AUTUMN 2017 BUDGET SUBMISSION FROM THE RESIDENTIAL LANDLORDS ASSOCIATION 1.0 ABOUT THE RESIDENTIAL LANDLORDS ASSOCIATION 1.1 The Residentia Landords Association (RLA) represents the interests of andords in the private rented sector (PRS) across Engand and Waes. Representing over 50,000 andords managing over a quarter of a miion properties, the RLA is the eading voice for the PRS. 1.2 The RLA provides support and advice to members and seeks to raise standards in the PRS through its code of conduct, training and accreditation, and the provision of guidance and updates on egisation affecting the sector. Many of the RLA s resources are avaiabe free to non-member andords and tenants. 1.3 The Association campaigns to improve the PRS for both andords and tenants, engaging with poicymakers at a eves of Government to support the aim of a private rented sector that is first choice, not second best. 2.0 EXECUTIVE SUMMARY 2.1 A projections are that the demand for homes in the private rented sector wi continue to increase due to a combination of continued difficuities for many in raising the deposit needed for a home of their own and a preference for the fexibiity that the sector provides. 2.2 The Government has encouraged greater institutiona investment in the private rented sector but evidence shows that this wi never be enough to meet the rising demand. The market wi continue to be dominated by individuas and sma firms renting out a few properties. 2.3 It is important to support these smaer andords, to encourage them to invest in the new renta properties needed and, thereby, support oca house buiders. 2.4 The RLA s Budget submission shows that recent tax changes affecting the market have ed many andords to stop investing in more properties or to change etting strategy by transferring their properties into the short term hoiday et market or reducing renting to those groups seen as higher risk in terms of rent arrears, particuary young peope and those on benefit. 2.5 In order to support the deveopment of new homes to rent and encourage andords to remain in the onger term market, we are caing for the government to: Foow the exampe of Ireand by scrapping the mortgage interest reief changes or, at the very east, introducing various tax measures to incentivise positive behaviours by andords such as seing properties to sitting tenants wanting to become homeowners, offering onger tenancies, and investing in energy efficency improvements. Encouraging oca authorities and pubic bodies, such as the Ministry of Defence, Network Rai, and the NHS, to identify and se off sma pots of unused pubic sector for deveopment by the PRS. 2.6 We are caing for action to address the probem of mortgage enders who prevent andords from offering onger tenancies and addressing the anomay that means that tenants who might have good rent payment histories do not have these credited to them by credit reference agencies.
3.0 NEED FOR MORE HOMES FOR PRIVATE RENT 3.1 According to the Engish Housing Survey, 20% of a househods were in the private rented sector in 2015-16, up from the ow of 9% in 1992 1. Projections by Knight Frank suggest that by 2021 25% of househods wi be in the private rented sector 2. 3.2 The reasons for the growing demand are numerous, incuding: Fexibiity as the Government has previousy noted, rented housing is important in supporting a fexibe abour market. Choice an increasing number of peope prefer the option of renting to buying a house of their own. Research by OnePo, for the property investment company Knight Knox, found that 60.6% of tenants in private rented housing said that they are content with renting citing factors such as not wiing to be tied down to a mortgage and renting better suiting their ifestye 3. Affordabiity many peope need to reside in the private rented sector because of the increasing difficuty in affording a home of their own. Recent research by the Haifax 4 has found that in the past five years, the average price of a first time house has grown by 50% from 138,663 to 207,693.In London, first-time buyers have seen average prices increase by 66% since 2012 to 409,975. For many, the argest hurde to overcome is saving a deposit. The average amount required being 32,899 ( 106,577 in London) 5. Waits for socia housing remain ong with the atest Government figures showing that there are 1.18 miion househods on oca authority waiting ists 6. 3.3 Despite the country urgenty needing more homes for private rent, there is a cear trend of suppy not meeting demand. In its residentia market survey in Juy the Roya Institution of Chartered Surveyors (RICS) reported that its members had reported that tenant demand continued to edge higher, but that andord instructions decined, with 8% more respondents noting a fa (rather than an increase) in istings. The RICS August survey found that in ight of poicy changes 61% of members fet that more andords woud exit the market over the coming year, whie ony 12% fet there woud be a greater number of entrants. For the next three years, 52% fet there woud be a net reduction in andords, with ony 17% suggesting a rise. It predicted that over the next five years renta growth wi outpace that of house prices, averaging 3%, per annum (against 2% 1 Department for Communities and Loca Government, Engish housing survey headine report 2015 to 2016: section 1 househod tabes, avaiabe at https://www.gov.uk/government/statistics/engish-housing-survey-2014-to- 2015-headine-report. 