Rental sector in Jersey: proposed policy direction.

STATES OF JERSEY

RENTAL SECTOR IN JERSEY: PROPOSED POLICY DIRECTION

Presented to the States on 29th July 2015 by the Minister for Housing

STATES GREFFE

2015   Price code: C  R.87

REPORT

1. Executive summary

1. Housing is a key component in people's lives. A home provides security, stability and comfort. It affects health and well-being; encourages people to participate  in social  and  economic  life;  and  helps  to support  strong communities.
2. The Strategic  Plan  2015 – 2018  recognises  the  role  that  housing  has  in supporting broader social and economic policy objectives, and includes a goal to –

"Champion  a  proper  supply  of  housing  of  all  types,  promote affordability,  improve  housing  standards  and  build  strong communities."

3. The Housing Strategy will build on this goal by placing affordable, good standard and secure homes at the heart of the Council of Ministers' vision for housing, and setting out the role that housing has in addressing some of the challenges facing the Island.
4. This report supports the Housing Strategy. It is one of several detailed policy papers  that  will  assist  with  the  delivery  of  the  Strategy,  and  establishes specific policy areas that the Minister for Housing will take forward in respect of the rental sector.
5. The Minister for Housing and the Minister for Health and Social Services recognise the large contribution that rental accommodation makes towards meeting housing needs in the Island. The private and social rental sectors provide homes to a range of different people, many of whom would be unable to access other categories of tenure or who are attracted to the choice and flexibility that renting offers them.
6. The importance of the rental sector is reflected in figures which show that under half of Island households live in rental accommodation: the private rental  sector  accounts  for  around  33%  of  households  across  more  than 13,000 units of accommodation1, and social housing provides homes to 14% of households, with over 5,600 units of accommodation.
7. Accordingly, private and social rental accommodation has a significant part to play in the Island's social and economic future, particularly in relation to health and well-being, the regeneration of St. Helier , and tackling inequality. This makes it essential to have a debate about the role of the sector and the ways which it can support, and be more responsive to, people's housing needs.
8. The measures set out in this report are intended to help direct this debate. Focusing on 3 core features of the rental sector – standards, affordability and security of tenure – the report sets out a package of measures that could be used to create a professional and well-functioning rental sector which provides an attractive, stable and long-term housing option for the people it serves.

1 States of Jersey Statistics Unit (2013) Jersey in Figures 2013, p. 45

2. Overview

1. There has been a considerable amount of work carried out in the last 5 years on the framework of laws governing the Island's rental sector. These include –

• The Residential Tenancy (Jersey) Law 2011 came into force in May 2013. This established statutory rights and responsibilities for landlords and tenants.
• The Control of Housing and Work (Jersey) Law 2012 was introduced in  July 2013. This Law enabled registered' (often called unqualified') people to obtain security of tenure for the first time.
• An Order to prevent landlords from supplying utilities to tenants above the retail price was introduced in October 2013.
• Compulsory Condition Reports were introduced in October 2014 to record the condition, repair and maintenance of properties at the beginning and end of tenancies.

2. Whilst the rental sector has been an active area for new regulation, there is further work remaining to bring the different elements of regulation together into a coherent framework, and to strengthen areas where there is limited statutory protection, or where existing Laws are outdated and do not reflect present-day requirements.
3. Therefore, this report sets out the proposed policy direction for the rental sector and the co-ordination of work taking place across the States to deliver these proposals.
4. This Report has been prepared, in part, as a response to the Proposition of Deputy M. Tadier of St. Brelade , P.42/2014[2], as amended, which the States Assembly adopted on 22nd May 2014. The Proposition requested –

• The Minister for Health and Social Services, in consultation with the Minister for Housing, to introduce minimum condition standards for all rental properties;
• The Minister for Housing to investigate the setting-up of a registration scheme for landlords; and
• The Minister for Housing to investigate the introduction of rent control to set maximum levels of rents and fees that may be charged to tenants.

5. The Strategic Housing Unit (SHU) and the Environmental Health Department have reviewed these issues jointly on behalf of the Ministers for Housing and Health and Social Services and, in so doing, have accounted for the direction of P.42/2014. This report sets out their findings, and includes other policy measures that could be used to create a more effective approach to regulating the rental sector.

3. Summary of proposals

3.1.  This Report has been prepared for the Minister for Housing, having consulted with the Minister for Health and Social Services. The report brings together the Ministers' immediate priorities for the rental sector, and the policy measures they suggest should be advanced over this ministerial term, including –

1. Introduction of minimum standards: All categories of rental accommodation will be subject to the same minimum condition standards and system of inspection under a new Public Health and Safety (Rented Dwellings) Law. In this way, it would not make a difference whether a unit of accommodation was qualified' or registered', self-contained or a lodging house, socially or privately rented – all tenants would receive the same level of protection.
2. A range of monitoring and enforcement powers will be specified, including –

• Portfolio action' where all rental accommodation let by an individual landlord can be inspected if there is reasonable grounds to believe, on inspecting one property, the problems at that property may be present at other properties as well; and
• Selective licensing' for poor-performing landlords that would effectively place those landlords under a closer inspection regime, with this being published so that prospective tenants are aware.

The plan is to introduce a draft Law in 2015 – see conclusion 1.

3. Houses in multiple occupancy: The regulatory regime introduced by the new Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201- provides an opportunity to develop a new category of housing for Houses in Multiple Occupation' (3 or more households who live in the same property), and to create an enhanced system of mandatory inspection. This is to recognise that the occupation of a single property by separate but sharing households presents higher challenges in relation to the maintenance of standards.
4. Following this, the intention would be to repeal the Lodging Houses (Registration) (Jersey) Law 1962 ("the 1962 Law") – which addresses standards of accommodation for a specific type of property occupied by registered persons (both self-contained and HMO) – subject to further consultation with interested stakeholders. If taken forward, all the accommodation covered by the 1962 Law would be covered instead by the Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201-.

