Regulation of private renting

Local authorities do not have the capacity and capability to ensure an appropriate level of protection for private renters. Compliance with legal minimum standards is inconsistent across England, and the proportion of privately rented properties with category 1 hazards ranges from 9% in London to 21% in Yorkshire and the Humber. As reiterated by many of the stakeholders we received evidence from, most local authorities do not have the capacity to protect tenants and ensure landlords comply with regulations which has created a postcode lottery for tenants. For example, very few local authorities can afford to have tenancy relations officers who provide valuable support to tenants experiencing illegal eviction or harassment. The National Residential Landlords Association told us that a lack of resources and capacity also constrains local authorities’ use of enforcement powers with some taking a very light-touch approach. Only 10 landlords and letting agents have been banned by local authorities since 2016, and some councils inspect as little as 0.1% of their privately rented properties. The Department does not know what basic level of resource is needed for local authorities to regulate their rental markets. Recommendation: The Department should conduct a realistic assessment of the resources needed for local authorities to regulate effectively, with consideration given to the size, types and quality of private rented properties and the demographics of renters. The Department should write to us within the next six months with an update on the outcome of this assessment. 1 C&AG’s Report, para 9 2 C&AG’s Report, para 18–19 6 Regulation of private renting

The Department is not doing enough to support local authorities to regulate effectively. The dozens of legislative powers used by local authorities are complex and spread across multiple enforcement bodies, creating a fragmented and disempowered regulatory system. Local authorities say that they could regulate better with more support and sharing of good practice, but the Department is not sufficiently proactive at providing this. The Department does not have a good enough understanding of what regulatory approaches work at local level to help local authorities ensure that landlords comply with their obligations. The Department also does not know what challenges local authorities are facing, and lacks an early warning system to identify where local regulation is failing private renters. The Department could learn lessons from other areas of consumer protection (such as Trading Standards services), where a national team provides intelligence and support to local regulators. Recommendation: The Department should take a more proactive approach to supporting local regulators and sharing good practice. To do so, it should learn from other consumer protection systems that provide central intelligence and support to local regulators.

Local Authorities are constrained by the Department’s approach to licensing landlords. In 2010, the Department introduced legislation allowing local authorities to require licences from landlords for more properties that the minimum requirements (the only properties that need licenses are larger houses in multiple occupation—those with at least five people from more than one household). However, these licence schemes are subject to Secretary of State approval if they cover over 20% of a council’s local area or rented housing stock. The Department told us that local authorities find selective licensing to be a useful tool for proactive enforcement action and intelligence gathering. However, to apply for a licensing scheme, local authorities need a good understanding of their local private rental market, which is hard to gather without already having a scheme in place. The time and resource needed to produce an application, and the requirement for schemes to last only five years, present further barriers to local authorities. The Department says it offers a dialogue with local authorities to help them apply for licensing schemes, but local authorities say there is poor communication and limited feedback. Given regulation is managed and delivered locally, it is not clear why the Department restricts the use of larger schemes or on what basis it rejects them. Recommendation: As part of its planned reforms, the Department should assess whether current arrangements for licensing schemes are working, and whether alternative arrangements may be more efficient and effective.

The Department lacks good enough data to understand the nature and extent of problems renters face. The Department lacks sufficient data on the challenges facing landlords, tenants, and local authorities within the sector. For example, it lacks robust data on complaints, overcrowding, harassment and evictions, and has a limited understanding of who is vulnerable and how this impacts their renting experience. Many issues facing both tenants and landlords are closely related to other policy areas (such as housing benefits, tax laws, and court systems), and data must be shared across government departments to improve understanding and inform decision-making. The Department also lacks data to evaluate the impact of recent legislative changes on the overall operation of the market, and so is unable Regulation of private renting 7 to benchmark success. For example, in 2015 the Department introduced changes in the Deregulation Act to prevent retaliatory eviction of tenants who raise complaints. However, it does not have data on landlords’ reasons for evicting tenants, meaning it does not know how effective the changes have been. Recommendation: The Department should develop a coherent data strategy to identify and collect the data it needs to: • understand the problems renters are facing; and • evaluate the impact of legislative changes. Once complete, this strategy should be shared with this Committee and the Levelling up, Housing and Communities Committee.

