the SLL proposals are that emergency accommodation should be provided to everyone who is homeless, and the tests of eligibility, priority need and ‘becoming homeless intentionally’ should be abolished.

While in emergency accommodation, everyone would receive an offer of suitable accommodation, and local authorities would be encouraged to use the Housing Firstmodel whereby the priority is to provide secure accommodation along with support to maintain the accommodation, budget etc. These proposals derive from Crisis’ Plan to End Homelessness. The punitive Vagrancy Act 1824 should be repealed and public spaces protection orders should not be used to prevent rough sleeping or begging.

None of these proposals for legal reform will work without effective, accessible legal remedies. SLL argues that dismantling the provisions of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 is necessary, and that Labour’s future policy on legal services should be to restore and enhance a comprehensive system of legal aid advice and representation. The courts themselves have been beset by cuts, closures and fee increases, delaying justice and placing it further out of reach.

Labour will have to rebuild a well-functioning judicial system, and effective methods of alternative dispute resolution. Finally, there is a debate about a single-access housing court or tribunal. The authors of the SLL proposals prefer a re-invigorated county court system to a specialist housing tribunal. We emphasise that, whatever reforms are undertaken, civil justice must function as a level playing field and legal advice and representation must be adequately funded.

The proposals are put forward as personal contributions by their authors, for discussion and consideration by the Labour Party but also all those who are campaigning for better housing and a fairer justice system.

<strong><span class="has-inline-color has-accent-color">Liz Davies</span></strong>
Liz Davies

Liz Davies is a barrister specializing in housing and homelessness law. She is co-convenor of the Society of Labour Lawyers Housing Law Sub-Group.

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New Roofs or Old Ceilings?

Under Corbyn, Labour announced its bid to combat high rents through old-style rent ceilings. If we look back across history we see these have had many unintended consequences. Often we have found the introduction and continuance of rent controls have done more harm than good. So should Labour continue to embrace such a policy?

We know rent legislation cannot cure housing shortages. Rather, regulations such as rent ceilings merely mitigate the effects by giving comfort to sitting tenants – at the expense of prospective tenants. All too often we see false views on rent control spill over from popular misconceptions into apparently learned debates. It is for this reason why Labour must resign rent ceilings to housing history and focus on the real problems at hand.

History shows Rent Controls are Bad

In Britain we have recognised the damage done by rent controls as far back as The Rent Act in 1957. Where at the time we witnessed expensive properties freed from such regulations. Why? Because old-style rent ceilings foster dilapidation of housing stock, encourage immobility, and distort land-use patterns. It simply makes housing worse.

Originally the introduction of rent ceilings sought to protect tenants from rent rises caused by war-time shortages. Often caused by bombing. Yet many places have seen them retained and enforced ever since. Their perception as a temporary measure were often short lived, almost always becoming destructively permanent.

Late Swedish socialist economist Assar Lindbeck once said “rent controls appears to be the most efficient technique presently know to destroy a city – except for bombing”

An unsurprising statement when the average waiting time for a rent-controlled unit in Sweden is 11 years. In Sweden keeping rents low for a small section of renters sees tenants hold onto property they no longer wish to live in. Rent regulation incentivises lucky rent regulated tenants to sublet in the black market, often for a significant profit. One would argue this is hardly a socialist panacea.

Price Signals Allow Markets to Respond

Back in 1906 an earthquake hit San Francisco. Subsequent fires destroyed thousands of acres of buildings in the heart of the city. It resulted in 225,000 people becoming homeless. The city of 400,000 lost more than half its housing in three days. Yet market driven construction of new homes put roofs over many earthquake victims heads. In effect developers were able to respond to market demand through rising price signals.

Nevertheless, each remaining household still had to shelter 40% more people than it did before the quake. So what do you think the first local paper observed following the earthquake – a huge housing shortage surely? No, in fact the first San Francisco chronicle following the earthquake made no mention of housing shortage at all.

The market had responded and there was over three times more homes available to rent than advertised for sale. Just goes to show what can be achieved by the market without rent controls having distorting effects on new supply.