The intention is to undertake this task in 2016 – 2017 – see conclusion 2.

5. Social Housing Law:  A regulatory framework for social housing will be introduced to provide comfort above that available to private sector tenants in terms of standards and good governance of social housing providers, including Andium Homes and the social housing trusts, and to provide them with policy direction.

The plan is to introduce a draft Law in 2015 – see conclusion 3.

6. Tenancy  deposit  scheme:  a  service  to  protect  tenants'  deposits –  where money  paid  to  landlords  by  tenants  should  be  handed  to  a  scheme administrator,  and  repaid  on  completion  of  a  tenancy,  after  a  dispute resolution process if necessary – is currently being established.

The plan is to introduce a scheme in 2015 – see conclusion 4.

7. Tenant redress: The ease of the process whereby tenants and landlords obtain redress for a breach of tenancy will be examined, with a view to exploring whether an intermediary and easier way to access dispute resolution process should, and can be, introduced prior to action in the Petty Debts Court.
8. This is to recognise that presently the parties to any dispute must either settle the dispute themselves, or undertake court action. It is felt that all tenants should have similar rights whoever owns their property, and this principle will be explored.

The  intention  is  to  undertake  the  above  task  in  2016 – 2017 –  see conclusion 5.

9. Voluntary  accreditation:  Professional  management  standards  will  be promoted  through  the  introduction  of  a  voluntary  landlord  accreditation scheme for the private rental sector. The scheme will promote best practice and ensure that accredited landlords comply with a set of rental management standards.  A  good  practice  guide  for  rental  accommodation  will  also  be developed  to  educate  landlords  and  tenants  about  their  legal  rights  and responsibilities.

The  intention  is  to  undertake  the  above  task  in  2015 – 2016 –  see conclusions 6 and 7 below.

10. Security of tenure: Options to afford legal protection for people who live in non-self-contained  premises,  which  are  not  covered  by  the  Residential Tenancy Law, will be examined, including measures to provide a reasonable level of security of tenure.

The  intention  is  to  undertake  the  above  task  in  2016 – 2017 –  see conclusion 8.

11. Rent control: Advice has also been sought from the Economics Unit on rent controls – the advice is provided as an Appendix to this Report. Following review, the Minister for Housing is not minded to proceed with rent controls at this juncture, given that the primary focus of the Minister is to support affordability  through  increased  supply  and  increases  in  the  quality  of  the housing stock.

12. However, this does not mean that options for rent stabilisation cannot be looked  into  to  make  the  costs  of  renting  more  predictable  and  prevent instability  by  encouraging  longer  tenancies  with  more  predictable  rent increases.

The  intention  is  to  ensure  that  there  is  greater  rent  stability  by introducing  index-linked  rent  increases  as  part  of  a  voluntary accreditation scheme, and to give further consideration to reforming the Rent  Control  Tribunal  under  the  Dwelling  Houses  (Rent  Control) (Jersey) Law 1946, including the composition of the Tribunal, its role and remit, and the tenancy matters for which it should be responsible – see conclusion 9.

4. Minimum condition standards for rental accommodation

1. Good standard, secure and well-maintained accommodation has a significant effect on people's lives in terms of their health and well-being. Poor standards of  housing  can  cause  or  exacerbate  health  problems  as  much  as  good standards of housing can help to promote good health and limit the incidence of medical conditions.
2. In view of the need to promote good standards of accommodation in the rental sector, the States Assembly agreed in May 2014 that the Minister for Health and Social Services should bring forward draft legislation covering minimum condition standards for all categories of rental accommodation. As a result, the Minister will bring the Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201- to the Assembly for debate in 2015.
3. The Law  will  cover  all  categories  of  rental  accommodation,  including properties  in the  private  sector,  social  housing,  lodging  houses,  and  staff accommodation. The Law will not cover owner-occupied property, since it is a matter for home-owners to live as they see fit, providing they have the capacity to make that choice. The draft Law will not cover lodgers in owner- occupied properties either.
4. To determine whether a rental accommodation unit meets minimum standards, the Environmental Health Department will use the Housing Health and Safety Rating System (HHSRS), a risk-based tool which assesses potential hazards to health and safety arising from deficiencies in housing.
5. The HHSRS addresses 29 of the most common types of physical hazards relating to housing, including –

• Disrepair;
• Dampness, excess cold/heat;
• Accidents (falls, fires, electrical faults);
• Hygiene, sanitation and water supply;
• Amenity standards; and
• Lack of space, overcrowding and lighting.

