In what Communities Secretary James Brokenshire described as 'the biggest change to the private rental sector in a generation', the government has announced a ban on so-called 'no-fault evictions' of tenants by their landlords. 'By abolishing unfair evictions, every single person living in the private rental sector will be empowered', Brokenshire claimed. The Prime Minister said that 'Millions of responsible tenants could still be uprooted by their landlord with little notice, and often little justification […] This important step will not only protect tenants from unethical behaviour, but also give them the long-term certainty and the peace of mind they deserve.' According to the BBC, this means that 'Private landlords will no longer be able to evict tenants at short notice without good reason'. Housing charities and tenants’ rights campaigners celebrated it as a huge victory.
It sounds great. Who could be in favour of evictions, let alone 'unfair' and 'unjustified' evictions? Who could be in favour of insecurity, of unfairness, or of unethical landlords?
The problem is that what supporters of this ban refer to as 'evictions' are not evictions at all. It is simply a decision not to renew an expired contract.
If you sign a fixed-term tenancy agreement with a duration of, say, one year, and if your landlord then tries to get rid of you before the end of that period – that would be an eviction. And that is, of course, already illegal, unless you have violated the tenancy agreement in a major way, such as by refusing to pay your rent, or wilfully damaging the property.
But the whole point of a fixed-term agreement is that it automatically comes to an end at a pre-set date previously agreed upon by both parties. Of course, it does not have to end at that date. It can be renewed, or extended, or converted into an open-ended agreement. But expiration is the default option, and deviating from that requires an active choice made by both sides. Neither side has an automatic right to continue the agreement beyond its expiry date. A fixed-term agreement which one side can continue indefinitely is not a fixed-term agreement at all.
Letting an agreement come to an end at the date it was meant to come to an end is not the same thing as actively terminating an agreement. If you have a temporary employment contract for the duration of one year, and if your employer does not want to renew it, your employer has not 'fired' you. If the EU had not agreed to the extension of the Article 50 period, the EU would not have 'expelled' Britain.
This is not a matter of semantics. By abolishing so-called 'no-fault evictions', the government is really effectively abolishing fixed-term rental contracts, or at least severely undermining them. Landlords are not a popular group, so any measure that is perceived as 'tough on landlords' is probably good politics. But you do not need to sympathise with landlords to see the basic economics of this. If you increase the cost or risk associated with any activity, fewer people will engage in that activity. Renting out a property is no exception.
London, in particular, is full of small-scale amateur landlords, who rent out an unused or underused property or part of a property. Hence the large number of basement flats, or self-contained studio flats within a larger property. For many of these people, the decision to become a landlord will be a borderline decision. They do have other options. They could use that basement as a storage room. They could use that studio flat as a study room. They could allow their children to live in that second property. The government’s move will almost certainly reduce the supply of rental properties, drive up its price, and make a bad situation worse.
Don’t get me wrong – I’m the last person in the world who would defend the status quo of Britain’s housing market, the failings of which I have been ranting about for over a decade. But this is the point: Britain’s housing market as a whole is broken, and you cannot fix this by fiddling with the rules governing one specific sub-sector within it. The issue must be tackled much further upstream.
Relative to population size, we are building far fewer new homes than any comparable country, and we have been for many decades in a row. We have some of the strictest land use planning laws in the world. Our housing policies revolve around the sensitivities of not-in-my-backyard (NIMBY) anti-development campaigners.
We need to substantially increase housebuilding levels, and flood the rental market with new properties to drive down prices. This is the way to break the market power of landlords. This would create a market in which landlords have to compete for good tenants, rather than taking them for granted.
Having a go at landlords is easy. But as long as the government ignores the fundamentals of the housing market, to which landlords owe their position of entrenched market power in the first place – it is also perfectly useless.
Kristian Niemeitz is Head of Political Economy at the Institute of Economic Affairs