Tackling Low Demand for Private Housing - Assignment Example

CRITICALLY APPRAISE THE POLICIES THAT HAVE BEEN USED TO TACKLE LOW DEMAND FOR HOUSING IN THE PRIVATE MARKET Name Course Institution Date Table of contents INTRODUCTION The private rented sector has seen a decline for the last many decades and this has been observed, since 1919, its share of the housing stock. It has been speculated that even with the control of the private sector, this decline has been consistent. The stakeholders have not given up however and as a result of this, there have been efforts to craft some policies to make sure that this tread is reversed. Demand is an economical term that is mostly used together with the term supply (Vienneau 2005). These terms are used to determine price of commodities (goods and services) in the market. In a free market, the cost and price of commodities supplied interplay and varies consistently and this goes on up to a point where a balance is established between the two variables (Vienneau 2005). In this regard, low demand for housing in the private sector depicts that tenants are not willing or able to rent the houses at various prices hence they could prefer to go for alternative options like public housing through local authorities like municipal councils. The problem was actually noted for the first time in 1974 when there was a survey of all local authorities investigating how many difficult to let properties they had (Power 1984). This paper is going to evaluate the policies that have been developed and deployed to counter this low demand of housing in the private market. CAUSES FOR LOW DEMAND FOR HOUSING IN THE PRIVATE MARKET Actually there are numerous reasons for low demand for housing in the private market. Estates in the private market are hard to rent and the solution to some of the cities has been to pull down these estates. For example, in Liverpool and Hulme in Manchester, the piggeries high rise blocks have been pulled down (Allen 2008). Vacant rates are lower in public sector as compared to the private sector because when one person leaves, another one comes in to occupy the vacancy immediately and it has been observed that the longer the houses are left empty they get prone to many risks of damage like vandalism, theft of fixtures and fittings (Karn, Kemeny, & Williams 1985). Moreover, the moment they are spoilt, no one bothers to rent spoiled houses unless the landlord is swift in repairing them; which of course will involve a lot of expenditure in repairing and maintaining (Karn, Kemeny, & Williams 1985). There’s also the issue of large scale operations of some landlords being unscrupulous and being part of criminal acts like; housing benefit fraud, prostitution, drug dealing among others (Nevin et al. 2000). This destabilizes local communities, creating socio-economic problems and hampering effort at regeneration. These landlords not only make their tenants life difficult but they do also offer homes to anti-social households involving those who have been excluded due to their bad behaviors from neighboring social housing (Nevin et al. 2000). This company of Landlords and tenants who cannot be trusted create problems among themselves that prevent interacting. Rent control in the private sector, which involved the British government with affordability in rental housing during the 1914-1918 war, led to severe housing shortage (Leather et al. 2007). Much later, there followed rent regulations with introduction of fair rents, which was meant to prevent exploitation of tenants by landlords but allowed their landlords to make a decent return on capital (Leather et al. 2007). But since early 1972, private sector tenants have been eligible for housing benefit that assists them to meet their rents (Power 1984). Although this rent control made private rented housing cheap, it also had its own disadvantages because it had no incentives to landlords to repair or improve their property (Power 1984). This discouraged landlords from providing rental housing and rent controls were at levels which prevented landlords getting returns on their investment. The effect was, landlords required to subsidize tenants other than dealing with just exorbitant profits. Even when these rent controls have been removed, there’s still the fear that, probably another government would re- impose them (Leather et al. 2007). During the periods that follow after wars, owner occupation has been made attractive by inflation; due to mortgage payments on loans taken out in back years in real terms while the rent rise (Ball 2005). For all this period, landlords have been able to make substantial capital gains while tenants do not. Also due to low incomes from tenants, ownership has been of high attractiveness and those who have not entered into it have tended to be the poorest people; who cannot afford a rent that can assure landlords good rates of return. Due to legal security of tenure of tenants, landlords are unable to sell at time of their choice hence a disincentive to invest in rental housing and an incentive to sell anywhere when the house is vacated or to sitting tenants. The increased de facto insecurity of tenants, due to gap in price between tenanted and vacant property, has given an incentive to speculators to buy tenanted property (houses) and then sell to owner occupiers. There has been an incentive to persuade the tenant to leave or to harass them into doing so, hence discouraging them. The subsidizing social housing by local authorities and housing associations have allowed landlords to provide housing at lower rent to tenants which has caused low demand for housing in the private market.