2 Knight Frank, UK Residentia Market Update, June 2017, avaiabe at https://kfcontent.bob.core.windows.net/research/100/documents/en/uk-residentia-market-update-june-2017-4761.pdf. 3 Knight Knox, More than 60% of renters are happy to rent, 3 rd January 2017, avaiabe at https://www.knightknox.com/news/artice/more-than-60-of-renters-are-happy-to-rent. 4 Haifax, First-time buyers paying record prices to get on to the property adder, 1 st Juy 2017, avaiabe at https://static.haifax.co.uk/assets/pdf/mortgages/pdf/170701-haifax-first-time-buyer-review_juy2017.pdf. 5 Haifax, First-time buyers paying record prices to get on to the property adder, 1st Juy 2017, avaiabe at https://static.haifax.co.uk/assets/pdf/mortgages/pdf/170701-haifax-first-time-buyer-review_juy2017.pdf. 6 Department for Communities and Loca Government, Loca authority housing statistics: Year ending March 2016, Engand, 12 th January 2017, avaiabe at https://www.gov.uk/government/upoads/system/upoads/attachment_data/fie/582793/loca_authority_housing_st atistics_engand_year_ending_march_2016.pdf.
for house price infation). This is confirmed by the RLA s own survey findings 7 which show that 33% of andords reported tenant demand has increased in the areas where they rent property over the past 3 months. Despite this, 22% of andords who responded indicated that they panned to se at east 1 property from their portfoio. 3.4 Tax changes which incude a) phasing in the restriction of mortgage interest reief to the basic rate of income tax; b) taxing andords turnover, rather than profit (unike any other business); c) appying a 3% stamp duty evy on the purchase of homes to rent; and d) deciding to excude residentia property from the reduction in capita gains tax to 20% are, combined, having a dampening effect on the market. 3.5 The RLA continues to be deepy concerned that the measures announced are based on a perception of probems that do not reay exist, as outined beow. Assertion 1 Landords enjoy a substantia advantage in the tax system compared to home owners. These changes rectify this. Response This is not correct. As Pau Johnson, Director of the Institute for Fisca Studies, has observed: If you buy to et, you pay income tax on the return and capita gains on what comes out when you se it at the end, which is not the case for owner-occupiers. The current system is ceary more tax favourabe towards buyers and owner-occupiers than it is towards buy-to-et andords and renters. The tax system is not, and was not, even before the recent changes, more generous to peope buying to et. 8 Assertion 2 Landords are squeezing aspiring home owners out the market. These changes wi make things easier for first time buyers. Response There has been no cear evidence to support the argument that andords are crowding out aspiring home owners from the market. On the contrary, a report by the London Schoo of Economics has noted: The (very imited) research into direct competition between investors and private owner-occupiers has found that nationwide ony a minority of saes to andords invoved bids from both types of buyer. In June 2016, the then DCLG Minister, Baroness Wiiams, noted in response to a written question that the types and ocations of properties that they [private andords] prefer wi not aways be identica to owner occupiers. 9 This poicy appears to be London-centric and ignores substantia parts of the country where there is no shortage of properties and andord investment is activey sought to regenerate oder empty property and bring it back into productive use. Assertion 3 The tax changes are needed to prevent a dangerous buy-to-et mortgage bubbe deveoping that coud threaten the wider economy. Response Research by the former Counci of Mortgage Lenders 10 has reveaed that, of the 2,500 andords surveyed, 49% owned a their property outright, with no mortgage debt at a, and just 47% of the rented properties in the survey were backed by a buy-to-et mortgage. Among buy-to-et andords, 56% had oan-to-vaue ratios on their tota portfoio of beow 60%, substantiay ower than many home owners. 7 Residentia Landords Association, Wefare Reform and Universa Credit: The impact on the private rented sector, August 2017, avaiabe at https://research.ra.org.uk/wp-content/upoads/wefare-reform-and-universa-credit- The-impact-on-the-private-rented-sector-2017.pdf. 8 Evidence to House of Lords Economic Affairs Committee inquiry on the housing market, 8th March 2016, avaiabe at http://data.pariament.uk/writtenevidence/committeeevidence.svc/evidencedocument/economic-affairscommittee/economics-of-the-united-kingdom-housing-market/ora/30359.htm. 9 See http://www.pariament.uk/business/pubications/written-questions-answers-statements/writtenquestion/lords/2016-06-09/hl581/. 10 Counci of Mortgage Lenders, CML research on argest ever survey of UK andords reveas what makes them tick, 13 th December 2016, avaiabe at https://www.cm.org.uk/news/press-reeases/cm-research-survey-of-ukandords/.
