A Welfare State for Landlords: Who Benefits?
RENT CONTROL, HOMELESSNESS AND LAND TAXATION
By Alan Murdie
Further to the appeal for more contributions on housing issues I would like to put forward the following observations.
Background
At a meeting at a public meeting Bloomsbury Baptist Church on homelessness in March, a person in the audience expressed the view that the street homelessness will always be with us (a kind of version of the “poor you will always have” view Matthew 26 v11. I disagreed, expressed the view that homelessness is not inevitable and the massive growth in the street homeless has been occasioned by the operation of social and political forces in the last 25 years, partly driven by changes in housing law. I cited the following reason, drawn from personal experience as to why I believe the current situation is not inevitable.
When I first went to Lincoln’s Inn 23 years ago to take the Bar, in the autumn of 1986, one might meet one possibly two people begging around Lincoln’s Inn fields, and between Temple or Holborn Tube station.
Twenty three years later, there can be crowds of a hundred or more in the area, queuing up for a soup kitchen. Clearly something has happened in between 1986 and 2009. This month has also seen Z2K have its first referral by a family on a low wage with rent arrears in excess of £10 000 where housing benefit has been capped. Looking at changes in housing law during this period, I offer the following observations and analysis.
RENTS – 20 YEARS OF FREE MARKET RENT
In terms of privately rented housing in the last 25 years, the single biggest change in housing law was effected by the Housing Act 1988. This abolished rent control from January 15th 1989 and brought in the Assured Shorthold Tenancy, the most common form of private rental agreement today. Its impact and knock on effects have been enormous. Problems with high rents, inflated housing benefit levels, high levels of tenant debt lack of security and summary repossession all derived from this piece of legislation.
The legal effects of the Housing Act 1988 were set out in Landlord and Tenant Law, Smith & Evans (1989) 3rd Edition, one of the standard legal text books. There the authors detailed the rental system that was disappearing and the radical regime that was replacing it in sober, even turgid terms. Unfortunately, beyond practitioners Smith & Evans is not widely read, and as a result these changes passed into law largely unnoticed and are probably not widely understood today by many policy makers.
Rent Act security in the private rented sector disappeared on January 15th 1989 as well as rent control. Although pre-January 15th 1989 contracts retained security, those who came into the private rented sector after this date lost security in practical terms.
Rent arrears of three months meant an automatic possession order, reduced to two months by the Housing Act 1996. There is no defence to this claim, even delays in housing benefit payment (frequent) cannot stop re-possession. Only delays in the County Court system extend this period in practice.
Needless to say, the effects of the Housing Act 1988 were not those intended. The notion underpinning the provisions Housing Act 1998 was the libertarian doctrine that rent controls were an obstacle to the free market which, it was envisaged would deliver cheap, affordable accommodation for those who chose to rent or were forced to do so. The hypothesis was that by removing control on rents and security more rented property would come on to the market, and that rents would become cheaper, thus ending the problems of homelessness.
Rent Act security also made it difficult to evict tenants as this was also seen as an obstacle to the free market in housing, so rights were reduced. It was presumed that there were a lot of frustrated potential landlords, awaiting the relaxation of rent controls. Once rent control disappeared, the argument went these people would make their homes available at cheaper rents, with landlords presumably competing with each other to attract tenants by offering rents.
As part of the free market ideology, council homes were also sold off, with whole estates being transferred to housing associations – some of which are now struggling or going under. Again, the existence of council housing was seen as barrier against the operation of the free market. Effectively, the opportunity to rent a council property was reduced, to promote the private rented sector.
How this was all meant to magically happen was not clear, but faith was total and it avoided any concept of personal responsibility for those proposing it – “the market would do it all”. (This is perhaps a striking example of the South Seas “cargo cult” mentality in a developed, technological society) .
I do not know what research was conducted – if any – to underpin such conviction. It seems improbable that there was very much, given the “no such thing as society” views of Mrs Thatcher (an ofted quoted remark made to a women’s magazine). Such research as did underpin other radical policies was frequent less than sound (e.g the Adam Smith Institute’s paper which proposed the poll tax). The presumption seems to have been that on becoming a ‘property owning democracy’, citizens would also become a democracy filled with would-be landlords.