6. Tenants who have a concern about the condition of their rental accommodation will be able to report problems to the Environmental Health Department and request an inspection of their property. An Environmental Health Officer will then carry out an assessment, using the HHSRS, of the risk of an incident arising from the hazard and harm occurring to its occupants as a result.
7. If a hazard is discovered that is determined to be serious, known as a Category 1 Hazard', the Environmental Health Department will have the power to take action to rectify the problem. The most likely action will be the issuance of an enforcement notice that requires a landlord to improve the condition of his/her property, although stricter penalties would be open to the Department depending on the seriousness of the hazard.
8. The Environmental Health Department may, for example, issue a prohibition notice banning a property, or part of one, from being let, until the problem is rectified. The Department would also be able to complete the work itself and claim expenses from the landlord. In most cases, a landlord would only be at risk of prosecution if he/she were to repeatedly ignore an improvement notice or other order.
9. Moreover, the Ministers believe it is vital to have a series of tools available to improve the standard of rental accommodation, and have agreed to include provision in the draft Law for officers to undertake portfolio action'. This provision would permit the Environmental Health Department to undertake more proactive monitoring of rental accommodation where it was determined that problems affecting one of a landlord's properties may also be present at another.
10. In this way, inspection would not rely solely on a compliant being made in respect of a property before it could be inspected. If a compliant was received about one property, then an inspection could be initiated in respect of any other properties let by that same landlord if there were reasonable grounds to do so.
11. Additionally, the Ministers wish to include provision in the Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201- to introduce a selective licensing regime targeted at poorly-performing landlords. This would work on the presumption that all landlords were operating in accordance with the Law, unless it could be demonstrated otherwise, in which case they would be put under a closer regulatory regime with conditions around the improvement of their accommodation. A register of these landlords would be held publicly to help inform the decisions of prospective tenants[3].
12. Any landlords who did not improve their behaviour and continued to let poor- standard accommodation would run the risk of having their licence revoked; and whilst options for sanctions are being reviewed as part of the finalisation of the draft Law, this could include being excluded from the private rental sector altogether.

Conclusion 1: The Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201- will be brought forward by the Minister for Health and Social Services during 2015. If approved, the new Law will introduce minimum standards for all categories of rental accommodation and a system to monitor and enforce standards. As some of the tools available to improve standards, portfolio action' and a selective licensing' scheme will be developed to capture landlords who fail to meet the legal requirements for renting property.

5. Lodging house accommodation

1. The development of the Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201- has given the Ministers an opportunity to consider the regulation of properties presently covered by the Lodging Houses (Registration) (Jersey) Law 1962.
2. The new Law, if adopted when brought to the States Assembly, will provide a set of health and safety standards with which all properties currently registered as lodging houses will also need to comply.
3. The 1962 Law originally functioned to ensure minimum standard accommodation for groups of people such as migrant workers. A person who was not qualified under the Housing (Jersey) Law 1949 was unable to lease a property and would therefore be classified as a lodger. This meant they were only able to reside in registered lodging house accommodation; or in housing outside of the Housing Law; or as a private lodger in another person's home; and received no tenancy rights or legal security of tenure.
4. To compensate, the Law provided a registration and active inspection regime that does not depend on a complaint being made. All properties are registered, and a number of those properties are inspected each year, usually two-thirds of lodging houses. This is a more rigorous inspection regime than applies to other residential properties in Jersey.
5. When the Control of Housing and Work (Jersey) Law 2012 was introduced, the barrier that had prevented unqualified people (called registered' people in the Law) from leasing property was removed, the effect of which was that they were able to lease the property in which they lived rather than simply lodge'. Ultimately, this provided people with security of tenure where they leased. This does not mean that they can live in qualified property, but they are able to lease that property under the Residential Tenancy (Jersey) Law 2011. This significantly increased the tenancy rights of many people living in lodging houses, the majority of which now comprises of self-contained units afforded the protection of the Residential Tenancy (Jersey) Law 2011.
6. In order to remove duplication and harmonise the regulation of lodging houses, the Minister for Housing proposes to repeal the Lodging Houses (Registration) (Jersey) Law 1962 when new minimum condition standards legislation has been introduced.

7. At the same time, the Ministers propose that any unit of accommodation that forms the principle residence of 3 or more unrelated households, and hence where they share amenities such as a kitchen, toilet and washroom, will be classified as Houses in Multiple Occupation' (HMOs) and subject to a compulsory licensing scheme under the Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201-. A compulsory licensing scheme will apply irrespective of whether the property is in the qualified' or non- qualified' housing sectors. Put simply, any property which meets the definition will be regulated.
8. This category of rental accommodation has a useful purpose in providing homes for certain groups of people; but it arguably poses a greater risk to residents on account of the often more intensive use of shared facilities by unrelated households, and the more transient working arrangements among the people who live there[4]. In addition, a high concentration of multi- occupancy accommodation can have an impact on the wider neighbourhood, especially in urban areas, in terms of anti-social behaviour and quality of life, etc.
9. Therefore, compulsory licensing for Houses in Multiple Occupation is a targeted approach that would focus resources where they are needed most, and ensure that an active inspection regime continues for properties where health and safety risks are of most concern, i.e. HMOs.
10. The rights and responsibilities of a House in Multiple Occupation owner would be similar to those any of other landlord in the private rental sector. However, since the risks associated with large rental properties are found to be greater in terms of poor conditions, overcrowding and fire hazards, a compulsory requirement to register such properties would help to prevent and manage problems around maintenance and repair.
11. The introduction of a licensing scheme would ensure a registration and inspection regime remained for properties where more than several unrelated households lived together, through which enforcement action could be taken if the owner of a House in Multiple Occupancy did not fulfil their responsibilities.
12. The proposed repeal of the Lodging Houses (Registration) (Jersey) Law 1962 and the introduction of provisions around Houses in Multiple Occupancy will be subject to consultation with interested stakeholders, including relevant States Departments and lodging house owners, to ensure they are well- balanced, practical and meet the modern requirements of this sub-sector of the rental market.

Conclusion 2: The Lodging Houses Law should be repealed, with standards being dealt with instead through the Public Health and Safety (Rented Dwellings) (Jersey) Law-. In its place, the Law will create a licensing scheme for rental properties designated as Houses in Multiple Occupancy', which will be subject to an enhanced inspection regime that does not rely on a complaint being received.