The Department’s forthcoming White Paper offers an opportunity for significant improvement to the private rented sector. In the past ten years, the Department has made several positive legislative changes in the private rented sector, such as providing tenants with protection from eviction during the COVID-19 pandemic and banning unnecessary charges through the Tenant Fees Act and deposit protection schemes. However, these changes have been piecemeal, and the Department does not have a good understanding of what impact they have had on renters, on landlords or on wider issues such as the supply or affordability of rented homes. The Department says that its focus over the past two years has been on responding to the COIVD-19 pandemic, and it is now returning to its commitment to address issues in the private rented sector with an upcoming White Paper. However, it is yet to set out its ambition for the sector and does not yet have a strategy for the market as a whole. Recommendation: As part of its planned reforms, the Department should ensure it has a full understanding of the cumulative impact of proposed changes on tenants, landlords and the housing market as a whole. In doing this, it should work closely with other departments, including formally where appropriate, to understand how the reforms may affect or be affected by other policy areas such as benefits and tax. 8 Regulation of private renting 1 Regulation by local authorities

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Levelling up, Housing and Communities (the Department).3

Lack of capacity constrains local authorities’ support to renters and use of enforcement powers. Many local authorities take a light touch or “fire-fighting” approach, as they do not have the capacity to protect tenants and ensure landlords comply with regulations.14 For example, tenancy relations officers provide valuable support to tenants experiencing illegal eviction or harassment, but very few local authorities can afford to have them.15 Only 10 landlords and letting agents have been banned by local authorities since new powers were introduced in 2016.16 Shelter reports that 80% of local authority officials said they did not have sufficient numbers of staff working on licensing and enforcement to ensure that the landlords in that area were compliant with their legal responsibilities.17 The Department does not know what basic level of resource is needed for local authorities to regulate their rental markets against legal standards.18 The Department’s support to local authorities

The Department has introduced various pieces of legislation which give local authorities a range of tools and powers to enforce compliance in the private rented sector, such as civil penalties and banning orders.19 However, over time this has resulted in dozens of legislative powers used by local authorities, which are complex and spread across multiple enforcement teams including Environmental Health, Trading Standards and Tenancy Relations.20 This creates a fragmented and disempowered regulatory system, particularly in two-tier authorities where some enforcement responsibilities sit separately between district and county councils.21

The Department therefore has an important role to play in using its national perspective to identify and disseminate good practice among local authorities and help them regulate effectively.22 While it has provided some grant funding for project work (£6.7 million since 2019) and held roadshows across England, much of this work was stopped due to the COVID-19 pandemic. Local authorities say that they could regulate better with more support and sharing of good practice, but the Department is not proactive at providing this.23 12 Written evidence submitted by Derby City Council dated January 2022 13 C&AG’s Report, para 3.4 14 Qq 1, 2; C&AG’s Report, para 3.11 15 C&AG’s Report, para 3.6 16 C&AG’s Report, para 13 17 Q 2 18 Qq 33, 34 19 C&AG’s Report, para 3.3 20 Q 31 21 C&AG’s Report, para 3.5 22 C&AG’s Report, para 3.1 23 C&AG’s Report, para 21, 3.12- 3.13 10 Regulation of private renting

The Department does not have a good enough understanding of what regulatory approaches work at local level to help local authorities ensure that landlords comply with their obligations. It has limited data on what tools and approaches are even used by local authorities, as there is no requirement for councils to record their regulatory activity in the private rented sector or report such information to the Department. It has therefore undertaken only limited evaluation of how council’s powers and regulatory approaches are working in practice. Local authorities said they would find evaluations of what regulatory tools are effective and when particularly helpful, as well as guidance on topics such as setting civil penalties or cross-team working in two-tier authorities.24

The Department also does not know in detail what challenges local authorities are facing, and lacks an early warning system to identify where local regulation is failing private renters. It does not collect data, for example, on the number of complaints, the number of inspections, or the number of staff who carry out tenancy relations duties that tackle harassment and illegal eviction. The Department does not have a national framework to provide intelligence and support to local regulators and enable them to work together effectively. It could learn lessons from other areas of consumer protection where this type of support exists, such as Trading Standards services.25 Landlord licensing