Assertion 4 HMRC caims that the mortgage interest reief changes wi ony affect 1 in 5 andords. Response Measuring the number of andords affected shoud not be the focus of concern. What matters is the number of properties affected, given that it is against these, not individua andords, that mortgages are granted. The arger number of properties a andord owns means that they are more ikey to be affected and it if these andords dis-invest it wi affect the market disproportionatey. 3.6 The RLA has been measuring the impact of the various tax changes and it is cear that it is vunerabe and younger peope, perceived to be groups at higher risk of rent arrears, who are being hit the hardest as andords shift their ettings strategies. As exampes: Research by Sheffied Haam University for the RLA 11 has found that of those andords who have changed their etting strategies in the ast three years, 32% have activey sought to decrease ettings to under-35s. 30% indicated that recent tax changes, particuary to mortgage interest reief, was the reason. Further anaysis 12 finds that 1 in 5 andords stated that the changes to MIR woud make them ess ikey to et to under-35s. Of these, it is andords with arger property portfoios who are more ikey to change their ettings strategy in response to the changes 31% of those who said that they woud be ess ikey to et to under-35s had portfoios of 11 properties or more. Given that they can afford to take ess risk, they are choosing not to et to more risky tenants. Over haf of andords surveyed said that tax reief for onger tenancies woud make them more abe and wiing to rent to under-35s, and 58% said the same for reversing changes to MIR. The initia Sheffied Haam research aso found that 80% of andords woud be more wiing to et to under-35s if they were working with a rent deposit project. We support Crisis cas for the Treasury to fund the expansion of Hep to Rent projects and a nationa rent deposit scheme, which provide financia guarantees for deposit and rent to de-risk housing vunerabe tenants. A further piece of RLA research 13 has suggested that the tax changes have made 49% of andords ess ikey to rent to those in receipt of Universa Credit. According to a recent RLA survey of amost 3,000 andords, of those with Universa Credit caimants as tenants, 38% reported experiencing tenants going into rent arrears in the past 12 months. Further poicy changes, incuding the cap on Loca Housing Aowance (LHA) rate and the 4-year freeze on Housing Benefit (HB) to working age caimants were identified by a arge proportion of andords as making them ess ikey to rent to tenants on benefit or homeess peope. Based on these findings, the RLA recommends that the freezes on LHA rates and HB rates are ended by the Government to remove these barriers for vunerabe tenants to the private rented sector. Perhaps most striking has been the increase in the number of andords who have decided to switch from renting property onger term, which is desperatey needed, to short term hoiday 11 Sheffied Haam University Centre for Regiona Economic and Socia Research, Access to homes for under 35 s: The impact of wefare reform on Private Renting, Juy 2017, avaiabe at https://research.ra.org.uk/wpcontent/upoads/shu-access-to-homes-for-under35s.pdf. 12 Sheffied Haam University Centre for Regiona Economic and Socia Research, Landord Perceptions of Mortgage Interest Reief, https://research.ra.org.uk/report/andord-perceptions-of-mortgage-interest-reief/ 13 Residentia Landords Association, Wefare Reform and Universa Credit: The impact on the private rented sector, August 2017, avaiabe at https://research.ra.org.uk/wp-content/upoads/wefare-reform-and-universa- Credit-The-impact-on-the-private-rented-sector-2017.pdf.