( Power 1984) Poor public image of private landlords (Rachmanism) has greatly discouraged the government from helping them, tenants willing to rent their houses, respectable organizations like building societies willing to invest in them or being landlords like themselves et cetera (Spicker 1987). At the same time, British governments have been unwilling to provide subsidies for private landlords except the improvement grants. This has been partly due to poor image. The 1924 Housing Act was the only subsidy to private landlords. In the USA and on the continent at large, larger subsidies like tax allowances have been provided to private landlords. The poor repair and maintenance has greatly given private renting a poor image leading to low rents, low incomes of tenants and lack of tax incentives; which have provided a disincentive to landlords to start investing in repairs and improvements. Grants are meant for remedial work and not preventive. In any case the rents landlords could charge would never be adequate to cover up the costs of improvements. Speculators have also argued that landlords formed an attitude of improving with grants and then selling for home ownership. As a result of political uncertainty about the future of the sector, landlords have also developed fear of greater control or abolition, which increases the returns, required if at all they are to maintain their business. The deep seated nature of the decline and the complexity of these causes tend to suggest that these problems are not amenable to cheap policy change like deregulation, that is, ending of rent controls and the security of tenures (Coleman et al. 1985). The underlying causes, relate to the relative positions of renting privately or renting from the government through the local authority (Coleman et al. 1985). Lack of community facilities like shops, health centers and others, is not likely to attract tenants to rent the kind of houses away from such facilities. Heating and ventilation as well will make tenants choose to rent a certain house or not. Landlords of poorly heated and ventilated houses are not likely to attract tenants. This continues to pull down the private housing sector. The same applies to garbage collection. Garbage collection usually costs people a lot of money in removing large items of rubbish and only a few of these tenants can afford cars and trailers for this job, hence the landlord must ascertain means through which garbage will be getting out of these houses (Nevin et al. 2000). Noise is another possible cause that can keep away tenants. No one will prefer to stay in a noisy place especially families with young children hence the landlords must ensure their houses are located in noise free areas like away from worship centers, markets, and entertainment zones like pubs and clubs. POLICIES USED TO TACKLE LOW DEMAND FOR HOUSING IN PRIVATE MARKET Various policies have been used to tackle low demand for housing in the private market. Among these policies, we have; the 1957 rent act which is an attempt by the Macmillan government to stem the decline (Nevin et al. 2000). For this reason, private renting became minority tenure for the very first time. It involved a good size of degree of decontrol that weakened the security of tenure of tenants and raised permitted rent levels but landlords remained in disinvestment (Cole & Flint 2007). On top of that, landlords started harassing tenants in trying to take advantage of the deregulation of new lettings but existing tenants were protected (Leather et al. 2007). This was the period during which the term Rachmanism was given much meaning or coined and as a result; the landlords’ image was even worsened (Cole & Flint 2007). In 1965, governments’ new system of rent regulation started fair rents to be fixed by a rent officer and its work was to strike a balance between the interests of landlords and tenants (Cole & Nevin 2004). Its objective was to give tenants security of tenure and at the same time allows landlords regular rent increases. This although applied to the unfurnished but not the furnished sector, so landlords started to convert lettings to furnished. In the Housing Finance Act of 1972 (Cole $ Nevin 2004), a fair rent system of controlled tenancies was brought by the conservative government. It also introduced housing allowances; which are nowadays referred to as housing benefit for unfurnished tenants and in 1973 for the furnished tenants but the take up was still low (Page 2006). But this had no effect on the low demand or declining of the private rented sector. There was such a big boom in house prices that led to landlords selling everything they could. It also made furnished tenancies to be increasingly converted into bed and breakfast accommodation where higher rents were charged including income for services as earned income at lower rate (Page 2006). In the 1974 Rent Act, labor extended a considerable rent and security of tenure to the furnished sector. A reaction to 1971 study which is a problem of homelessness marked by many evictions from the furnished letting, had the impact of drying up supply more and more property being converted to bed and breakfast hotels (Page 