6. The Draft Social Housing Law

1. The revised structure for social housing provision in Jersey, as set out in P.33/2013, brings with it the need to ensure a robust regulatory framework around the Island's social housing providers – Andium Homes and the social housing trusts. Following the transfer of the States' social landlord functions to Andium Homes in July 2014, itis important to implement a consistent regulatory framework across the whole social housing sector in view of the public interest and investment in the provision of social housing.
2. At this time, the Minister for Housing is working with key stakeholders to formulate a potential model for the regulation of social housing, as well as the principles that will underpin a regulatory framework. Ultimately, it is not the intention of the Minister to stand in the way of social housing providers and the way they operate. Boards and Trustees are foremost responsible for providing social housing to tenants and first-time buyers, and regulation must not impede on their ability to deliver cores services.
3. However, a consistent, fair and transparent regulatory framework is required in order to support the demands for social housing and protect the rights, interests and well-being of tenants and other stakeholders. Therefore, the Minister's aims in proposing a system of regulation isto ensure that social housing providers –

• Meet the needs and priorities of tenants and service users;
• Deliver consistent standards across core service;
• Continually improve performance and value for money;
• Ensure the confidence of public and private investors in social housing; and
• Protect the reputation of the affordable housing sector as a whole.

4. The aim isto identify a model of regulation that is both proportionate to the size and structure of the Island's social housing sector and minimises regulatory interference; but which also ensures minimum standards of performance, financial management and governance. In this respect, the key elements of the regulatory framework are likely to include –

• Defining the performance standards which social housing providers should achieve for existing and new tenants;
• Setting out the standards of governance and financial management for social housing providers; and
• Introducing a social housing regulator and establishing its powers.

5. It is anticipated that the Minister will bring forward the Draft Social Housing (Jersey) Law 201- to implement a regulatory framework for social housing in the autumn of 2015.

Conclusion 3: The Draft Social Housing (Jersey) Law 201- will be introduced to provide a regulatory framework for social housing in respect of the standards of service for tenants, good governance and financial management of social housing providers, including Andium Homes and the Social Housing Trusts.

7. Tenancy deposit scheme

1. The Minister for Housing is currently undertaking a procurement exercise to appoint a company to set up and manage a tenancy deposit scheme on behalf of the States of Jersey. This follows the approval by the States Assembly in July 2014 of the Residential Tenancy (Deposit Scheme) (Jersey) Regulations.
2. The Regulations  adopted  by  the  States  Assembly  establish  the  regulatory framework for a tenancy deposit scheme. The regulations include provisions to protect deposits paid by a tenant in connection with a residential tenancy, and a means of alternative dispute resolution if a landlord or tenant who is party to such an agreement disagrees with the amount of money to be repaid at the end of a tenancy. The key deliverables include –

• Appointing a company to set up and administer a tenancy deposit scheme;
• Establishing  the  processes  through  which  deposit  money  will protected;
• Creating and manage an alternative dispute resolution process;
• Generating awareness of the scheme among landlords and tenants; and
• Preparing  an  annual  report  to  the  States  on  the  operation  of  the scheme.

3. The Scheme will be compulsory and based on the custodial model in effect already in the United Kingdom and Northern Ireland. Overall, it is intended that a tenancy deposit scheme will –

• Reduce the number of unfairly withheld tenancy deposits;
• Ensure the safekeeping of deposits throughout the period of a tenancy;
• Ensure deposits are returned quickly and fairly, particularly where a dispute arises; and
• Encourage continued improvements in rental management standards.

4. The Regulations came into force on 28th February 2015, which provides the Minister with the power to appoint a scheme provider to set up and operate a scheme as soon as reasonably practicable after the Regulations are in force.
5. The procurement process is nearing completion and itis anticipated that a scheme provider will be appointed by the Minister in the coming weeks, with the actual scheme following in late 2015, once the Minister is satisfied that the appointed  provider  has  established  a  robust  scheme  which  meets  the requirements of the regulations.

Conclusion 4: A tenancy deposit scheme where all tenants' deposits should be paid to a scheme administrator, and repaid on completion of the tenancy, after a dispute resolution process if necessary, is currently being established and will come into operation during 2015.

8. Ability of tenants and landlords to obtain redress

1. Tenants and Landlords letting property under the Residential Tenancy (Jersey) Law 2011 have access to the Petty Debts Court to resolve disputes.
2. Until July 2014, tenants of the Housing Department, before it became Andium Homes, also had access to the administrative appeals process administered by the  States  Greffe  under  which  tenants  could  bring  forward  complaints  in respect of departmental decisions. As Andium Homes is no longer a States Department, their tenants do not have access to this mechanism anymore. Notably, tenants of housing trusts have never had access to administrative appeals. This places them in the same position as any other tenant in the Island.
3. Andium  Homes  operates  a  robust  internal  complaints  procedure,  and  the housing trusts have arrangements in place to address concerns and complaints. Moreover, the regulatory framework for social housing will include a standard around  social  housing  providers'  communication  with  tenants,  which  will cover having available an accessible complaints procedure internally to deal with complaints or feedback on services.
4. This then raises the question as to why tenants of social housing providers should be different from the tenants of private landlords. Shouldn't tenants have the same rights to have their complaint dealt with reasonably whoever is their landlord?
5. For this reason, the Minister is minded to accept that all tenants in Jersey have access  to the  Petty  Debts  Court  procedure,  and  to  explore  whether  this procedure could be enhanced and made more accessible for the benefit of all tenants. For example, would an intermediate dispute resolution service have benefit? This could take the form of a rented housing board, which would be able to hear and determine complaints on rental issues such as a where a landlord had failed to manage a tenancy reasonably or comply with a legal duty incumbent on them.