ets which is not covered by the mortgage interest changes. An anaysis by the RLA 14 has found that in London there has been a 75% increase in the number of muti-istings (that is mutipe properties or rooms owned by the same person) in London on Airbnb between February 2016 and March 2017. The same report highights the findings of an RLA survey which has found that 7% of andords have now started to offer properties as hoiday/short term ets through Airbnb or a simiar patform that they woud have previousy et in the private rented sector. Of these, 36% identified that this was due to the changes to Mortgage Interest Reief. One andord who had done this summed the situation up as foows: I didn't want to do this, but the tax changes have forced me down this route. Seing is not an option due to CGT, and this iniquitous tax which is effectivey retrospective, is unjust in that my buy to ets are a business, just ike any other. There wi be ess properties avaiabe to rent as a resut of this tax. 3.7 To date, the Government has focused on encouraging institutiona investors to deveop new renta properties using mechanisms such as oan guarantees and the Buid to Rent Fund. Whist we wecome a efforts to boost housing suppy, it is becoming increasingy cear that institutiona investors are simpy not providing the homes at the pace and scae that the Government had hoped. In commenting on its August 2017 survey resuts, the RICS says that: Athough the buid to rent offer is now stepping up a gear, there ceary is some doubt as to whether it can do so at a fast enough pace to address the shortfa which may resut from the more hostie environment for buy-to-et investors. Buid to rent schemes are aso concentrated in arger towns and cities, eaving sma scae andords to provide virtuay a rented housing in smaer towns and rura areas. 3.8 In a report earier this year, commissioned by Paragon Mortgages, the London Schoo of Economics noted that even if institutiona investors enthusiasticay enter the market, individua andords wi remain dominant as they are across Europe. 15 The House of Lords Economic Affairs Committee has gone even further, arguing in its recent report 16 on the housing market that efforts to bring arge institutiona investors into the sector have so far achieved itte. It concuded that such institutions have argey focused on buiding for sae and is not providing for the renta sector which is over a third of the market. According to the British Property Federation 17 there are 83,650 buid to rent units either competed or panned across the UK. With the Engish Housing Survey showing that there are now 4.5 miion private renta properties, even if a such buid to rent properties were concentrated in Engand it woud sti ony amount to 1.8% of a private renta homes. 3.9 The ony way to secure the homes to rent that the country needs in the short term is to support the majority of individuas who make up the country s andord popuation to invest in, and deveop, new properties to rent, with the same focus as that being given to institutiona investment. 3.10 Boosting the suppy of homes to rent woud not ony be good for tenants, but woud aso be good for Treasury revenue. A study for the RLA by Michae Ba, Professor of Urban and Property Economics at Reading University, has estimated that every private rented home provides the 14 Residentia Landords Association, From Long-Term Lets to Short-Term Lets: Is Airbnb becoming the new buyto-et?, August 2017, avaiabe at https://research.ra.org.uk/wp-content/upoads/is-airbnb-becoming-the-new-buyto-et-residentia-landords-association-august-2017.pdf. 15 Scanon, K et a London Schoo of Economics, Taking Stock - Understanding the effects of recent poicy measures on the private rented sector and Buy-to-Let, 11th May 2016, Page 8, avaiabe at http://seondonhousing.org/wp-content/upoads/2016/05/grp12392-lse-report-design-web.pdf. 16 House of Lords Economic Affairs Committee, Buiding More Homes, First Report of Session 2016-17 (HL Paper 20), avaiabe at http://www.pubications.pariament.uk/pa/d201617/dseect/deconaf/20/20.pdf. 17 British Property Federation, Buid to Rent Map of the UK, avaiabe at http://www.bpf.org.uk/what-we-do/bpfbuid-rent-map-uk.