Rent Controls Deter New Construction

Contrast this to 1946, where the San Francisco population had increased from 635,000 by 200,000. All over a six-year period. By comparison, the number of dwellings had only increased by a fifth. While in 1906 the city had to shelter 40% more people than before the earthquake, by 1946 the city only had to accommodate around 10-12% more than before the war. This did not stop the Governor at the time going on record to describe the housing shortage “as the most critical problem facing California”. But what was so different?

In 1906 higher rents could signal to the market to build new construction. However, by 1946 imposing rent ceilings made this method of stimulating supply for rental homes illegal. The result? 730 houses listed for sale for every 10 homes listed for rent. The absence of a ceiling on selling homes, in conjunction with a ceiling on rents, had considerably distorting effects. It meant that prices were to rise as a large and increasing demand encountered a relatively fixed supply.

This meant many landlords ended up selling at inflated market prices, rather than renting to tenants with a price ceiling. Rentals effectively become almost impossible to find. At least at legal rent levels. Rich people with money still found plenty of homes to buy. Ceilings on rent provide the rich an advantage to satisfy their housing needs. Restrictions on rent only make this condition worse. We must also recognise that during this time incomes in San Francisco had doubled in comparison to levels before the war. This allowed people to pay more in rent even though legally they did not have to, exacerbating the proliferation of the black market.

Rent Controls Reduce Mobility and Increase Unemployment

Research by Joseph Schumpeter on unemployment recognises the correlation between lack of labour mobility and structural unemployment. In turn, rent controls artificially create more pressures on cities, notably because inhibiting rent increases puts a brake on the natural drift out to towns. We know more people leave London for the rest of the UK, than move from other places in the country to the capital. This is primarily due to relative affordability.

Studies from San Francisco by Stanford University shows rent control limits renters’ mobility by 20% and lowers displacement, which comes at the expense of a reduction in rental housing supply by 15%. Rent controls lead to a less mobile workforce, more structural unemployment, and less supply. No doubt hampering the economy and increasing state borrowing unnecessarily.

Rent Controls are Denigrated Across the Political Spectrum

Notwithstanding the above, rent control is considered the least contentious area of economics and  is widely denigrated by economists from around the world. The agreement cuts across the political spectrum, from Hayek and Friedman agreeing on the “right”, to architect of the Swedish Labour Part’s welfare state Gunnar Myrdal on the “left”. It has literally been no longer a debate within the profession for a considerable length of time.

Rent Stabilisation is Ineffective

Maureen Corcoran has reflected on Germany’s rent regulation through its local rent index, arguing regulation improves affordability and transparency. But we have seen since Germany has moved to stricter rent control, with a 5-year rent ceiling, finding new rental property has become increasingly difficult. Rent stabilisation typically has more flexibility and freedom around having an ability to change tenant than old style rent ceilings. For example, if you make repairs, you can increase rents. Labour has mooted such types of control in the past, but we know these too still do more harm than good.

In New York rent stabilisation has ‘luxury de-control’, akin to the 1957 Rent Act in the UK. If a rent gets to a particular level, then it can leave the rent stabilisation regime all together. Professor Ingrid Ellen of NYU argues that outside of Manhattan rent stabilisation does not have that big of an effect on the market. She argues apartments can often be as close as $200 a part in terms of median market rental levels, in comparison to rent stabilised rents. This suggests even modern versions of rent ceilings remain ineffective for the most part.

The Evidence is Overwhelming: Rent Ceilings are Bad

Developers essentially end up wanting to build less, which can’t be a good thing. The rules in New York meant you typically did not have rent stabilised levels on new lettings, which was one way the rules tried to avoid such an issue. But still, what you saw in post-war New York was the conversion of a lot of rental apartment blocks into condominiums for home ownership. Once again, resulting in a net loss of rental stock. Lower supply means higher prices.

Thankfully, recent studies continue to put the rent control question to bed. In August 2020 by Thao Le, Edward Coulson, and Lily Shen published ‘Tenant Rights, Eviction, and Rent Affordability’. The paper demonstrated that for every one-unit increase in the toughness of rent control, evictions are reduced by almost 9%. It found rental housing costs becomes 6% more expensive where tenants have more protection against landlords through regulation. While a higher Tenant-Right Index is also negatively associated with a decrease in housing supply and an increase in the homeless rate. When we put ideology before evidence, empirically we see rent controls lead to worse outcomes.