Conclusion 5: The Minister will explore whether additional dispute resolution processes are needed in respect of the ability of tenants to complain and seek redress from their landlord.

9. Information and awareness about the private rental sector

1. The framework of Laws covering the private rental sector is robust, but its complexity can make it difficult for people to understand how these Laws affect  them.  Unfamiliarity  is not  an  excuse  for  poor  practice,  but  some landlords and tenants may not be aware about or fully understand their legal rights and responsibilities5.

5 J. Rugg & D. Rhodes (2008) The private rented sector: its contribution and potential,

University of York Centre for Housing Policy

2. There  are  several  different  Laws  covering  private  rental  accommodation, including –

• Planning and Building (Jersey) Law 2002
• Building Bye-Laws and supplementary planning guidance
• Residential Tenancy (Jersey) Law 2011
• Lodging Houses (Registration) (Jersey) Law 1962
• Dwelling-Houses (Rent Control) (Jersey) Law 1946
• Statutory Nuisances (Jersey) Law 1999
• Loi (1934) sur la Santé Publique.

3. The growing number of legal requirements for private rental accommodation, and the likelihood some might be repealed in future, makes it a priority to ensure that Laws are accessible for landlords and tenants, and to find new ways of communicating with them about their rights and responsibilities.
4. Therefore, the Strategic Housing Unit will publish new information about the statutory framework affecting the private rental sector. A good practice guide for  landlords  and  tenants  will  be  produced  to promote  good  rental management practices. The guide will cover the different issues which shape tenancies  and  explain  the  principles  of  the  laws  around  private  rental accommodation, including information on:

• Rental accommodation condition, repair and maintenance;
• Forms of agreement;
• Termination, eviction and dispute resolution;
• Rent setting and review;
• Deposit collection and condition reports; and
• Provisions for non-self-contained accommodation.

5. The publication of a good practice guide will help to strengthen security of occupancy for households in the private rental sector, and improve awareness amongst landlords about their legal obligations.
6. It  is also  expected  that  the  new  tenancy  deposit  scheme  will  be  used  to communicate  information  to landlords  and  tenants.  The tender  process  is nearing  completion,  and  when  a  scheme  administrator  is appointed,  the Strategic Housing Unit will work with the provider to consider how guidance about deposits, property conditions and rental management standards can be publicised and promoted.

Conclusion 6: Guidance and information will be made available about the legal requirements for private rental accommodation. A good practice guide will be published to provide practical advice to landlords and tenants about their rights and responsibilities.

10. Landlord registration schemes

1. The professional  management  of  rental  accommodation  provides  a  strong basis for ensuring positive outcomes for tenants in terms of good standard homes  and  secure  tenancies.  The emergence  of  schemes  in the  United Kingdom such as registration and accreditation for private sector landlords thus reflect efforts by policy-makers to encourage professional management standards and strengthen secure occupancy for tenants.
2. The Ministers  for  Housing  and  Health  and  Social  Services  have  given consideration to whether a form of registration or accreditation scheme could be introduced locally as a way of improving rental management standards. Deputy Tadier 's Proposition, P.42/2014, focused on a compulsory registration for landlords; however, options for voluntary accreditation may be just as effective when developed as part of a wider package of measures aimed at encouraging responsible management practices.
3. In the first instance, compulsory registration refers to a universal process where a requirement exists for all landlords in the private rental sector to be registered in order to be able to legally rent out accommodation. There are 2 different types of registration scheme. A compulsory registration scheme would  enable  any  person  to register  themselves  as  a  landlord  and  let accommodation. This type of scheme is used mainly to generate data for authorities on landlords and the properties that they let.
4. An alternative approach would be to introduce a licensing system for private sector landlords, which would subject applicants to a more comprehensive registration process. There is a difference between simply requiring a person to register as a landlord, and being granted a licence. Registration' might be considered as a light touch' approach with minimal barriers to becoming a landlord. However, licensing' is a more stringent threshold for a person to become a landlord and implies some form of assessment following which a licence could be granted or refused.
5. In Scotland, for example, where a landlord registration scheme has operated since 2004, the registration process requires an assessment of whether an applicant is a fit and proper' person before being given permission to be a landlord6.
6. Having  reviewed  the  merits  of  a  compulsory  registration  scheme,  the Ministers are sympathetic to the rationale of such an approach and why it has been  introduced  in Scotland  and  Northern  Ireland.  However,  they  not convinced  that  a  compulsory  registration  scheme  would  add  value  to the purpose of raising rental management standards in Jersey, at least whilst new statutory arrangements covering the private rental sector are still bedding in and evolving.

6 Department for Social Development, Northern Ireland (2010) Building Sound Foundations: a

strategy for the private rented sector

7. The Ministers believe that registration is a one size fits all approach' that does not target regulation where risks are greatest. Over 80% of people who rent in Jersey are satisfied with their accommodation[5], with people who are unsatisfied being concerned about issues such as parking and storage, which a registration scheme would not cover. Therefore, great care must be taken before imposing a requirement on all landlords when the concerns that exist relate to a small number.
8. In this context, compulsory registration does not offer sufficient distinction between the needs of different landlords, placing a disproportionate burden on responsible landlords, but not focusing adequate resources on tackling a small minority of bad landlords who would be better dealt with through the Draft Public Health and Safety (Rented Dwellings) (Jersey) Law 201-.
9. Instead, the Ministers wish to adopt a more innovative approach which shifts focus away from the enforcement of standards by government to working with landlords to encourage good practice. The Ministers favour the development of a voluntary accreditation scheme, which is a process of formal recognition for good practice.
10. Landlords who wished to join an accreditation scheme would be required to comply with a set of standards before receiving accredited status. These standards would relate to matters such as –

• Communication with tenants;
• Management of the tenancy;
• Rental accommodation condition, repair and maintenance;
• Rent setting and review; and
• Deposit collection and condition reports.