Treasury with an average of 1,000 in tax take, more than either home owner or socia rented properties 18. 4.0 TAX REFORMS ARE NEEDED 4.1 The RLA continues to strongy beieve that given the seriousness of the housing crisis we now face, the best approach to adopt in the forthcoming Budget woud be to scrap the mortgage interest changes atogether and end the taxation of a andord s turnover rather than their profit. 4.2 At the very east, efforts shoud be made to introduce targeted tax measures to encourage behaviours that the Government are seeking to support. These incude measures to: Encourage and support the provision of onger tenancies; Encourage andords to se properties to sitting tenants wanting to become homeowners; and Support investment in energy efficiency improvements. 5.0 SUPPORTING THE PROVISION OF LONGER TENANCIES 5.0.1 The growth of the private rented sector has ed to growing cas for tenancy engths to be increased to provide greater security and become more famiy friendy. 5.0.2 At present, according to the Engish Housing Survey, tenants in the private rented sector have been in their current renta property for an average of 4.3 years 19 showing that the current tenancy framework aready enabes onger tenancies to happen. 5.0.3 The reaity is that both andords and tenants benefit from onger tenancies. In a recent survey by the RLA of amost 3,000 andords, 63% reported that they woud offer a tenancy of 12 months or onger at the request of the tenant. 5.0.4 These findings suggest that onger tenancies do not need to be imposed on the sector. Rather, greater encouragement is needed to support the provision of onger tenancies whist retaining the vita fexibiity that the private sector provides. 5.1 Tax Incentives To Encourage Longer Tenancies 5.1.1 One of the principe ways in which Government seeks to ater behaviour is through the tax system. The evy on sugary drinks being a prime exampe. The RLA beieves the same principe coud be adopted for onger tenancies. 5.1.2 At the heart of concerns that andords have about offering onger tenancies is the risk invoved in them having to shouder the cost of a tenant not paying their rent as proonged processes are foowed to regain possession of a property. 5.1.3 Such risks have been heightened consideraby by the decision to restrict mortgage interest reief to the basic rate of income tax and tax a andord s turnover rather than their profit. 5.1.4 The Sheffied Haam University research cited earier found that 52% of andords woud be more ikey to rent to younger peope if tax reief was offered for the provision of onger tenancies. 18 Ba, Michae, Investing in private renting, November 2011, page 11, avaiabe at http://www.iut.nu/literature/privaterenta/investing-in-private-renta-housing_2011.pdf. 19 Department for Communities and Loca Government, Engish Housing Survey Headine Report, 2015-16, March 2017, page 18, avaiabe at https://www.gov.uk/government/upoads/system/upoads/attachment_data/fie/595785/2015-16_ehs_headine_report.pdf
5.1.5 Such a change coud be poiced by inking it to the issuing and signing of an agreed tenancy agreement that set the tenancy at two years or more without the abiity to terminate the tenancy inside that period, other than for tenant defaut. 5.2 Tacking Mortgage Lenders Preventing Longer Tenancies 5.2.1 The Government shoud work with the industry to identify and address the barriers preventing andords from offering onger tenancies, especiay mortgage enders. 5.2.2 Research by the RLA has found that neary 1 in 4 andords identified that they had mortgage conditions that restricted the maximum tenancy ength. Despite promises from enders, itte progress has been made on this issue. 5.2.3 We suggest that mortgage enders be asked to change their ending terms so that they wi not object to tenancies of ess than three years. 6.0 SUPPORTING TENANTS INTO HOMEOWNERSHIP 6.1 The 2016 Budget cut the 28% rate of Capita Gains Tax to 20% for everything other than residentia property. As the Red Book at the time noted, this was about incentivising investment in companies rather than property. Given the pressing need for housing, we woud argue that investment in homes is equay, if not more, important. There is no need or justification to appy artificia pressure to individuas to ater their investment decisions. In addition, it is impracticabe for those who have substantia property investment to simpy move that into investment in stocks or bonds given the onger period of time needed to remove tenants and se property. The two investments are not options between which individuas can casuay re-aocate funds. 6.2 As the RLA s and RICS research have found, many andords are now considering reducing their number of properties or eaving the sector atogether. This coud be for a variety of reasons, incuding age and andords finding the business of renting more difficut owing to increasing cost and reguatory pressures. 6.3 In ight of this, and given the Government s objective to support home ownership, we beieve that changes to the Capita Gains Tax regime coud encourage andords to dispose of their properties in a way that meets the Government s poicy objective. 