The Private Rented Sector – a crisis which will drag on and on?

As part of our investigative series of blog posts exploring housing issues, the LSE London team looks specifically at the Private Rented Sector and what the impact of the evictions suspension means for tenants as the system returns towards normal.

On 10 March 2021, the government extended the requirement that landlords give six months’ notice of the intention to evict for an extra two months until 31 May. At the same time, they extended the general ban on bailiff enforced evictions. They also implied that they would provide a road map to normality.

Whilst this was a huge relief for tenants in precarious situations in the midst of the pandemic, what normality means is unclear. At least four issues need to be clarified:

  1. How many people might be at risk of eviction?
  2. Can the courts cope?
  3. When will ‘normality’ return?
  4. What changes need to be made?

How many people are at risk?

The most important issue relates to the numbers in rent arrears (as more egregious problems have, at least in principle, continued to be processed).

In the latest reports from the Resolution Foundation and theNational Residential Landlords Association (NRLA), there is a surprising amount of agreement about the numbers of tenants facing rent arrears.

First, and consistent with past evidence, both agree that over 90% of private tenants have been paying their rent regularly and in full.

Second, the Resolution Foundation suggests that around 6% of private tenants were in arrears in January –around twice the ‘normal’ proportion. (They also noted that the figure in the social rented sector - where there have been very few eviction notices issued - was very much higher, at around 9%).

The NRLA’s One Year Review figures suggested a somewhat higher arrears figure (7%, based on a sector wide tenant survey) which would imply some 320,000 tenant households in arrears across England and Wales. Importantly, however, they also suggested that over 10% of private tenants were now unemployed, probably the major reason for arrears.

Looking forward, predicted UK unemployment rates in late 2021 have been revised downwards by the Monetary Policy Committees to 5.5% only 0.5% higher than the 4th quarter of 2020. Assuming – a strong assumption – that private tenants are twice as likely to be unemployed compared to the overall average (as implied by the NRLA figures) this could equate to an unemployment rate of 11% among private tenants at the end of 2021. Making an even stronger assumption that rent arrears will move in a similar way would suggest that a minimum of 350,000 tenant households might be in arrears at the end of the year. However, the MPC estimate reflects a considerable drop in participation rates and considerable optimism about the extent to which those who have been furloughed keep their jobs – and continue to receive the same rates of pay. Given that many private tenants are relatively new to the employment market both assumptions seem over-optimistic. A more reasonable assessment might be some 400,000 tenants (9%) unable to pay their rent.

However, many tenants in arrears simply move on, perhaps back to Mum and Dad or to sofa surfing, or even leave the country. We know very little about these dynamics but it is likely that many will have left unpaid arrears. Already a third of all NLRA members say they have lost more than 10% of their rental income.

For those still living with arrears, many will be piling up debt. The bigger the debt, the more likely that the tenant will have to move on, either voluntarily or as a result of formal eviction procedures.

The other likely source of evictions is under Section 21 - the no fault eviction clause. Most Assured Shorthold Tenancies will have run out during the pandemic and landlords will therefore have had a choice as to whether to renew or to allow the tenancy to become periodic, presumably based in part on whether the tenant is paying the rent. NRLA figures suggest that nearly 40% of landlords have not renewed at least for some of their tenancies. If the contract has not been renewed, eviction notices may already have been issued but cannot be processed for 6 months thereafter. Then, as with rent arrears of over 8 weeks, the landlord needs a court order to proceed further.

Can the courts cope?

The answer has to be no. In mid-2020 private landlord claims were running at only about 15% of normal rates but it was still taking three times as long even to get an order. Despite an increase in claims in the final quarter of 2020, the six months’ notice requirements put in place last September mean that most potential claims under either Section 21 or Section 8 will not get to court until at least the second quarter of this year. The time taken to get an order, let alone to reach repossession (42 weeks at the end of 2020) is unlikely to decline, implying that most cases entering the system now will not be completed until 2022. The courts are far from returning to normal.