For example, on what evidence could it be presumed that property owners in Britain would be prepared to rent out their newly acquired homes ? Just how many people were estimated to have properties to rent? In cultural terms, renting does not not enjoy the widespread acceptance that it does in other parts of Europe.British society reveres the home as an essentially private place (“an Englishman’ s home is his castle etc”) distinguished for keeping out strangers rather than admitting them, and indeed the same cultural trends are discernible towards even excluding family members.
Undoubtedly, a lot of sub-letting of property on leasehold does take place, but these agreements are frequently unlawful.
Only in the later stages of the housing speculative bubble did the ‘buy to let’ phenomena take off, with housing being constructed, the idea underpinning this (as prospective landlords expressed it to me) that “the state would pick up the tab on rent”.
RENTS ROCKETTING AND HOUSING BENEFIT
With the freedom to set rents, landlords responded by increasing rents. Usually rent was arranged via a letting agency, who were responsible for drafting the Assured Shorthold Tenancy agreements. They also wanted a share of the proceeds, so rents inevitably went up. Human nature frequently displays evidence of acquisitive traits as well as altruistic ones, and these acquisitive instincts were given free reign when it came to setting rent levels.
It would be an interesting study to examine the rise in rent levels following January 15th 1989.
Anecdotal evidence from London suggests that this transformed the social composition certain areas. A lot of artists and writers who lived in the Brick Lane area in Whitechapel found their rents going beyond what they could afford and moved out (a number decamped to Southend, Essex).
Financial sector workers from the City moved in to replace them, to be close to the hub of finance. However, disappointed with the standard of life, many proceeded to buy second homes in the countryside. This in turn pushed up prices in rural areas.
More seriously, it was realised that key public sector workers could not afford homes in central London – teachers, firefighters, police officers, nurses etc and steps had to be taken to remedy this.For those who couldn’t afford to pay a market rent because they were unemployed, housing benefit was supposed to provide the answer.
The complexity of the regulations leads to shortfalls in payment, with attempts to cap this escalating burden on the public purse. Housing benefit frequently pays out large sums to landlords for shoddy accommodation. Although some of these rents are capped, the tenant is then left to pick up the difference – frequently failing to do so because of inadequacy of benefits.
Not that Government research would have established this, as we know since 1948 successive Governments have never taken adequacy into consideration when setting levels. Despite consolidation in 2006, housing benefit regulations remain notoriously complex and difficult to administer. They were condemned by the Court of Appeal in the judgment in Gargett v London Borough of Lambeth [2008]
Since April 3rd 2008 new claimants receive their HB direct rather than it being sent to the landlords.
As a result, this money is not always being applied to the rent, particularly if there are other creditors – lack of awareness that housing costs are a priority debt is common among debtors. Mistakes, confusion and overpayments also trigger claw backs leading to deductions meaning further shortfalls in paying the rent. Typically housing benefit may be suspended for up to a year, allowing arrears to accumulate.
The position of those on housing benefit has become precarious, as income levels have not in any way keep pace with the increases in rent. So if problems arise, the amount that is owed is typically measured in thousands of pounds.
Housing benefit has become a welfare state for landlords to the tune billions of pounds.
THE SITUATION TODAY – 20 YEARS ON
The belief that the free market in terms of rent would deliver lots of cheap, good quality rented accommodation has now been demonstrated to be false in the UK. Levels of tenant debt are bigger than ever before and this month I came across my first case of assured shorthold tenancy where the rent arrears are in excess of £10 000 and there has been no substantial failure in HB payment.
Not surprisingly, landlords are now grumbling about the situation, with one of the landlord’s associations making public statements airing their complaints at the beginning of April 2009 when a survey indicated around 50% of landlords stated they would not now take tenants on housing benefit.
It must be said that these complaints are rather smack of ingratitude or any sense of proportion, given that for 20 years landlords have been free to charge massive sums in rent, effectively paying mortgages in breach of terms forbidding sub-letting. For far too long property owners have been allowed to charge whatever figure they want in rent, with the taxpayer picking up the bill. The idea of the state picking up the tab for impoverished tenants encouraged the ‘buy-to-let’ phenomenon which is now imploding on itself.*
Among its clientele, Zacchaeus 2000 Trust has seen rent arrears escalate – in a recent case a couple presented with arrears of £10 000 accumulated in respect of a private landlord who is part funded by Westminster City Council, partly paid through Housing Benefit and partly paid for by the couple themselves who are on low wages. The type of arrangements which Westminster has made with landlords (in this case the landlord is from Ethiopia) and with housing associations in the area is unclear. However, it is very expensive in housing benefit terms.