6.4 The RLA beieves that where a andord is prepared to se a property to a sitting tenant the 20% rate of Capita Gains Tax shoud be appied. 6.5 DJS Research findings for the RLA report that 77% of private andords woud consider seing their property to tenants if the tax iabiity was waived. This woud suggest that many might be encouraged if the tax iabiity was reduced. The waiving of CGT in such circumstance is supported by the Roya Institution of Chartered Surveyors and the Association of Residentia Letting Agents. If the government is desirous of some andords eaving the sector, encouraging them to se to tenants rather than to other investors provides a route for those tenants into home ownership. 6.6 Protections coud incude a condition that the tenant purchasing the property has been in occupation for at east a year. This woud prevent fase tenancies being granted to prospective purchasers on the day before competion. A requirement coud aso be incuded that the transaction woud have to be for a market vaue. This woud hep to ensure that the transaction is rea and is not being used to reduce CGT on some other taxabe transaction. 6.7 This change aso opens up the possibiity of smaer andords seeking to emuate the rent to buy modes currenty being offered by some institutiona andords. Landords coud purchase property and rent it to tenants with the intention of utimatey seing to them and benefitting from a reduced CGT iabiity if they did so.
6.8 In addition, we beieve that tenants coud be supported into homeownership by working with credit rating agencies to incude rent payments as a standard part of cacuating credit scores. Over 60% of andords have expressed support for such a move according to the RLA s research. 6.9 Under the current system of not incuding rent payments, tenants who have paid their rent in fu and on time, potentiay for many years, are not getting the recognition they deserve when appying for a mortgage. 6.10 Such a move towards incuding rent payments in credit scores woud then not ony hep tenants, but woud support andords to better understand the rent history of a prospective tenant. 7.0 SUPPORTING ENERGY EFFICIENCY IMPROVEMENTS 7.1 Under the terms of the Energy Act 2011 and subsequent secondary egisation, as of the 1 st Apri 2018 there wi be a new ega requirement for a newy et properties and tenancies that are renewed in the private rented sector to have an energy performance rating of E or above on an Energy Performance Certificate (EPC). A existing tenancies wi need to meet these standards by 1 st Apri 2020. 7.2 According to the Engish Housing Survey for 2015/16 20, 6.3% of a private rented properties are rated on an EPC as either an F or G, down from 26.9% in 2004. 7.3 In 2014, the UK Green Buiding Counci estimated that it woud cost an average of 1,500 to bring rented properties rated F or G to the required standards 21. It noted aso that bringing a rented property up to a band E woud save tenants an average of over 400 a year in energy bis. 7.4 The private rented sector faces a unique chaenge in meeting the energy efficiency requirements given how od much of its stock is. The Engish Housing Survey notes that 34% of a homes in the sector were buit before 1919, representing a higher proportion than both the owner occupied and socia rented sectors 22. Properties that are this od tend to have soid was, making insuation much more difficut. The Federation of Master Buiders has noted 23 : When it comes to working on a typica Victorian house or home buit before 1919 - when cavity was started to be popuar there are many amazing things buiders can do with these properties. There are aso some nightmares you can easiy infict on your cients. Many buiders do not reaise the consequences of using modern materias and techniques on oder brick-buit, soid-wa houses sometimes caed traditiona buidings. Traditiona buidings perform very differenty to modern housing. This means that treating a traditiona buiding the same way you woud treat a modern buiding can be a big mistake. 7.5 Inaccurate Energy Performance Certificates 20 Department for Communities and Loca Government, Engish Housing Survey Headine Report 2015-16, avaiabe at https://www.gov.uk/government/statistics/engish-housing-survey-2015-to-2016-headine-report. 21 UK Green Buiding Counci, Minimum energy standards wi cost andords ess than 1,500 per home - and save tenants 400 a year on energy bis, 10 th June 2014 avaiabe at http://www.ukgbc.org/news/minimum-energystandards-wi-cost-andords-ess-%c2%a31500-home-and-save-tenants-%c2%a3400-year-energy. 22 Department for Communities and Loca Government, Engish Housing Survey Headine Report 2015-16, page 25, avaiabe at https://www.gov.uk/government/upoads/system/upoads/attachment_data/fie/595785/2015-16_ehs_headine_report.pdf. 23 Federation of Master Buiders, Why Buiders Shoud Treat Oder Houses Differenty To Modern House, 19 th Juy 2016, avaiabe at http://www.fmb.org.uk/about-the-fmb/buiders-bog/archive/why-buiders-shoud-treat-oderhouses-differenty-to-modern-houses/.
