Landlords need carrot as well as stick to improve the private rented sector

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Extra tax breaks should be offered to landlords who sign up for a national accreditation scheme to raise standards in the private rented sector, according to a new report.

The report, from the Chartered Institute of Housing (CIH) and the Resolution Foundation (RF), says that targeted incentives for landlords would encourage them to improve the maintenance and management of their properties, offering a ‘something for something’ deal. Private landlords currently receive around £7bn of tax allowances a year, including for repairs and maintenance, but there is no incentive to carry out work above the minimum standard – and that standard is not being enforced effectively.

Today’s report suggests that financial incentives could either take the form of new additional funds for those who sign up for accreditation, or diverting more of the existing allowance to those who do.

But it also warns that more effective regulation is needed to tackle the most unscrupulous landlords – and to ban letting agents from charging tenants fees.

The private rented sector has doubled in size since 1992 and now accounts for 18 per cent of all households in England – that’s four million households, making it the second biggest tenure in the country, after home ownership. The percentage of private renters aged 25-34 has risen from 31% in 2008-09 to 45% in 2012-13, and the sector is also housing an increasing number of families and older people.

The English Housing Survey shows that a third of private rented homes would have failed the government’s Decent Homes Standard in 2012, compared to only around one in seven social rented homes, while almost one in five don’t have central heating.  Most private landlords are individuals with only one or two properties. Very few are full-time professional landlords, which means that standards of housing management, while by no means universally poor, are inconsistent. In the worst cases unscrupulous landlords are able to exploit vulnerable people who have very little choice when it comes to housing.

Current government policy is mostly focused on improving standards by encouraging greater competition in the sector, while Labour policy is mostly focused on greater regulation. But CIH and RF said a combined ‘carrot and stick’ approach would be more effective.

The report recommends:

  • Creating a single, easily understood set of minimum standards (covering both property conditions and housing management) for landlords and making sure that sufficient resources are made available for enforcement
  • Extending the regulation covering estate agents to letting agents and stopping letting agents charging tenants fees for their services
  • Considering the use of incentives by the government to encourage landlords to commit to higher standards (over and above the legal minimum)
  • Developing a nationally agreed set of standards for accreditation (covering both property conditions and housing management)

In setting new financial incentives for landlords, the report says the government could consider:

  • Giving accredited landlords a more generous tax allowance for ‘allowable expenses’ (where landlords deduct the cost of repairs from their profits for income tax purposes), compared to unaccredited landlords
  • Allowing landlords to treat any improvement needed to bring a property up to standard as an ‘allowable expense’, instead of deducting it from their capital gains tax liability when they sell the property – so they would get a more immediate tax benefit from the investment
  • Allowing accredited landlords to benefit from capital gains tax rollover relief (meaning that if a rented property is sold and the proceeds are immediately reinvested in another, the landlord would not pay capital gains tax on any profit they had made).

CIH chief executive Grainia Long said: “This government has focused on measures to boost home ownership, but with more and more people living in the private rented sector – including more older people, more families with children and more vulnerable people from the housing waiting list – it’s vital that we look at new ways to raise standards. The cost of housing means that for many people, the private rented sector is the only option – but too many of them are having to put up with poor standards and insecurity.  Ultimately, we want people to have a good choice of housing at a price they can afford, so we need to make private rent a better option.”

RF deputy chief executive Vidhya Alakeson added: “Many landlords already benefit from generous public subsidy but, while many of them are responsible, not all of them give anything in return. By introducing the principle of getting ‘something for something’ from this investment we could ensure that housing is improved and works better for both tenants and landlords. Government should incentivise those who work to raise their game in order to improve the overall standards of private renting.”

Download the full report

A fair deal for tenants and landlords: read Vidhya Alakeson's blog

Media coverage:

BBC News: Housing experts call for clampdown on rogue landlords

BBC News: Rogue landlords: what is it like to live in a substandard home?

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