In 2010, the Department introduced legislation allowing local authorities to require licences from landlords for more properties than the minimum requirements (the only properties that need licenses are larger houses in multiple occupation—those with at least five people from more than one household).26 The Department told us that local authorities find selective licensing to be a useful tool for targeting enforcement action and intelligence gathering.27

In 2015, the Department added a requirement that selective licensing schemes covering over 20% of a council’s local area or rented housing stock must be approved by the Secretary of State. It told us it introduced this requirement to ensure robustness and consistency in the way licensing schemes are used.28 However, given regulation is managed and delivered locally, it is not clear why the Department restricts the use of larger schemes or on what basis it rejects them.29

To apply for approval for a selective licensing scheme, local authorities need a good understanding of their local private rental market, which is hard to gather without already having a scheme in place.30 The time and resource needed to produce an application, and the requirement that schemes last only five years, present barriers to local authorities.31 The Department says it offers a dialogue with local authorities to help them apply for licensing schemes, but local authorities say there is poor communication and limited feedback, as well as a concern that the process is not sufficiently open and transparent.32 24 C&AG’s Report, para 10, 16 and 3.13 25 Q 2 26 C&AG’s Report, para 3.14 27 Q 36 28 C&AG’s Report, para 3.14 29 Q 51 30 Q 37 31 Q 2 32 Q 44 Regulation of private renting 11

Long wait times, made worse during the COVID-19 pandemic, are also a barrier to local regulation.33 For example, Liverpool City Council had a city-wide scheme from 2015 to 2020 that was popular locally, which lapsed while the Department was considering the Council’s application to renew the scheme for another five years. Several months later the Department rejected the application. The council subsequently produced a new application for a narrower scheme which eventually the Department approved, but the slowness of the process left the council with no scheme at all for nearly two years.34 33 C&AG’s Report, para 3.14 34 Qq 38–50 12 Regulation of private renting 2 Improving the sector for renters Renters’ right to a safe and secure home

Tenants have a legal right to a safe and secure home that is free from serious health hazards. However, they face significant barriers to realising this right, and many experience significant issues which can result, for example, in serious illness, harassment or homelessness. Some 13% of privately rented homes in England have at least one category 1 hazard—a serious threat to health and safety. There is also evidence of discrimination with 25% of landlords unwilling to let to non-British passport holders and 52% unwilling to let to tenants who receive Housing Benefit.35 Through a Section 21 notice, landlords can evict tenants without reason. Half of renters surveyed by the tenant union ACORN, said they had chosen not to raise complaints due to fear of retaliatory eviction.36 A London- based homeless charity also told us that tenants give up on their rights and tolerate poor conditions due to fear of landlord’s threats and intimidation.37

The current system for renters to resolve problems relies on them being aware of, and enforcing, their own rights. However, tenants often do not know how to complain or do not have the confidence to do so. Charities such as Shelter and Citizens Advice try to plug the gaps where local authorities are struggling to provide support.38 The Department told us it produces clear ‘how to rent’ guides, but acknowledged the difficulty of ensuring vulnerable tenants are supported.39

The complaints and redress mechanisms available to renters are also limited and complex. While there are mandatory redress schemes for social housing and for letting agency work, these are voluntary for private landlords and so most tenants must use the courts system to resolve disputes.40 We heard from tenant representatives that court action is too complicated, time consuming and, due to reductions in legal aid, unaffordable for most tenants.41

The Department told us that as part of its reform agenda, it plans to end Section 21 work and introduce a mandatory redress scheme for landlords, with which it intends to empower tenants and improve landlord compliance.42 However, the Department is yet to assess the success of its existing redress scheme for letting agents and does not know how it has affected tenant experiences of the lettings process.43 We heard from the Chief Executive of the National Residential Landlords Association that the Government’s commitment to abolish abolition Section 21 would provide a ‘new opportunity to refresh the sector’, while tenant representatives stressed that the success of the scheme relies on its design.44 For example, if there are multiple schemes instead of a single ombudsman, it may create a market for landlords to choose from but be more confusing for renters.45 35 C&AG’s Report, para 18–19 36 Written evidence submitted by ACORN dated January 2022 37 Written evidence submitted by Glass Door Homeless Charity dated January 2022 38 Q 3 39 Qq 60, 61, 87 40 C&AG’s Report, para 4.5 41 Qq 4, 15 42 Q 55 43 C&AG’s Report, para 4.6 44 QQ11–14 45 Pre panel Q 3 Regulation of private renting 13 Understanding tenants’ experiences