11. The benefit of accreditation is the element of recognition that it gives to landlords who manage their rental accommodation appropriately and comply with their legal responsibilities. Landlords can then use their accredited status as a marketing tool to distinguish themselves from non-accredited ones. Accreditation also benefits tenants, because it allows them to make better- informed decisions about who they rent from, and provides assurance the accommodation they rent will meet certain minimum standards.
12. There is no compulsion to join an accreditation scheme: the nature of accreditation implies a voluntary form of regulation. Accreditation on its own will not capture bad landlords who will simply choose to avoid such a scheme[6], but as a wider package of targeted measures, a properly incentivised and promoted accreditation scheme could be used to support responsible landlords. If voluntary accreditation becomes seen as an indicator of good practice in the private rental sector, more landlords will want to achieve the status and accreditation will become the norm.

13. The Strategic Housing Unit and the Environmental Health Department intend to work with landlords and other stakeholders to develop an accreditation scheme. There are a number of important issues to consider around –

• The model of accreditation scheme;
• The standards for an accreditation scheme;
• Incentives for landlords to join an accreditation scheme; and
• Information and promotion requirement for an accreditation scheme.

14. The Ministers will report to the States Assembly with proposals for an accreditation scheme, including administrative arrangements, and the standards and procedures by which it will operate. One approach being looked at is a graded accreditation scheme for landlords, or a star' rating system similar to the Eat Safe' initiative developed by the Environmental Health Department.
15. In addition, there may be a role for voluntary sector organisations in Jersey to work with private rental sector landlords, to encourage them to learn about and improve their rental management standards as part of an accreditation process.
16. Overall, regulation of the private rental sector is an ongoing and evolving process. With this in mind, the option of moving to compulsory registration will be reviewed following an assessment of the effectiveness of voluntary accreditation after a year of a scheme coming into force.

Conclusion 7: A voluntary accreditation scheme will be created for landlords in the private rental sector. A voluntary accreditation scheme will help to embed good management practice and secure compliance with the legal requirements for renting property. A scheme will also give tenants greater confidence in their landlord's ability to manage a tenancy effectively.

A compulsory landlord registration scheme is not proposed at this stage, though it may have a role to play in the future if measures additional to those outlined in this paper are required based on firm evidence.

11. Security of tenure

1. The term security of tenure' refers to the legal rights a household has, to occupy a property without interference or threat of being evicted, provided they meet their obligations or the tenancy has terminated. This legal right is afforded to tenants in Jersey by the Residential Tenancy (Jersey) Law 2011 ("the Residential Tenancy Law"). Article 10 of the Residential Tenancy Law states –

"A landlord shall not, without lawful reason, prevent a tenant from occupying the whole or any part of a residential unit that is the subject of a residential tenancy agreement to which they are both parties, or otherwise interfere with the tenant's enjoyment of the residential unit, being enjoyment that is not inconsistent with the agreement."

2. Security  of  tenure  is provided  to occupants  who  live  in accommodation defined as self-contained' – i.e. contains facilities for the exclusive use of a single  household  without  sharing  with  others –  which  is covered  by  the Residential Tenancy Law. The Law gives practical efficacy to the principle of security of tenure by setting out –

• Legal requirements around tenancy agreements;
• Essential provision that tenancy agreements must contain;
• Notice periods for periodic tenancies;
• The jurisdiction of the Court to rule on tenancy matters; and
• The power of the Court to make an order for eviction.

3. Most properties fall within the provisions of the Residential Tenancy Law, including self-contained accommodation provided by lodging houses. It is estimated that 80% of occupants in lodging house accommodation are covered by  the  Law,  but  there  remains  around  20%  of  people  whose  lodging accommodation  is  not  self-contained  (i.e.  they  share  amenities  with  other households).  Households  living  in these  types  of  arrangements  are  not presently covered by any legislative provisions and hence are not afforded security of tenure.
4. Some lodgers may enter into a licence agreement that includes provisions around notice periods, but the legal status of such arrangements are not fully known, and there are still cases where lodgers are given little or no notice when asked to leave their accommodation. The consequence is that many households  living  in lodging  premises  will  be  more  vulnerable  and marginalised  given  their  lack  of  security  and  stability,  which  can  have implications for their health, welfare and participation in society generally.
5. The Minister for Housing believes that it is wrong in an inclusive society for people not to have basic rights of occupancy when they might have lived in lodging premises for long periods of time. Therefore, the Minister wishes to investigate  the  formalisation  of  legal  arrangements  around  lodging accommodation, to ensure an appropriate level of protection for people who are not presently afforded protection by the Residential Tenancy Law.
6. This might include the following provisions –

• A  basic  lodgers'  agreement  establishing  legal  rights  and responsibilities;
• A  right  to  a  reasonable  levels  of  privacy  and  enjoyment  of accommodation;
• Provisions covering notice periods and eviction periods; and
• The treatment of deposit or rental monies.

7. The Minister recognises that there is a question about the extent to which security  of  tenure  is required  in all  housing  circumstances.  For  example, lodging premises can be used as a temporary housing option for people who have transient working arrangements. Groups such as migrant workers may require a flexible tenure and will not wish to be bound into an agreement with notice periods if they are moving on within the space of only a few weeks or months.