7.5.1 In order to meet the Government s targets it is crucia that andords can have confidence in the ratings provided for a given property on their energy performance certificates. It is therefore, worrying that the Buiding Research Estabishment has warned that 100,000 properties have been given incorrect F and G cassifications as a resut of understating the energy efficiency of homes with soid was and uninsuated cavity was 24. 7.5.2 The probem was acknowedged by the then Minister responsibe for this poicy, Baroness Nevie-Rofe, who, in a etter to the RLA dated 22 nd October, wrote: I note aso your question regarding the accuracy of EPC and the work to ensure that properties are correcty rated. I agree that this is crucia, and we are hoping to be abe to consut shorty on proposed amendments to the methodoogy which underpins the EPC ratings, taking account of the recent BRE findings. Athough there is no fina timetabe at this stage, it is our intention that the changes to the EPC methodoogy wi be in pace before the minimum standards take effect from Apri 2018. 7.5.3 We are concerned that the process of consuting on changes to the methodoogy, foowed by a response from the Government, wi not give sufficient time for andords to get their houses reassessed before the Apri 2018 deadine. 7.6 Financing Energy Improvements 7.6.1 A key chaenge ahead of 2018 is to estabish the framework within which improvements shoud be paid for. 7.6.2 The Energy Act 2011 made cear that andords woud not have to spend more on energy efficiency improvements than the costs that coud be covered for such work under the Green Dea. We are concerned about the potentia for this principe to be abandoned as a resut of the decision to end the Green Dea. This woud sever the ink between the amount of savings generated by the work that is required and the cost of that work. As noted, given that much of the PRS stock is hard to treat, this makes energy efficiency work expensive, with the pay back in energy savings taking many years, if at a. 7.6.3 The decision to end the Green Dea foowed the decision in the March 2015 budget not to renew the Landords Energy Saving Aowance. This was imited to 1,500 per dweing and given to cover the cost of acquiring and instaing certain energy-saving items. 7.6.4 Prior to it being aboished, officias at the Department for Energy and Cimate Change had indicated that andords might be expected to pay 5,000 up front for the cost of improvements. We are again concerned that so cose to the impementation date of the energy efficiency reguations, there remains no financia framework in which to achieve them. As Baroness Nevie- Rofe noted in her etter to the RLA: The minimum standard 'cost cap' option being expored by officias under the previous government, was proposed as an aternative mechanism to enabe a reasonabe number of improvements to be deivered to F and G rated properties in the absence of Green Dea finance. No decisions have yet been taken on this proposa and we are currenty reviewing the materia received over the summer from a range of stakehoders, incuding the RLA, reating to potentia impacts on the renta sector. 7.6.5 To support the deivery of the Government s energy efficiency targets, we beieve that any work that a andord carries out to their properties which is one of the recommendations on an Energy Performance Certificate, shoud be tax deductibe. 24 RLA News, Fears over inaccurate energy efficiency ratings, 11 th January 2016 avaiabe at https://news.ra.org.uk/fears-over-inaccurate-energy-efficiency-ratings/.