To ensure that regulation and other forms of support are effective in protecting renters, the Department needs good data and insight into their experiences and the challenges they face. The Department told us that as part of its upcoming White Paper proposals, it is committed to understanding tenants’ perspectives and supporting vulnerable tenants through legislative changes, including by working alongside key stakeholders.46

However, the Department acknowledged gaps and limitations in its current data, and it is reliant on tenant representatives such as Shelter and Citizens Advice to understand tenant experiences.47 For example, it estimates that during the COVID-19 pandemic, over-crowding peaked at 15% of rented homes, double what it was in 2019–20. However, it does not have up-to-date data on how this is changing and does not know whether it will be a long-term effect.48 While the Department intends to improve its data, it has not identified what additional data sources it could use to monitor progress or measure the success of its planned reforms beyond those it can already access.49 The Department also lacks sufficient data on who may be vulnerable in the private rented sector and why, which makes it difficult to target interventions towards those who need the most protection.50

Data gaps also mean the Department does not collect the information it needs to evaluate the impact of recent legislative changes. For example, in 2015 it introduced changes in the Deregulation Act to protect tenants from retaliatory eviction after raising complaints with their local authority.51 However, we heard from tenant representative bodies that these changes fails to protect tenants unless a specific enforcement tool is used, leaving many vulnerable to eviction in the wake of a complaint.52 The Department does not collect data on the reasons for evictions, the numbers of improvement notices served by local authorities or the number of complaints that lead to eviction, and is therefore unable to evaluate how effective the legislative change has been in practice.53

Many issues facing both landlords and tenants relate to other policy areas, such as housing benefits, tax laws and courts systems. There is therefore a need for cross-government working and data-sharing to understand the wider impacts of planned legislative changes on landlords and tenants.54 The Department told us that it has engaged with other areas of government, such as the Ministry of Justice and Department for Work and Pensions, during the COVID-19 pandemic. However, much of its cross-government work is not formalised, meaning it is reliant on informal relationships to maintain engagement and understanding.55 The Department’s strategy for the sector

The Department has made some improvements to the private rented sector in the past ten years. This includes banning unnecessary charges through the Tenant Fees Act 46 Q 90 47 Qq 91, 93 48 Q 65 49 Qq 92, 93; C&AG’s Report, para 2.14 50 C&AG’s Report, para 19 51 C&AG’s Report, para 2.14 52 Qq 1,3,9 53 C&AG’s Report, para 2.14 54 C&AG’s Report, para 2.17 55 Qq 94–98 14 Regulation of private renting and deposit protection schemes, and introducing a mandatory redress scheme for letting agency work.56 However, its interventions have been piecemeal and created a complex and fragmented system of regulation. Due to the Department’s lack of robust data, it does not have a good understanding of the impact of these changes on both landlords and tenants.57

The Department highlighted that its recent work has rightly focused on responding to the COVID-19 pandemic, during which it introduced protections through a temporary restriction on eviction proceedings. The Department told us it continues to monitor the situation as restrictions are lifted. Landlords have also suffered during the pandemic, for example through a loss in rent payments. The Department has limited insight into these issues, or what the knock-on consequences may mean for the affordability or supply of rented homes within the sector if landlords exit the market or increase rents.58

The Department told us it is now returning to the strategic reform agenda and intends to publish a White Paper later in 2022.59 It has highlighted specific issues it plans to address as part of its reforms, including security of tenure, enforcement, and redress.60 However, it has not set out its overall ambition for the sector, and does not have a grasp on the overall size or shape of the private rental market.61 The Department’s planned reforms provide an opportunity to make significant improvements to the sector. But it will not be able to take this opportunity without a full grasp of the challenges in the sector, an overarching strategy for how to address these challenges and a good understanding of the expected impacts of the reforms.62 56 Q 27 57 C&AG’s Report, para 2.11 58 Qq 26, 79 59 Qq 27, 104, 106 60 Q 27 61 Qq 104, 105, 106 62 Qq 72, 73; C&AG’s Report, para 2.11 Regulation of private renting 15