Westminster City Council is a real problem where tenants on the council waiting list are denied transfer assistance to cheaper properties on account of existing arrears. Even where a tenant has identified a cheaper property in terms of rent and housing benefit, the Council refuses to assist. The policies are irrational and perverse but it appears too many people in Westminster are profiting from them for it to emerge yet as an issue – unless someone starts to raise it.
ABSENTEE LANDLORDS
The peculiar situation and laws pertaining to Britain have made it a key destination for overseas buyers and those resident outside abroad to dabble in the property market. They have entered the UK housing market in considerable numbers, particularly in London and are currently taking advantage of falling prices.
Many of these landlords have taken advantage of globalisation and are absentees. A number of Z2K clients have landlords in Nigeria, Italy and Ireland. (For some reason, the populist press which is keen to cite the cost of immigrants claiming benefits, only in Britain never pick on this category only impoverished refugees, asylum seekers and migrant workers) The problems of absentee landlords are well known and analogous to English landlords in Ireland in the 19th century.
A large amount of public money is disappearing abroad and into private pockets for little return and no investment in housing stock. This problem also means that energy saving measures announced by the Government in autumn 2008 in response to rising fuel prices to improve insulation in the rent sector are never implemented since they need the consent of the landlord who is off-shore.
Meanwhile along the Thames, in Docklands (‘It will feel like Venice and work like New York’ was the promotional slogan for Canary Wharf in 1987) many modern flats stand empty and dark at night. The local view is they are owned by foreign investors. Whoever owns them, nobody is home.
POSITION OF HOMELESS TEENAGERS
Among the most vulnerable in the housing system as it operates now are the young and single mothers.
Problems with homeless teenagers exist in rural areas as well as cities. In Suffolk approximately 300 young people present themselves as homeless each year** in the16-17 years old age group.
The main reason cited are problems at home, but other factors include becoming pregnant or release from custodial sentence.
In Suffolk they have a choice of hostels and nothing else. There are problems with drugs at such premises, which is a reason some teenagers cite as a refusal to take a hostel place. These include vulnerable teenagers (learning difficulties etc)who may be moved from small towns with no accommodation example Stowmarket to larger towns with drug problems Ipswich, where they will be at risk. It was young women who had become trapped in precisely this social situation who entered into prostitution and became victims of the Ipswich serial murderer in 2006.
The position in cities is believed to be much worse in terms of numbers of homeless young people. A lot of children ARE ‘sofa-surfing’ as it was termed by barrister Ian Wise who has been actively involved in homelessness cases involving children in this situation in London. Young people go from one friend’s property to another without any established accommodation.
A NEW PHENOMENON - THE APPEARANCE OF POST-SINGLE MOTHERHOOD EVICTION ?
Single parenthood has been popularly identified as a lifestyle option in the UK to obtain council housing and assistance. Many practitioners in youth work think this perception is a factor encouraging teenager women to become pregnant. It seems to represent (at least from the relative perspective of the ill-informed and dim teenage mother) a rational response to a situation where no other way of being housed is available. Certainly the assumption persists across society that a functioning welfare state still exists in housing terms in Britain, operating to assist everyone who is pregnant, vulnerable or in need of assistance, including poor families.
This view seems to have taken hold after the Housing (Homeless Persons) Act 1977 was originally enacted when more council homes were available. In light of the above analysis, this view involves a massive optimism concerning the operation of the welfare system and a tragic misunderstanding about who is actually benefiting first and foremost from it in practical terms.
I am not proposing a undertake a review of the morality of pregnancy as a way to secure accommodation herein, nor of the popular bugbear of the lone parent on benefits, nor of questions of dysfunctional families, the effects of drug abuse and so on.
However, what seems now to be emerging from the cases being dealt with by Z2K in 2009 is the phenomenon of the post-single motherhood eviction.
