As the Section 21 debate rages on, the NLA has released its analysis of the effects the abolition of the legislation may have on private renting. In a market that continues to reduce returns for landlords, the proposed reforms to Section 21 make things even harder - not only punishing good landlords, but also providing less choice for renters.
The NLA’s report is a new development in the ongoing conversation - so we’ve analysed the key findings to make sure you’re well-informed of the possibilities of the government’s move.
The background on Section 21
Back in April of this year, the government announced its intention to axe Section 21 notices - a sentiment that was then confirmed a few months later when it published a consultation it had commissioned on the private rental sector (one that’s still open until October 12).
The announcement was controversial - some welcomed the move for its protection of more vulnerable renters; others argued that Section 21 is behind the popularity and success of private renting as an industry.
The National Landlord’s Association has recently released a report on what it calls the ‘unintended consequences’ of Section 21. Chris Norris, Director of Policy and Practice at the NLA, said in the report’s announcement:
“The Government has clearly failed to recognise the realities of the private rented sector by proposing the abolition of Section 21. Any government which thinks it appropriate to risk the loss of nearly 1 million rental homes at a time of housing crisis needs to reassess its priorities as a matter of urgency.
“Rather than playing to the gallery, the Government should be looking to support and incentivise good landlords to remain active and provide homes to those who need them, rather than making it harder and causing these landlords to exit the market.”
So is abolishing Section 21 an essential protection for renters, or a death knell for landlords and private renting as a whole? We’ve combed through the report to bring you a few of the key findings, and what they might mean for you.
Key findings from the NLA’s report
There is an overriding theme from the National Landlord’s Association that Section 21 abolition is not just a once-off blow to the private rental industry, but the continuation of an eroding of rights that’s been going on for some time - economically and legally.
This, the NLA says, is showing in the figures.
“The removal of Section 21 would add to the increasing pressure that private landlords have come under from government policy over the past few years, and there are signs that the impacts of these are starting to bite; the number of dwellings in the private rented sector in England fell by 46,000 in 2017, the first fall since 1999.”
One of the more headline-grabbing claims from the report is that one-fifth of rental homes would dissolve if Section 21 is scrapped.
If landlords nationally act in line with our survey sample, the most likely response to the removal of Section 21 will be:
- the private rented dwelling stock to rent in England would fall by 20 percent (960,000 dwellings)
- there would be a 59 percent reduction in the private rented dwellings available to households which claim local housing allowance or universal credit (770,000 fewer dwellings)
- around 600,000 homes could see rent increases (13 percent of the sector).
Having just under a million properties disappear from the rental market would certainly have a huge effect on the industry, and ripple effects throughout the UK.
What is the NLA’s rationale for these numbers? The Association is claiming that its pool of surveyed landlords have indicated that they would ‘leave the market completely or reduce the size of their portfolio’ to reduce their investment risks if Section 21 was abolished.
From page 14 of the report:
“Landlords with small portfolios are more likely to choose to leave the private rented sector (20 percent of landlords with one property, 12 percent of landlords with five or more properties). However, landlords with larger portfolios are, unsurprisingly, more likely to consider reducing the size of their existing portfolio (14 percent of landlords with five or more properties).”
It’s impossible to predict whether this would actually happen, or how long it might take for landlords to offload their property stock - a glut of property on the market shortly after a legislation change would surely have an abnormal effect on house prices.
We might see governments take a big step into housing, or private companies (specifically tech-focused startups) looking for new ways to enter the space - something we’re already seeing the first shoots of.
Another finding from the report was that our court system simply wasn’t efficient enough when landlords were dealing with Section 8 legislation. The NLA claims that reform is needed before Section 21 fears can be at all assuaged.
With a reformed court process and landlords acting as they have indicated, the impact of the removal of Section 21 on supply and rent would be significantly reduced. Our analysis indicates it would:
- reduce the private rented sector supply by between 4 to 8 percent (180,000 and 390,000 dwellings)
- reduce the number of dwellings available to benefit claimants by between 10 and 23 percent (130,000 and 300,000 dwellings).
- increase rents for between 110,000 and 240,000 homes (between 2 and 5 percent of the sector).
The report is relatively positive with its outlook as long as court processes are reformed. This gives the government and landlords something to work with. And while plenty of solutions are being thrown around, we probably won’t know the full extent of the changes until they’re enacted.