7.6.6 This woud be sef-poicing, as the recommendations are made by a quaified energy performance assessor, and woud aso have a directy measurabe cost-benefit, as each recommendation comes with an estimate of its contribution to any reduction in energy bis. 7.6.7 We beieve that this coud be part funded by the 3.1 biion additiona revenue that the Office for Budget Responsibiity suggests wi be raised by 2021 as a resut of the Stamp Duty evy on additiona properties and homes to rent 25. 7.6.8 In September 2015, DJS Research carried out work for the RLA assessing the attitude of andords to various poicy suggestions. This survey comprised of 107 teephone interviews, acting as a contro group, together with 1,503 responses to an onine survey. It found that 88% of andords woud be more ikey to invest in energy efficiency measures if they coud be considered a tax deductibe repair. 8.0 DEVELOPING ON SMALL PLOTS OF UNUSED LAND 8.1 Landords, whether as individuas or as sma to medium sized companies, have a good record of investment in new buidings which incudes on sma pots of unused and. These pots are too sma to be of interest to corporate deveopers and they are often eft empty, becoming unsighty and magnets for anti-socia behaviour in a community. 8.2 Smaer deveopments can often be more appropriate and accepted by oca residents, whie arge deveopments are more ikey to receive greater objections. 8.3 The need to focus on sma pots of and in this way was highighted most ceary in the recent joint report on the subject by the Loca Government Information Unit and the Federation of Master Buiders 26, which noted that we wi not buid the homes we need in the UK on arge sites aone. 8.4 As part of this report, a survey of oca authority panning officers and eected members with a responsibiity for panning and housing from Engand, Scotand and Waes was carried out. They reported that: Just over haf of the respondents to the oca authority survey said that ess than 40 per cent of housing units woud be deivered on sma sites. Five per cent of respondents said that no units in their oca pan woud be deivered on sma sites. A fifth said that more than 40 per cent of homes woud be buit on those sites and 8 per cent said that over 80 per cent of their housing units in oca pans woud be. However, ten per cent said they cannot estimate and 14 per cent did not have a oca pan in pace. The survey aso showed that sma sites often come forward as windfa deveopments, or based on appications that are not reated to the oca pan itsef. 8.5 The RLA proposes that oca authorities and pubic bodies, such as the Ministry of Defence and the NHS, shoud be encouraged to identify sma pots (suitabe for up to five units of accommodation) of unused pubic sector and for deveopment by the private rented sector. 8.6 There coud be various modes for and transfer: The pubic owner of the and retains ownership of the and and receives a share of the renta income that refects the and vaue as an overa proportion of the deveoped property. 25 Office for Budget Responsibiity, Economic and fisca outook November 2016, 23 rd November 2016, page 236, avaiabe at http://cdn.budgetresponsibiity.org.uk/nov2016efo.pdf. 26 LGiU and FMB, Sma is beautifu - Deivering more homes through sma sites, December 2016, avaiabe at http://www.giu.org.uk/wp-content/upoads/2016/12/sma-is-beautifu.pdf.
The and is transferred for payment once the buiding has been erected or converted and competed. This woud mean that the andord woud not have to finance the and purchase up front, avoiding paying the hoding costs. The and is hed back on a onger ease for the covenanted private renta period. This woud mean that the andord woud not have to finance the and purchase at the outset. This mode woud encourage the andord to buid new units and improve property standards, rather than buy oder, cheaper stock. Leasehods of 125 years woud create equity for enders. 8.7 Under these pans there woud be a minimum 10-year requirement for renting out in the private rented sector. No affordabe housing contribution woud be required and there woud be an exemption from Community Infrastructure Levy. 8.8 At the end of the 10-year period, the andord woud be expected to refinance, but equay they woud be free at that point to se and the user restriction woud be ifted. 8.9 The overa intention of such a proposa woud be: To create new renta units (new-buid or conversion) to increase suppy. To provide extra revenue for oca authorities from the New Homes Bonus and counci tax by bringing dereict and into use. To support sma-scae, oca buiders. 8.10 Packages coud be offered with outine panning permission for residentia use to encourage rapid deveopment. 8.11 The DJS Research for the RLA found that 46% of andords woud be interested in deveoping on sma brownfied sites, of which 52% woud be interested in deveoping up to 10 homes on a site. For further information, pease contact Ed Jacobs on 0113 278 0211 or emai poicy@ra.org.uk Visit www.ra.org.uk or foowing the RLA on twitter @RLA_News