This is the text of a speech Sir George made in Westminster Hall:
Sir George Young (North-West Hampshire) (Con): I congratulate the right hon. Member for Oxford, East (Mr. Smith) on his good fortune in securing the debate, on his choice of subject, and on the reasoned and persuasive way in which he presented his case. A long time ago I spent three years in the city that he has the privilege of representing. Whether the college that I occupied was a house in multiple occupation I am not quite sure; however, the issues that he has mentioned, of poor-quality accommodation outside the colleges, are as live now as they were then.
Housing is nearing the top of the political agenda at the moment, having spent quite a long time in the relegation zone. The Government’s ambitious target of 3 million homes by 2020 is looking increasingly ambitious. One could argue that of the three main housing sectors—owner-occupation, social renting and private renting—the one that we are debating is the only one operating effectively at the moment. Supply is way behind demand for social renting—below the levels of the 1990s. In the owner-occupation sector, builders have stopped buying land and are closing building sites, and mortgage finance is scarce and expensive. One could argue that the sector that is broadly in balance is private renting, with some 2.6 million homes being rented from more than 500,000 private landlords. Of course we need more good-quality rented accommodation, and since the market for private renting was liberalised in the 1980s there has been a continuing and steady expansion in supply. Indeed, I see from The Independent of 9 June:
“Demand for rental properties is at record levels”.
In a debate about the private rented sector, of course one needs to consider the issues of regulation that the right hon. Member for Oxford, East has touched on, but one should also look at the broader issues of the role of the private rented sector, to see what more might be done to encourage responsible supply.
I confess that when I saw that there was to be a debate about the regulation of the private rented sector a frisson ran through me, because we must not go back to the bad old days of statutory rent control and lifetime security of tenure, often lasting through two generations. There may be some who want to turn back the clock to regulation of that kind. I am delighted that the right hon. Member for Oxford, East did not make that case. With the housing market in the fragile state that it is now in, and with the need to reinforce measures to increase the supply of housing, we should not deter potential investors with unnecessary bureaucratic controls and regulations. Let us indeed have a sharp look at the abuses, some of which the right hon. Gentleman mentioned; but I need to be persuaded that the universal and rather bureaucratic registration scheme advocated by some is the right way forward, not least because I suspect that the costs would filter through to the tenants. In parallel with the issue of regulation that the right hon. Gentleman has raised, we should debate measures to promote the continued healthy growth and expansion of the private rented sector. It provides flexibility and choice and helps people in housing need. Indeed, with rents underpinned by housing benefit, the private rented sector has a key role to play in helping local authorities to meet their statutory obligations on homelessness.
The report of the Select Committee on Communities and Local Government, “The Supply of Rented Housing”, provides a helpful background to the debate. I found it a good and balanced report. I should have liked a little more on pages 96 to 98 about what more could be done to encourage the private rented sector, to balance the slightly longer section on how we might regulate it. However, in paragraph 308 the Committee says:
“We recommend that CLG investigate, in cooperation with the Department for Business, Enterprise and Regulatory Reform and the Treasury, reforming the taxation system and introducing other measures:
to promote greater institutional investment in the private rented sector”.
I want to spend a moment examining that proposition. Ever since the sector was liberalised in the 1980s there has been an imperative to get serious, respectable, long-term institutional funds invested in property for rent. If quoted companies and pension funds would invest in that sector of the market, that would provide responsible and stable institutional funding, underpinning or replacing the rather fragile investment to which the right hon. Member for Oxford, East referred. Of course they would employ good agents to manage the property—possibly registered social landlords. That would generate additional investment in housing.
The right hon. Member for Oxford, East focused on HMOs in Oxford, but I hope that he will forgive me if I consider the slightly broader aspect of his debate—the regulation of the private rented sector—rather than wandering around Headington, Cowley, Blackbird Leys and other attractive areas in his constituency. When the Conservatives left office 11 years ago most of the spadework for the new framework for the private rented sector had been done. We had consulted the Council of Mortgage Lenders, the British Property Federation and the City, and the response was very positive. There was all-party support for a new fiscal regime for what were called real estate investment trusts. There were models for the approach in other parts of the world, and this country pioneered investment trusts for shares. A REIT is in effect an investment trust for property.
After some delay the Government took the debate forward, and I give them credit for that. We had the Kate Barker report, and then in March 2004 the Treasury produced a consultation paper, which stated at paragraph 1.14 that a real estate investment trust
“structure in the UK would therefore set a challenge for the industry to encourage development of new housing, which could...be managed within”
a REIT structure. It continued:
“Improvements and expansion to this sector could enhance efficiency and flexibility in the housing market”
“The Government is keen to encourage greater renewal in the property sector, and the development of new...residential buildings”.
Finally, it said that the Government wanted
“to stimulate greater development activity in the residential market providing a vehicle into which new properties can be converted and managed more efficiently.”
It is a matter of deep regret that some two years after the Finance Bill 2006 changed the regime for REITs, there has not, to my knowledge, been a single REIT investing in residential property. There have been several REITs, but they have been for commercial property, where there is not the same demand for fresh investment. If one wants to invest in commercial property there are many vehicles for that, and there is no shortage of institutional capital for commercial property as there is for accommodation for rent. Why has the Kate Barker vision not been achieved? Why have the Government’s ambitions, as described in the passages I quoted, not been secured? Will the Minister now kick-start the debate to get respectable institutional funders engaged in the market, to the benefit of those who need good-quality accommodation for rent?
The right hon. Member for Oxford, East referred to the review of the private rented sector that the Government have announced. I am not absolutely convinced that the issue of increasing investment and supply is at the top of its agenda. The fourth in a series of bullet points asks:
“Given the recent regulatory changes, what more should or could be done to ensure a professionally managed and quality sector to meet demand pressures?”
I do not think that that quite takes the trick as to the urgency of reviewing the fiscal regime and restarting the dialogue with potential investors to get things going.
I have a brief final point to make. We need to harness the resources of the private rented sector much more effectively than we have so far, to help those in desperate housing need. Many local authorities have developed a dialogue with their private landlords, who have rent deposit schemes, rent guarantee schemes and the like. All too often, however, local landlords are still reluctant to take nominees. I hope that the Minister will do all that he can to promote a wider and deeper partnership between local authorities and responsible private landlords, to make sure that good-quality accommodation is made available to those who are confronted with homelessness, and that there is not exclusive reliance on the social rented sector. I wonder whether it is time to dust down a scheme called HAMA—housing associations as managing agents—by which the local authority or housing association takes a lease on a property owned by a private landlord and guarantees the private landlord the income stream from the rent, vacant possession when he wants the property back, and the return of the property in the same good condition as when it was leased.
The scheme has much to commend it. The landlord gets a reliable tenant with a guaranteed income stream, namely the local authority, and, crucially, the tenant, who may well be vulnerable, gets a responsible managing agent, namely the housing association or local authority. It seems to me that there is merit in driving forward that scheme, or re-activating it if it is not being used as extensively as it might. Given the amount of property overhanging the market, some of it might be acquired using back-to-back finance from the local authority.
I welcome this debate. There is a case for reconsidering the regulatory regime; it is somewhat ramshackle. I have no objection to the sort of review proposed by the right hon. Gentleman, but given the state of the housing market, a review of regulation needs to be accompanied by radical measures to increase supply.