Local London renting under COVID-19

This new report, produced by Kath Scanlon and Fanny Blanc at LSE London, and funded by Trust for London, explores the effects of policy changes to the lower end of the London rental market, where tenants are least able to exercise choice. The research methods included mapping, site visits, online surveys and a qualitative interviews.

Over the last 20 years the housing system in England, and particularly in London, has come increasingly to rely on the private rented sector to house low-income households who cannot be accommodated in social housing. Over the same period, governments have enacted a set of new regulations and taxes affecting private landlords, most of whom are individuals with only one or two rental properties. This project aimed to explore the effects of these changes on the lower end of the London rental market.

Key findings

  • This research tested local authority registers’ use as a research tool. This was not straightforward: even accessing the lists was difficult in some boroughs, despite their legal status as public documents, and those we did secure were structured in different formats and on different software.
  • It focused on three small neighbourhoods of London--Thamesmead, Ilford and Walworth/Old Kent Road—that were covered by selective licensing. Although all three are selective- licensing areas, they are very different in terms of housing stock, market pressure, tenants and landlords. The general patterns of property types, tenants and rents confirmed our expectations: smaller, higher-cost properties in central areas catered mainly to smaller households and sharers, with cheaper family-sized properties in peripheral areas. Rents broadly reflected accessibility, with the lowest rents in Thamesmead where public transport is poor.
  • The registers themselves contain relatively limited information, but even so reveal interesting differences across the three areas. Landlord ethnicities reflect the demographics of the respective neighbourhoods: landlords in Thamesmead were more likely to be of Black African ethnicity, judging by their surnames, while those in Ilford were more likely to be of Asian ethnicity. Landlords tended to live in the same area as their rental properties except in Walworth/Old Kent Road, where the number of properties registered to letting agents may indicate a higher involvement of overseas investors.
  • Despite our society’s growing albeit unintentional reliance on the PRS for housing lower-income households, relatively little is known about the landlords operating in the lower end of the market. Our survey gave us some indications, although many of the landlords who responded to the survey were not working in what we defined as the lower end of the market, because even in selective licensing areas there is often a mix of lower-end and more expensive properties (even luxury homes, in more central areas), as London’s residential landscape is so mixed.
  • In each area, landlords were mainly local, and their ethnicities coincided to a great extent with the neighbourhood demographics. It seems then that South Asian landlords were likely to be housing south Asian tenants in Ilford, while Black African landlords might be housing Black African tenants in Thamesmead, but further research is needed to evidence this.
  • In both surveys, landlords identified the modified tax treatment of mortgage interest as the change that most affected their business plans, not then-prevailing Covid restrictions. Some landlords said tax changes could motivate them to sell up; others reported feeling trapped by the high level of capital gains tax. When the survey was taken, interest rates were very low but since then the macroeconomic situation has changed. Mortgage rates are likely to increase over the next year as the Bank of England raises rates to address dramatically higher inflation due to the war in Ukraine, and with increased mortgage payments but limited tax deductibility more landlords with mortgages may consider whether they want to remain in the business. Note, though, that only a minority of landlords in our survey, as in the UK-wide survey, reported having a mortgage.
  • On the evidence from this survey, only a minority of landlords saw their income affected during the pandemic when tenants, affected by the financial pressures occasioned by Covid, paid their rent late or in part—in some cases with the agreement of the landlord. There were similar findings from the 2021 survey of landlords across the country. Even at the height of the pandemic landlords reported that tax changes would have more effect on their businesses than Covid, again a finding that echoed the 2021 survey.

Policy and research recommendations

  • The many taxes, regulations and incentives affecting the PRS do not form a coherent framework for the sector, and their goals are poorly understood by landlords. Policymakers should set out their vision for what part the PRS, and private landlords, should play the housing system, and review the various policy instruments in the round to ensure they contribute to achieving that vision.
  • The PRS increasingly accommodates lower-income households and families with children, who benefit most from certainty about their housing. Government should work with tenants, landlords and other stakeholders to develop policies that incentivise small landlords to provide the tenure security they need.
  • Government should reconsider the purposes of licensing and how best to achieve them— especially as it has announced that it will consult on introducing a national register (DLUHC 2022). Registers should be designed to enable local authorities to communicate with landlords more easily. The current regime is poorly targeted, if the goal is to improve the worst properties. Local authorities themselves decide whether to adopt licensing; that decision seems to relate as much to political control as to conditions in the PRS. In any case licensing alone cannot address poor-quality landlords or anti-social tenants; it must be coupled with well-informed, timely enforcement and routine inspection.

Topics for future research include

  • How to monitor the changing composition of the PRS in local areas, and what this means for low-income tenants
  • Comparative research into the characteristics of the PRS in neighbourhoods with different ethnic profiles –are there culturally specific patterns of demand and supply?
  • The role of letting and managing agents in letting property to lower-income households

June 2022