How many of those in rent arrears will actually go through the full court process? The courts are the last resort for both landlords and tenants. Most tenants will either find a way of paying back the arrears (e.g if they find another job), come to some other agreement with their landlord, or will voluntarily move on. On past experience, less than half of those in arrears actually get as far as a formal claim and maybe only a third of those subject to formal eviction processes result in repossession.

The situation is very different with respect to Section 21 claims. Landlords who have been unhappy with their tenants over the last year have to weigh their concerns against the costs of finding another tenant – and indeed the cost and delay in achieving a court order. How that balance will work out is unknown – but significant proportions of tenants are at risk.

In 2019 there were about 45,000 to 50,000 claims submitted by private landlords. The median time from submission to repossession was around 5 months but many took a lot longer (indeed the mean time was nearer 10 months). Based on our estimates of those in arrears at the end of 2021 at least double this number could potentially be subject to court proceedings during this year. But a doubling of the numbers is also likely to imply at least double the processing time –meaning large numbers of landlords at the end of 2022 will have been waiting more than a year for possession and many more will continue to wait for longer.

There are two ways to speed up the process:

  • If social landlords who pre-pandemic brought the majority of eviction cases continue to delay starting eviction proceedings, more space would be left for private landlord cases.
  • Putting a lot more resources into the courts.

When will ‘normality’ return?

Up to now, the result of the policy has been that tenants who would otherwise have been evicted have been allowed to remain, all the while racking up debt. Nothing has been done to help landlords facing significant losses from arrears. Recommencing evictions will not alleviate this issue for many months and worryingly will place tenants in the position of having a poor credit record, damaging their future opportunities in more than just housing.

Lower rental incomes could also lead to a significant restructuring of the private rental sector (NRLA data suggest over a third of landlords expect to reduce investment or leave the market altogether), making the future more uncertain.

Normality, even with respect to court proceedings, appears to be at least two years away and possibly more. In reality for most tenants achieving normality will fundamentally be their own responsibility –by getting a similarly or higher paid job, and/or by finding lower cost accommodation – with family, sharing or moving. For landlords, moving towards normality may imply forgiving rent arrears if the tenant has found a way of paying current and future rents.

The main lesson is – however large the numbers technically at risk of formal eviction, with a stalled legal system almost everyone has actually been left to fend for themselves. Thankfully, for the vast majority of landlords and tenants, normality will return, but this is largely the result of goodwill rather than policy - with the worst cases merely being kicked down the road.

What changes need to be made?

We would recommend:

  1. Section 21 evictions should be stopped immediately rather than waiting another year or more to implement the government’s promise.
  2. Court proceedings for egregious cases including six months plus rent arrears must be speeded up, ensuring timelier processing.
  3. As promised by the government, a version of the pre-action protocol for social landlords for the private sector should be put in place for all notices of eviction issued from June 1st.

This would leave existing problems to be addressed, notably rent arrears of less than six months on 31 May. Many tenants in this position are young and often either part-time or self-employed, and have had little government help during the crisis. It is here the government must act, providing low interest rate loans to tenants wishing to clear their arrears and able to prove that the money is going to pay off the arrears accrued up to that date.

Into the future, the case for maintaining the maximum LHA at 30% is overwhelming – raising it back to 50% would also probably be cost effective; the same applies to the £20 Universal Credit uplift which has clearly helped reduce indebtedness and allowed people to buy other essentials, especially in high-cost areas such as London. The welfare cap also needs to be re-assessed in the light of high housing costs.

Many tenants with arrears will not be eligible for Universal Credit or it will not provide enough to enable them to stay in their current home. The higher levels of Discretionary Housing Payments that have been put in place have helped and should be maintained.

But also people facing eviction should be encouraged to go to their local authority for help as soon as they receive notice - as more can be done to prevent homelessness if people come forward as soon as the problem emerges.

11 May 2021

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Access the full supporting study - Homelessness and rough sleeping in the time of COVID-19

Read the previous blog post in this series - Homelessness in a time of COVID-19 - the need to take action now

Read a supporting blog post on LSE's site on the Everyone In initiative - Everyone In - the numbers