Gauche Caviar?

Hanchen Jiang, Luis Quintero, and Xi Yang recently released their paper ‘Does Rent Regulation Affect Tenant Unemployment? Evidence from New York City’. It found that often the beneficiaries are those who are more well off and such regulation denotes a significant transfer of wealth to those on higher incomes. Rent-stabilised tenants are empirically more likely to be unemployed than private market-rate tenants, particularly if you are white and highly skilled. To what extent this could ever be seen as a progressive outcome still remains to be seen.

If Labour is to continue to encourage the proliferation of rent-controlled property it should achieve this through the construction of new social housing. Not blanket market distorting rent regulation. Rent control is great if you get it. However, it merely comes at the price of greater inequality for future generations.

Rent ceilings offer no cure to the housing shortage, and in combination with a planning system currently disconnecting local housing supply from local demand, demand-side rent regulations merely create more problems than they solve.

<strong><span class="has-inline-color has-accent-color">Christopher Worrall</span></strong>
Christopher Worrall

Editor of Red Brick. He is currently an Investment Manager at Guild Living, a Non-Executive Director of Housing for Women, and is on the Labour Housing Group Executive Committee.

Chris also co-hosts and produces the PricedOut UK Podcast.

He writes in a personal capacity.

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Rent controls: a retrospective

For more than 70 years, between the First World War and the late 1980s, the United Kingdom had a system of rent controls for private sector tenants.  The policy was, on almost every metric, a success – argues Nick Bano.

This middle portion of the 20th century stands in stark contrast to the housing conditions of the 21st: unlike today, there was no great housing or homelessness crisis; and the ‘homes fit for heroes’ and mass squatting campaigns of the 1940s and 1950s alleviated the worst of the of the scarcity caused by bomb damage.

In fact, as the brilliant 1939 film Tenants In Revolt shows us, mid-century working class housing campaigners were actively calling for “luxury flats” – a demand that has now become anti-gentrification groups’ ultimate bogeyman.  While today’s campaigners are forced to make insipid calls for the barest essentials of homelessness reduction, tenants under a rent control regime had moved on to demanding luxury.

Potted history: a consensus for rent controls

In 1915, reeling from a powerful rent strike movement in Glasgow that held the wartime government in check, Asquith’s administration passed the Rents and Mortgage Interest Restriction Act.  While it was designed a measure against wartime profiteering, the spirit of the 1915 Act remained in force almost uninterrupted until rent controls were finally dismantled in 1988.  Importantly, the government realised that rent controls have to go hand-in-hand with relatively secure tenancies, to stop landlords from escaping the law by evicting tenants and re-letting at a higher rent.  The 1915 Act therefore introduced security of tenure, too.

The rent control mechanism was immediately recognised as being important, popular and successful.  Just three years later the 1918 Hunter Committee found majority support for rent control among tenants and – strikingly – among landlords, too.  As a consequence, Parliament amended the 1915 Act slightly in 1919, before proper new legislation re-establishing rent controls (the Increase of Rent and Mortgages (Restriction) Act) was passed under Lloyd George’s Liberal-Conservative coalition government in 1920.

Again, Parliamentary inquiries (the Onslow Committee of 1923, the Marley Committee of 1931 and the Ridley Committee of 1937) acknowledged on the broad success of the measures, and recommended the continuation of the rent control scheme (with some adjustments to the mechanics, and an increase in the number and type of de-controlled tenancies).  This slight watering-down was then reversed in 1939, as war loomed again.

After the Second World War rent controls remained in place. They continued to function reasonably well for more than 10 years, even after the Blitz had caused a genuine and serious scarcity of homes.  Neither the 1945 Labour government, nor the Conservative government that followed, abolished them.

The following Tory government, however, seriously weakened the system under the Rent Act 1957: rent controls were abolished for all new tenancies, and some more expensive existing tenancies.  This led to the system of ‘Rachmanism’ – where tenants were bullied out of their homes (or bullied into accepting new rents) – which effectively forms the model of the current oppressive system of ‘shorthold’ tenancies.  A new Labour government in 1964, however, re-introduced rent controls in short order.