2006) In summary, the low demand of housing continued whether there was control or decontrol. During the conservative period of decontrol which was from 1957 to 1960 and the decline were 290,000 units per year. In 1975-1978, with much control, it was 100,000 (Coleman et al. 1985). THE EFFECTIVENESS AND THE INEFFECTIVENESS OF POLICIES USED TO TACKLE LOW DEMAND FOR HOUSING IN PRIVATE MARKET There were effective policies put forward to tackle low demand for housing in the private market. For example, there is the 1980 Housing Act that provided for minor changes and major changes. The minor changes included; easier rules for gaining possession of resident landlords as compared to the previous ones, the remaining controlled tenancies that were being reflected in the 1965 act, were changed or converted into regulated tenancies (Coleman et al. 1985). Further, there was reduction of phasing increases in fair rents from three years to two years. Among the major changes, there was the introduction of the short hold which is a new form of tenancy. Tenancies were regulated from one to five years giving landlords the power to regain possession after the fixed term. Previously, they had to have a fair rent registered immediately, that is, after 1981 in London and 1987 elsewhere (Cole & Nevin 2004). There was introduction of assured tenancies for the newly built properties of approved landlords and were to be let at market rents and not subject to rent regulation (Cole & Nevin 2004) Since the 1965 rent act, the ineffectiveness of these policies is; they were based on the view that the difficulties of the private rented sector related to controlled rents and security of tenure. It did not address the gap between a reasonable return on investment and the ability of tenants to pay and also the competition from the subsidized costs of owning a major problem (Nevin et al. 2000). At the beginning, short hold tenancies were not widely adopted since many landlords were already getting round the security of tenure and far rent arrangement in the rent acts through issuing of licenses instead of tenancies. However in 1985, there was a House of Lords decision that undermined the practice and this made it easier for landlords to adopt short holds extensively. Although they accepted the fair rent arrangements, they were not able to gain possession. But the assured tenancies on newly built property failed, where the government had put a lot of hope to attract financial institutions to become approved landlords (Nevin et al. 2000). The 1982 budget capital allowances that were introduced by sir Geoffrey Howe for an experimental five year period began to prove attractive to landlords but in the 1984 budget, Nigel Lawson phased them out again in the so called, simplifying the tax structure but the department of environment was not consulted(Ball 2005). Only 217 organizations had received approval by 1987 and only a few financial institutions and only 742 houses were built for letting as assured tenancies by then (Ball 2005). On the side of rent, registered fair rents arose but never enough to provide a competitive rate of return hence the low demand for housing in the private market continued. Reasons for The effectiveness or the ineffectiveness of Policies used to tackle low demand for housing in private market Various reasons for the effectiveness and ineffectiveness of policies to tackle low demand for housing in the private market were also seen. A few of these reason are; in 1985, the government considered removing rent regulation from all new tenancies including the already existing and the newly built homes, and these were rejected probably for two reasons which were; costs of increased rents for housing benefit and the political unpopularity of private landlords (Spicker 1987). The department of social security, which was under pressure to reduce its expenditure, was given the responsibility of housing benefits. The department was also to be responsible for conflicting objectives of departments and of government itself (Spicker 1987) In 1986, all assured tenancies were extended to refurbished property and newly built. On the same year, restriction on building societies owning houses and land was lifted (Allen 2008). Initially they had to act through unregistered housing associations. There were discussions held with them concerning the taking over of council estates (abortive). In 1987, the local government Act of 1987 gave local authorities discretionary power to provide financial assistance to private landlords letting on assured tenancies (Allen 2008). On the same year (1987), the Housing White Paper signaled the shifting away from almost all concentration on owner occupation towards an additional objective of demunicipalising of the rented housing. This was in two parts; to change arrangements for the housing association sector so as to make them more like private landlords or the independent rented sector, and the other one was to promote demand for housing in the private market (Leather et al. 2007). It was agreed that, due to the attractions of home ownership, the role of private renting would be particularly concentrated on ready access housing and to help labor movement. The view remained to be that, rent control and security of tenure were the causes of decline, so the legislation proposed advocated that all new lettings should be deregulated (Leather et al. 2007). The 1988 