8. However,  the  main  concern  relates  to situations  where  lodging accommodation is used as a permanent form of accommodation. It appears unreasonable for people to have no security of tenure simply as a result of them not living in self-contained premises, even where that has been their home for several years. In contrast, a person living in self-contained premises, but only for a few months, will be afforded full statutory protection by the Residential Tenancy Law.
9. For this reason, the Minister for Housing wishes to look at whether it is necessary to expand provisions around security of tenure, either through an extension  of  the  Residential  Tenancy  Law,  or  a  new  Law,  to strengthen governance arrangements around lodging accommodation. A possible option under consideration is a sliding scale of notice periods where the legal rights a person has to occupy and remain in a premises would depend on the length of time which he/she had occupied the accommodation.
10. As  an  example,  provision  could  be  made  for  lodgers  to receive  at  least one month's notice to leave if they had occupied a property for no more than 6 months, after which they would be eligible to receive a 3 months' notice period. This might also apply to tenants under the Residential Tenancy Law who require more short-term accommodation arrangements.
11. The Minister also wants to ensure that tenants who live in accommodation which is in disrepair feel confident to make a complaint without the threat of eviction  or  their  tenancy  being  terminated.  This  problem,  known  as  a retaliatory eviction,' has been highlighted recently in the United Kingdom where a Private Members' Bill was debated by Parliament on the issue9.
12. A retaliatory eviction arises when a tenant requests his/her landlord to make repairs  to a  property,  or  has  requested  assistance  from  the  authority  to investigate a concern about conditions. In response, rather than carry out the works, the landlord will begin or threaten eviction proceedings against the tenant, or opt to terminate a tenancy early. This has the effect of preventing a tenant from raising a genuine concern or complaint about a defect for fear of reprisal action from the landlord.
13. The frequency of retaliatory evictions in the UK is deemed to be a by-product of the fact that its tenancy laws allow landlords to evict tenants without having to establish any fault' on the tenants' part. However, in Jersey the issue may be covered already by the Residential Tenancy Law by the fact that the Court must be satisfied that the tenant or landlord has broken the terms of the tenancy,  and  has  not  taken  reasonable  steps  to rectify  the  issue,  before deciding whether a tenancy should be terminated.

9 Department for Communities and Local Government (June 2009) Impact Assessment of a

national register for landlords

14. Nevertheless, it is possible to see a situation arising where tenants may not make a complaint, fearing the termination of a lease if they do. With minimum standards legislation expected to be introduced locally, it would be sensible to look at whether similar retaliatory actions are a problem locally and, if so, consider what options are available to prevent landlords from serving notice on a tenant to terminate the tenancy or begin the process to evict a tenant following a reasonable complaint being made.
15. Overall, the principle of security of tenure and to whom and in which situations it should apply, as well as a broader range of issues around notice periods, eviction processes, and lodging agreements, means that the Minister needs to give further consideration as to how concerns can be addressed and made to work in practice. For example, what treatment should be afforded to lodgers renting a room in another person's private home? Should it apply only where premises are lived in by more than 3 lodgers? What would happen in circumstances where a lodger causes disruption or made threats against other lodgers?
16. Clearly, security of tenure is a complex subject that has the potential to imbalance the landlord-tenant relationship if not approached in a proportionate manner. The Minister therefore intends to engage with interested parties and examine the legal implications of these ideas in detail before developing more definite proposals.

Conclusion 8: Policy options for providing greater security of tenure to people living in accommodation who are not presently covered by the Residential Tenancy Law will be considered by the Minister for Housing. One possible option the Minister wishes to examine is whether it may be feasible to develop a sliding scale of notice periods based on the length of time a person has occupied his/her accommodation.

12. Rent control

1. P.42/2014, as amended, requested the Minister for Housing to investigate whether it would be appropriate to introduce a system of rent controls. Advice has therefore been sought from the Economics Unit in respect of the rationale for a system of rent controls and the potential impact this could have on the rental sector. This advice is included as an Appendix to this Report.
2. Following review, the Minister for Housing is not minded to proceed with imposing rent controls in the context of the maximum rent that can be charged when a person enters into a tenancy. There are few comparable instances in other countries where rents are controlled on lettings[7] and initial rents are determined by the market. The evidence suggests that such intensive controls generate undesirable side-effects, including –

• Landlords may choose to discriminate on tenants' characteristics rather than price, adversely affecting households on low incomes who could be viewed as less reliable tenants;

• Landlords  may  attempt  to  maintain  their  margins  by  reducing investment in the maintenance of their properties; and
• Landlords may be forced to end tenancies and leave the market if mortgage payments are not covered by rent.