In two cases this year, possession orders were granted against women in their forties who had failed to pay their rent on council properties. They had previously entered the social housing system as unmarried mothers in the late 1980s and had secure tenancies being public rather than private sector. Their children have grown up or quit the home, leaving the mother behind in the property.
However, both mothers then fell into arrears of rent, failed to make any real effort to clear arrears and were evicted. In both cases there were actually extensive efforts over several years by the local authorities to try and avoid the repossession. There were suspended possession arrangements and flagrant breaches of re-payment schemes, several suspended possession orders, and marked reluctance from judges (“I really hate having to do this” says one judge in the transcript in one particular case).
However, the because of the persistent failure to pay rent the court had no alternative but to grant possession orders and the women find themselves homeless as single adults who are at the bottom of the priority list for housing.
TAXATION OF LAND – UNIFORM BUSINESS RATE
The free market ideology of the 1980s can also be seen at work in the way business property is taxed.
Poll tax was a disaster and swiftly replaced by the council tax. The council tax is now the most complex form of local taxation ever levied. As with housing benefit, regulations are reaching byzantine levels of complexity. The council tax benefit regulations alone are now longer than the whole General Rate Act 1967.
Uniform business rating was the twin to the ill-fated community charge or poll tax, this one thrived whilst the poll tax died. Effectively, the uniform business rate increased the levy on small businesses and wiped out many small shops its first year of operation 1990-1991. It is one of the reasons for the monoculture, chain store high streets, and “ghost town” city centres across Britain – small shops were put out of business allowing for large corporations to expand.
Uniform business rate is complicated and its effects have been largely missed by most commentators (and most of its victims). It is also a major obstacle to the starting of small businesses and the development of any enterprise culture, although in recent years its effects have been mitigated by the internet.
Why was UBR introduced? High rates and particularly the policy of the old GLC was a political cause celebre in the 1980s and led to broad calls for rating reform. These were encouraged by the Adam Smith Institute which promoted the UBR’s twin the poll tax.
Why did Mrs Thatcher allow so many small shops to close down? Again it was the grip of free market ideology, which in practical terms had the effect of favouring big capitalist enterprises. The belief was that differing rate levels between local authorities were a barrier to the free movement of capital. Therefore, if assessment of premises were standardised there would be no local barriers for businesses to re-locate. In some vague way it was hoped this might enable the overcoming of the north –south divide.
Unfortunately, the average small business in say Cornwall doesn’t plan to re-locate or open a branch in Yorkshire in any one financial year. So the movement of capital didn’t happen.
Some young Conservative MPs in the 1987 Parliament genuinely believed the poll tax would work.(Conversation with ex-MP for Thurrock, 2005) and presumably some honestly believed this about UBR.
Alternatively, a more cynical view or ‘conspiracy theory’, would be that big business prompted Government to introduce this scheme Uniform business rates removed numerous small shops which had stood in the way of major redevelopment schemes (Poole in Dorset is an example). Furthermore, when a Conservative MP leaves office, there is a fair bet that s/he does not go to work in the small business sector e.g selling oranges at a greengrocer’s.
A position in a large corporation is much more likely destination for an ex-MP.
Whatever the case, the uniform business rate has favoured the large corporation at the expense of the small trader. The only small scale winners are charity shops who receive an 80% discount.
If the high streets are to recover, it will need Uniform Business Rate to be relaxed, amended or repealed altogether.
Rating reform comes in a 20-25 year cycle in Britain i.e. 1925, 1948, 1967, 1988. The Government pulled back from a revaluation in England in 2005, required by the Local Government Act 2003. There will now be no revaluation until after the next Parliament. We are about due for another change – cyclical forces provide an extra momentum to any calls for radical reform. At this point, at least, history is on our side....
NOTES
*In 1983 financial expert Bob Beckman who presciently predicted both the collapse in property prices at the 1980s and arguably the current worldwide depression advised against long term investment in buy to let schemes. In his book The Downwave he remarked that the ‘greedy landlord’ was likely to become a political target when a recession hit. It is easy to see why.
** Figures - SUFFOLK CHILDREN AND YOUNG PEOPLE PLAN 2009-2011 issued by Suffolk County Council]