Housing Act came into force in 1989 and proposed that all new tenancies should be assured tenancies or assured short hold tenancies and the minimum period for a short hold was to be reduced to a half year from a year (Karn, Kemeny, & Williams 1985). The grounds for possession for landlords were strengthened and there was abolition of approved landlord arrangement but existing tenancies were not affected. Harassment was introduced to take care of fears this deregulation would produce such as Rachmanism of the 1957 act (Cole & Flint 2007). By then, landlords had harassed existing controlled rent tenants out to enable them charge higher rents to new tenants or sell with vacant possession (Cole & Flint 2007). All rents on new tenancies were to be negotiated between landlords and tenants and not the rent officer but the government did not want too high rise in rent because of the housing benefit implications. As a result of this, an arrangement was to be made for rent officers to check the housing benefit. Since 1989, local authorities have referred new claims for benefit or deregulated tenancies to rent officer to decide whether the above reasonable market rent for accommodation or over large for the claimants reasonable needs (Karn, Kemeny, & Williams 1985). If either appears to be the case, the rent officer should determine a reasonable rent that will be used to determine the amount of housing benefit reimbursed to the local authority. Therefore, the department of environments conflict to desire to deregulate the private rented sector and treasury’s desire to maintain low public expenditure was resolved by a form of rent regulation for housing benefits tenants (Coleman et al. 1985). Due to rapid turnover in the private rented sector, deregulation is spreading very fast. The part with low turn over is the elderly unfurnished tenants and it is subjected to wastage as they vanish, but we know less whether the landlords will be encouraged by deregulation to keep the business or, as before, they will decide to sell as tenants leave. CONCLUSION In conclusion, low demand of housing in the private sector has a number of causes and under the new labor; remedies have been put in place to rectify these causes. For example; remedies like anti-social behavior initiatives target to promote social order while funds like neighborhood renewal fund and initiatives at local level will build up physical capital. The combined effect of these initiatives should be considered in relationship to new labors declared objectives like by 2021; no one should be disadvantaged by lack of a living place. Some research states that implemented attempts to promote balanced communities have achieved little success with little interaction between market price inhabitants and affordable housing inhabitants. Some researches by housing managers states that, what makes some estates of low demand to let and to live in, have demonstrated a consensus on important aspect, which is anti-social behavior in these areas. Anti-social behavior is the most witnessed vice that hinders renting in the private housing sector and it greatly affects the quality of life an d creates fear in tenants. As a result, it is important to note that most ideas put forward as reasons for low demand in the private housing sector; crime and anti-social behavior outdo them. The governments approach in reviving the private housing sector seems to be based primarily on deregulation which should not be the case. The government thought that failure to regulate the market would lead to this provision but that was not the case. Leaving out other problems like that of the incentives to home ownership, inadequate rate of return to landlords, tenants not being able to meet their rents, et cetera. Promotion of home ownership and reduction of public expenditure are other possible policies that could be conflicting with the policy of reviving the private housing market that the government should review. Reference List Allen, C 2008, Housing market Renewal and Social Class, Routledge, London. Ball, M 2005, RICS European housing review 2005, Royal Institution of Chartered Surveyors, London. Coleman, A et al. 1985, Utopia on Trial: Vision and Reality in Planned Housing, Shipman, London. Cole, I & Nevin, B 2004, The Road to Renewal: The Early Development of the Housing Market Renewal Programme, York Publishing Services, New York. Cole, I & Flint, J 2007, Demolition, Relocation and Affordable Rehousing, Coventry, CIH, Viewed 30 July 2011, . Karn, V, Kemeny, J & Williams, P 1985, Home Ownership in the Inner City: Salvatiojn or despair? Aldershot, Gower. Leather, P et al. 2007, National Evaluation of the HMR Pathfinder Programme, London, DCLG, viewed 30 July 2011, . Nevin, B et al. 2000, Changing Housing Markets and Urban Regeneration in the M62 Corridor, CURS, Birmingham, viewed 30 July 2011, < http://www.nwrhb.org.uk/%5Carticleimages%5Cm62%20study.pdf 11>. Power, A 1984, ‘Trouble in Utopia II, Rescuing Unpopular Council Estates through Local Management’, Geographical Journal, vol. 158, pp. 359-362. Page, D 2006, Respect and renewal: A Study of neighborhood social regeneration, Joseph Rowntree Foundation, New York Spicker, P 1987, ‘Poverty and Depressed Estates: A Critique of Utopia on Trial Housing Studies’, Vol. 2, no. 4, pp. 283-292. Vienneau, L 2005, ‘On Labor Demand and Equilibria of the Firm’, Manchester School, vol. 73, no. 5, pp. 612-619. Read More