Government lacks clear vision and strategy for regulating the private rented sector, says NAO

Friday, December 10th, 2021 - National Audit Office

NAO Report Regulation of private renting 2021

A pivotal report by the National Audit Office (NAO) published today (10 December 2021), has found that the way private renting is regulated is not effective in ensuring the sector is fair for renters or that housing is safe and secure. Of concern, the Department for Levelling Up, Housing and Communities (DLUHC) does not yet have a detailed plan to address the problems that renters face.

4.4. million privately rented households in England

There are an estimated 4.4 million privately rented households in England. While most tenants have a good experience of renting, those who do not can end up with serious illness, financial issues, or homelessness. DLUHC aims to ensure the private rented sector is fair for tenants, and to protect them from such harms by setting regulatory laws and policies.

The NAO Report found that private rented properties are less likely to comply with safety requirements than other tenures. An estimated 13% of private rented homes (589,000 properties) have at least one category 1 hazard – a serious threat to health and safety – with associated costs to the NHS estimated at £340 million per year. This compares with 10% of owner-occupied homes and 5% of social housing. In addition, an estimated 23% of private rented homes are classified as non-decent.

Piecemeal approach to regulation

DLUHC has taken a piecemeal approach when introducing legislative changes to protect tenants’ rights. In recent years it has introduced changes such as a mandatory redress requirement for letting agency work, a ban on charging letting fees to tenants, mandatory client money protection scheme for letting and managing agents, new electrical safety requirements and temporary restrictions on evictions during the COVID-19 pandemic.

The NAO found DLUHC does not yet have a strategy for what it wants regulation of the private rented sector to look like. DLUHC told the NAO that it is currently defining the strategic objectives of its reform programme.

The government’s approach is also limited by gaps in the data showing what problems are occurring and where. DLUHC has some insight into how the sector is working, such as on property conditions and tenants’ finances, but it lacks data on key issues such as harassment, evictions, disrepair and the costs to landlords of complying with legal obligations.

Without adequate data, the NAO says that DLUHC will struggle to measure the impact of its interventions. DLUHC told the NAO that it wants to collect better data as part of the planned reforms, but it has not yet developed a plan to do so.

The NAO report recognises that local councils take different approaches to regulating the sector, including how they ensure landlords comply with legal obligations. For example, some councils inspect almost none of their privately rented properties while others inspect a large proportion. There is also little evidence of many councils using certain regulatory tools such as banning orders and penalty notices.

Ten banning orders issued to landlords and agents

The NAO report reveals that just 10 landlords and letting agents have been issued with banning orders since new powers were introduced. Plus, only 10 landlords have been added to a national ‘rogue landlord database’ for receiving two or more penalty notices.

DLUHC has limited data on what tools and approaches are being used by local authorities and cannot meaningfully analyse which are more effective at improving compliance and protecting tenants.

Limited data on property licensing schemes

Surprisingly, government do not know how many councils are operating additional and selective licensing schemes in England. The NAO identified 65 councils operating such schemes but could not confirm whether this was the true number. Yet landlords and agents risk a criminal conviction if they don’t know this information and comply with every scheme.

Based on research by London Property Licensing, by far the highest concentration of licensing schemes is in London, where two thirds of London Boroughs currently operate additional and/or selective licensing schemes.

What we have discovered is that since 2015, 19 councils have applied to the Secretary of State for permission to implement large selective licensing schemes above the 20% threshold. Of those, 10 have been approved and a further 2 partially approved.

Barriers facing private tenants

The NAO report found that private tenants face several barriers to enforcing their rights. There are limited redress options (which usually provide a more accessible path than the legal system) for tenants when attempting to resolve disputes. For example, in the social rented sector, all housing providers must be part of an ombudsman scheme which is actively used by tenants to resolve enquiries and complaints. Whilst government have introduced mandatory redress schemes for letting agency work, there is currently no requirement for landlords to join such a scheme.

The system therefore relies heavily on tenants enforcing their own rights. This means that tenants must negotiate with landlords directly or take action through the courts, which can be costly. This also relies on tenants having an awareness of their rights. Surveys estimate that 35% of tenants say that a lack of knowledge of their rights made negotiating with their landlord difficult. Other barriers for tenant when enforcing rights include a lack of recourse to public funds, language barriers and distrust of services.

DLUHC is planning to introduce reforms to the private rented sector, and has committed to produce a white paper in 2022. To support this process, the NAO is recommending that DLUHC defines an overall vision and strategy for the regulation of private renting. It should review whether current dispute resolutions arrangements for private renters are appropriate and accessible for all tenants, and improve its understanding of the experiences among private renters to inform how support is targeted at those most in need.

Gareth Davies, Head of the NAO, said:

The proportion of private renters living in properties that are unsafe or fail the standards for a decent home is concerning. The government relies on these tenants being able to enforce their own rights, but they face significant barriers to doing so.

The Department for Levelling Up, Housing and Communities should improve the quality of its data and insight into the private rented sector, so that it can oversee the regulation of the sector more effectively. It should develop a clear strategy to meet its aim of providing a better deal for renters.

Isobel Thomson, Chief Executive of safeagent, commented:

Over the last few years, we have seen many well intentioned pieces of legislation introduced to improve the PRS. These should have made a real difference, but as the NAO’s Report evidences, their application and enforcement has been inconsistent and disjointed. This is disappointing and does little to improve the lives of those in the sector who need the most help.

The key finding of the Report was that DLUHC must develop a clear vision for the PRS and move away from the current piecemeal approach to regulation. We welcome this – if change is going to happen, a clear, consistent strategy for the PRS must be delivered.

safeagent believes effective enforcement is fundamental to better regulation and we want to see a coherent plan to assist Local Authorities in delivering their regulatory responsibilities in the PRS. Overall, this would deliver on the levelling up agenda which the Government is committed to taking forward. As an organisation who spearheaded the campaign for mandatory Client Money Protection (CMP) we want more robust enforcement against those agents who are still not registered with CMP schemes and who place consumers at risk. We look forward to the Government’s White Paper in 2022.

London Property Licensing was interviewed by the NAO as part of their research. In London, representatives from Croydon and Newham Councils were also interviewed, together with a wide range of tenant, letting industry and other regulatory bodies.

A full copy of the report can be viewed on the link below.

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