The high point came in 1974.  Following yet another glowing report on the functioning of rent controls (by Hugh Francis QC in 1971), a Tory government extended rent controls to furnished as well as non-furnished accommodation.

The destruction of rent controls in 1988

By the mid-1980s the Thatcher government had decided that it wanted to create a housing market that wasn’t restrained by rent stabilisation measures, the disastrous effects of which we are experiencing today.

The genius of the Thatcher regime was that it never actually destroyed rent controls.  They still exist, although the controls are (unsatisfactorily) tied to the market rate: a tenant who disagrees with a proposed new rent is still entitled to complain to a tribunal, and the tribunal will not let the new rent exceed the market value.  But the 1988 Housing Act destroyed security of tenure, which is crucial to the functioning of a rent control system.  Landlords know that they can avoid the rent control measures by simply demand a new rent – any rent they like – and that they can evict the tenant quickly on a ‘no fault’ basis if they can’t or won’t pay the higher rate.  As a result, the formal system of controlled rent increases is almost never used.  Rent control was abolished by the back door.

For the last 30 years we have not just had a lack of effective rent controls.  Instead, because Thatcher’s aim was to generate a profitable housing market, the current system has rising rents by design.

A second, odd effect of the 1988 Act settlement is that rent controls became controversial.  That never used to be the case.  For most of the 20th century, opposition to rent controls was the exclusive domain of landlords, war profiteers and hard-line Tories. But since the 1990s there has been a looming sense that we are all Thatcherites now: that anyone who advocates a return to a long-standing legislative programme (propped up by decades’ worth of inquiries and reports) was somehow radical.

A shrinking private rented sector is a victory

The major effect of the rent control regime was the decimation of the private rented sector.  By the 1980s it had fallen to just 8% of homes in the UK.  This is, for anyone who is not a landlord, a triumph.  Privately rented housing is the least secure and most expensive form of tenure, and anyone who is housed elsewhere is almost certainly better off for it. 

How does this reduction happen?  Rent controls restrain the profitability of landlordism, and some landlords flee the market.  But a reduction in the number of rented homes does not, of course, reduce housing supply: ‘disappearing landlords’ do not cause homes to be knocked down or to be left unoccupied.  As the Bank of England’s John Lewis and Fergus Cumming explain here:

“Some landlords will sell up as letting becomes less lucrative. But at the end of each sales chain is either another landlord or someone who was previously renting. If it’s another landlord, aggregate rental supply and demand are both unchanged, and so are rents. If it’s a new owner occupier, the supply of rented property has shrunk by one, but so has the number of renters. The tightness of the rental market and thus rents are unchanged”.

Even if this happens on a large scale, the glut of supply caused by retreating landlords will necessarily reduce house prices.  It is this policy, rather than the proven failures of help-to-buy, shared ownership and high-end speculative development, that will achieve various governments’ stated aim of increasing home ownership.  The contemporary history of the UK shows this to be correct, and no amount of abstract economic modelling can erase that.

There will always be people who prefer to rent privately, of course, and the market has always catered for them.  But those generous souls who would prefer to pay off a landlord’s mortgage rather than their own presumably make up a figure much closer to the 7% of the population that rented privately in the mid-1980s than the 20% (4.5 million households) forced to rent privately today.

The Renters’ Reform Bill

In 2019 it became both parties’ policy, and then a formal Queen’s Speech commitment, to abolish ‘no fault’ evictions.  In other words, we can expect some form of security of tenure to be restored to private tenants.  As set out above, security of tenure is the missing piece of the still-existing rent control framework (without ‘no fault’ evictions, unless the tenancy agreement has a provision for rent increases, landlords will have little choice but to increase rents by the formal, controlled system of statutory notices).

So the good news is that the Tories – whether they realise it or not – have now reverted to their 20th century position: they are now within the consensus that supports rent controls.  I, for one, welcome them back into the fold.

<strong><span class="has-inline-color has-accent-color">Nick Bano</span></strong>
Nick Bano

Nick Bano is a lawyer and housing activist.

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