MakeUrMove's Managing Director Alexandra Morris interviews RLA Policy Director David Smith.
Hi I’m Alexandra Morris from MakeUrMove and I am here at the RLA Future Renting conference in London. I’m joined by David Smith RLA Policy Director, thank you for your time.
We are looking forward to hearing him speak at 2 o clock this afternoon but before then some of the big questions on everyone’s lips. First one being what are the biggest challenges facing landlords today?
Yes, so kind of a tough question to kick off. I would say they sort of fall into three broad areas. I think the first and kind of most obvious, certainly in London and the South East is the economy. Obviously, that is made more complicated by potential issues with the European Union and the nature of the deal we may or may not have there. And clearly, the property sector, particularly in London is very bound up with the economy in a wider sense.
So that’s kind of a big issue. That obviously becomes less of an issue depending on where you are in the country.
Legislative change, we have had a lot this year already we have a lot more to come. There will be a bit more, early next year. It is quite clear that the government want to do a lot more and there are a lot of political reasons underlying that. There is an awful lot of consultations out there, but they don’t really have the parliamentary time to do all those things, so we are in this rather difficult, uncertain scenario where there is clearly a desire to make changes. Some of those changes are the right thing to do in the grand scheme of things. But it would be helpful if we had a solid integrated plan, so we can prepare in advance for what those changes are going to be and where they are going to be.
And I think, I suppose the third thing is probably a social issue. In that because of the very very severe crunch on property, there is just not enough. Many, many governments have not built enough, and they are kind of trying to blame the private rented sector for their abject failure to build enough houses and that can only get worse. There is a sort of social battle that has now been set up between landlords and tenants, and in fact, in some sense, they should really be on the same side but have been encouraged almost to be at loggerheads. And I think that is a serious challenge for landlords to deal with, I think good landlords do deal with it well actually, but unfortunately, they are tarred by a very small minority who are not very good and who attract far too much attention.
Yes agreed, on the legislative changes so there is a whole raft of new proposals, things that are going through at the minute, things that will definitely be implemented. How easy is it for the landlord today to stay on top of that and are there any tools such as associations that you recommend?
Well, I am obviously bound to recommend the Residential Landlords Association surely. I think actually it is a problem, it remains the case that a lot of landlords seem to think and are encouraged still to think that setting up as a landlord is just like buying a car. You buy a house, people come in it they pay you money end of. It is a business like any other business, I would not open a butchers if I didn’t know about food preparation and my obligations or at least I hope I wouldn’t open a butchers without knowing the requirements.
Many people seem to think, and mortgage lenders and brokers encourage them to think that they just buy a house and make money. It doesn’t work that way, you need a business plan, you need to understand your legislative obligations, you need to look at what the future is. I still have landlords approaching me today who have not heard of tenancy deposit protection, just over 10 years since it was introduced so serious need for some people to wake up.
And of course, as things get more and more pressured, and changes to continue to happen with Section 21 becoming more complicated with new licensing schemes regimes. The penalties for screwing up are greater and greater. A relatively small investment like a landlord’s association at a very reasonable price, or taking into account good websites and surfing the internet and looking at good source of information. Like Property Tribes, like MakeUrMove and using good agents as well is hardly a massive investment bearing in mind the potential cost.
Or you can pay my legal fees as a lawyer, obviously is the other option which I don’t recommend actually, to be honest with you.
Obviously, you have a keen interest in the law around HMO’s, multiple occupancy and I am sure you get asked these questions all the time.
I think my wife says disturbing interest actually, but ok keen interest we will go with that.
I think it is fair to say that that is probably the most steady submarket amongst the private residential sector in that it is there every year and churns every year. Are you seeing an increase in new landlords into that type of stock and maybe what would your advice be for those?
Yes, I think more and more landlords are moving into HMO’s, I think sadly because in some cases they have been grossly misinformed by gurus, not in the wonderful Indian meditative sense but in the make you rich in a dubious way sense who seem to think you can make a lot of money. You can make more money out of HMO’s, without question, but as with almost everything in life if you want more you have to put in more. So, you can make more money out of HMO’s but it requires a lot more energy and effort and the risks are higher so there is a risk-reward ratio.
I think the problem though with HMO’s, of course, is that the risks are much higher if you screw up, you won’t just have difficulty evicting your tenant. You have a really real possibility of being prosecuted and having a criminal record for at least the next 12 months if not longer. Which is probably going to ruin quite a lot of your life particularly if you have a job that requires you to have a CRB check. And the fines are much greater as well, the cost now can be quite substantial you could end up paying back your rent to your tenant for the last 12 months which could blow a right serious hole in your finances.
So, more and more landlords are moving into HMOs because tenants want that type of accommodation increasingly, because many houses are too large and are better adapted to HMOs because frankly, people don’t need 7 bedrooms that much these days and because of tax pressures on landlords urging them to try and make more money out of the situation. And I have no problem with that, not least because I get paid for advice on it sometimes. But it is important to do it properly. The thing I serially hate is agents and landlords who dabble in the odd HMO here and there that is a highway to disaster. If you are going to do HMO’s you can do them, but you must do them properly and have a structure and a plan and I am going to be really sad about this but checklists, wow. HMOs equals checklists as far as I am concerned.
That’s great. The conference title is Future Renting so the last question for you really is how do you see the shape of the private residential sector over the next 5-10 years?
Well, that depends on a number of more complex factors like who is in power. Clearly, the two major political parties have slightly different views on the PRS but the reality is that both of them accept the need for the PRS. The truth is whatever the government says about trying to get more people to own their own homes. There is always going to be a group of people who can’t and indeed there are a group of people who don’t want to because of their life stage. So the PRS remains important. James Brokenshire very kindly spoke, and John Healey someone from both parties, both spoke very kindly at the RLA’s 20th-anniversary reception the other night and both were absolutely clear and committed to the long-term future of the PRS.
There is a role for the PRS, it will slowly grow as the population grows, it may tail off slightly from its current fairly, meteoric growth as we start to build more homes for people to own and housing demand changes again.
But there will always be a role for good responsible landlords. It is certainly the case the government wants to increase legislation, but I don’t think good responsible landlords should be too afraid of that fact. The reality is that it does require work but ultimately that means, provided we get proper enforcement that, that means that bad landlords are removed from the sector and we can move forward as a responsible part of the economy.
Perfect, thank you for your time. I am looking forward to your talk at 2 o'clock, that’s us saying goodbye.