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An end to Section 21 – Might the government’s proposals to halt “revenge evictions” have further reaching implications?

As the property market remains unsettled, the government has once more indicated a willingness to intervene in the sector and to introduce measures which are likely to have a significant ramifications far beyond the stated intention of the policy.

With the private rented sector in the cross-hairs (again), the government has announced its intention to do away with a Landlord’s ability to bring an Assured Shorthold Tenancy Agreement to an end unless the Tenant is in default, or the Landlord requires the premises back for their own purposes.  Up to now the process is characterised by the term “no fault eviction”, and is instigated by the Landlord serving a Section 21 notice on its tenant.  If the government’s proposals are confirmed, Section 21 will become a thing of the past and tenants will by and large be able to stay in their premises for as long as they want.

The Section 21 procedure was born out of the Housing Act 1988.  This was at the time ground breaking legislation introduced by Margaret Thatcher to replace the previous regime where a tenancy agreement was effectively for life.  Heavily criticised at the time, Thatcher’s Housing Act turned the rental sector on its head.  No longer did a Landlord need to jump through hoops to get their properties back, and no longer did the state intervene in setting what they classified as “fair rents”.  Overnight, ordinary individuals acquired the confidence to invest in buy to let properties, and they did so in their thousands once buy to let mortgages became readily available.

The 1988 Housing Act fundamentally shaped the rental market as we now know it.  It not only created what we all now recognise as the “normal” six or twelve month tenancy agreement, but it also set the tone for the type and standard of accommodation that was available in the sector.  Rented accommodation pre-1988 was typically low quality as landlords were deterred from investment by the possibility of acquiring a “sitting tenant” for life.  Pre 1988, most rented accommodation was provided by local authorities,  but the introduction of Assured Shorthold Tenancies sat hand-in-glove with Thatcher’s “right to buy” legislation which saw Council’s housing stock decimated over a twenty-year period.

There has of course been significant investment in other forms of social housing, but the argument is that “affordable rents” offered by social landlord are not really affordable at all since on average they are still around 80% of open market rents.  With the housing benefit bill being so high, there is an argument is that and our taxes are being used to subsidise the consumption of housing rather than subsidising its supply.  This is important since it emphasises the sector’s reliance on the private rented sector.  Pre-1988 the private rented sector accounted for less than 10% of all housing stock.  If private landlords continue deserting the sector to those levels, there will ultimately be a huge shortage in ordinary open market rental stock which many people rely on not simply because they cannot afford to buy, but also for whom purchase is not suitable or viable.

It may well be that the proposals to abolish Section 21 notices never come to fruition.  The pre-1988 regime was underpinned by a framework for setting fair rents.  Whilst heavily criticised by Landlords (since the rents were anything but “market rents”), there was nevertheless a mechanism in place for rents to increase over what might be the five, ten, twenty or even thirty year life of a tenancy.  The government’s latest proposals are virtually silent on what mechanism might be implemented for rents to increase over the time (although the Labour party does have its own proposals on rent control which, whilst unpopular with landlords, do appear to be more considered and thought through).

For those landlords who are not deterred altogether from providing houses or flats in the private rented sector, it is easy to see why and how the standards in the sector might fall again, leading to an unintended return to Rachmanism with good quality housing stock hugely depleted.

 

This article originally appeared in the June edition of the Time and Leisure magazine.