3. The Minister's priority is to support housing affordability and increase the standard of housing stock, and so the Minister is concerned that rent controls could be counterproductive to this objective. The most sustainable way to reduce the cost of rents isto increase supply, so that more households have access to social housing or the ability to enter into home ownership if they are able, reducing demand for private rental accommodation. Without a supply of affordable  housing,  the  cost  of  renting  a  home  will  not  become  less prohibitive.
4. However,  the  Minister  recognises  that  the  Island  does  face  significant challenges in improving the affordability of rental accommodation, especially for households on low incomes. Although medium to long-term supply of housing is the best option for reducing the cost of renting, building affordable homes  takes  time,  and  households  will  remain  concerned  about  the affordability of renting their homes in the meantime.
5. The 2013 Jersey Housing Affordability Report identified 56% of low-income households in the private rental sector spent more than 30% of their gross income on rents11, which gives cause for concern, given the potential that it has to create instability and insecurity for households in the rental sector.
6. Therefore the Minister wishes to look further at options that would enable long-term tenancies and promote index-linked rent increases agreed between landlords and tenants. This system of "third generation rent controls" operates in countries such as Germany, France and Spain, where rent increases within tenancies are regulated. This implies that the market will determine rent levels at the commencement of a tenancy, but there are controls in place over the amount  by  which  rents  can  increase  during  the  tenancy  (e.g. linked  to a measure of inflation such as RPI).
7. Rent stabilisation mechanisms exist already in Jersey through the Dwelling- Houses  (Rent  Control)  (Jersey)  Law  1946.  The Law  makes  available  a standard residential tenancy agreement which includes provision that rents should not be raised above the RPI on an annual basis. If a tenancy agreement does not include the RPI-linked rent increase provision, the tenant may be able to take action through the Rent Control Tribunal to prevent unreasonable rent increases that are above market rent levels.
8. The standard tenancy agreement also functions as an "off-the-shelf" contract, and so in many cases tenants will be protected against excessive rent increases already. In respect of the standard tenancy agreement with annual RPI-linked rent increases, the Minister believes this arrangement could be one of the conditions with which a landlord would need to comply before receiving accredited status under a voluntary accreditation scheme.

11 States of Jersey Statistics Unit (2013) Jersey Housing Affordability Report, p. 14

9. The benefit of such a condition would be that rent increases could be more transparent, stable and predictable for tenants. A controlled system of rent increase could reduce tenant turnover and thus reduce transactions costs for landlords.
10. Moreover, the Minister accepts that a Rent Control Tribunal has not been appointed in several years and that a decision needs to be taken soon about the future of the Law, given the desire to rationalise and strengthen the legal framework that governs the rental sector.
11. The Minister believes there is benefit in having a statutory facility available to enable tenants to challenge rents increases which are deemed to be excessive, with a Tribunal having ultimate power to maintain or reduce the rent as it considers reasonable.
12. The limited activity of the Rent Control Tribunal in recent years may be seen as a reasonably positive point, with landlords and tenants reaching agreement without third party intervention. However, in view of the considerable focus that this Report has given to educating landlords and tenants about their rights and responsibilities, itis deemed a useful opportunity to explore whether a new Tribunal could be created to rule in cases where rent increases are seen by a tenant as being unreasonable, having factored in circumstances such as any improvements made by a landlord to his/her property in the course of a tenancy that might impact on market rental value.
13. A reformed Rent Control Tribunal could also be utilised to cover the points raised  in section 8  of  this  report  in respect  of  creating  a  new complaints procedure to allow tenants to obtain redress for any other tenancy related matters.

Conclusion 9: The Minister is not minded to introduce rent controls at the initial stage of a tenancy, but considers it appropriate to ensure there is greater control over rent increases within a tenancy.

The Minister is minded to consider reforming the Rent Control Tribunal under the  Dwelling-Houses  (Rent  Control)  (Jersey)  Law  1946  to  ensure  that  a mechanism  exists  for  tenants  to  challenge  excessive  rent  increases  during  a tenancy, and whether its remit could be amended to consider other tenancy- related issues. As part of a voluntary scheme, a provision will be included to link rent increases to no more than the Jersey Retail Price Index.

13. Conclusion

1. Whilst in historic terms, home ownership has been seen as the most attractive form of tenure – with renting seen as a life stage as opposed to a lifetime tenure  option –  this  does  not  mean  the  rental  sector  cannot  be  made  to function more effectively to support people's housing needs, whether through implicit voluntary measures or explicit legislative coverage.

2. Put simply, for people who cannot afford to purchase their own home or who prefer to rent, the rental sector must be a desirable form of tenure and provide an affordable, professional and secure accommodation option. Therefore, the Ministers for Housing and Health and Social Services have identified in this Report some of the components of the rental sector that require attention to strengthen this position.
3. Overall, the Ministers are of the view that the legal framework covering the sector  is robust,  but  its  complexity  can  make  it difficult  for  people  to understand how the Laws apply to and affect them. Moreover, there needs to be a greater focus on the standard of accommodation, and more tools at the disposal of authorities to tackle poor landlords who simply ignore their legal responsibilities.
4. These  do  not  point  to  a  need  to make  extensive  reforms  to the  legal framework, but rather to provide landlords and tenants with support to ensure its effectiveness in practice. The Ministers have therefore outlined a number of proposals they believe could be used to improve property conditions and rental management standards. These include –

• The  introduction  of  the  Draft  Public  Health  and  Safety  (Rented Dwellings)  (Jersey)  Law  201-  to  monitor  and  enforce  minimum standards for rental accommodation;
• The implementation of a tenancy deposit scheme in 2015;
• The  introduction  of  a  Draft  Social  Housing  (Jersey)  Law  201-  to establish the standards and the good governance practices with which social housing providers should comply;
• A good practice guide on rental management standards;
• A voluntary accreditation scheme for landlords in the rental sector;
• A compulsory licensing scheme for owners of Houses in Multiple Occupation;
• A selective licensing scheme for poor-performing landlords;
• Greater  security  of  tenure  for  people  in  non-self-contained  rental premises; and
• Measures to prevent excessive rent increases within tenancies.

5. Whilst the statutory context of the rental sector is undoubtedly important, the sector's complexity has to be appreciated in policy development. Therefore, the Ministers' preferred policy direction adopts a package of legislative as well as voluntary measures to improve rental management standards. Such an approach recognises that landlords cannot be subsumed into one group, but that a package of measures aimed towards different types of landlords is the only way to embed cultural change and secure better outcomes for tenants.
6. Clearly, with a number of different policy issues being considered at one time, all of which impact on one another, there is a need to carry out more work to develop and consult on proposals in more detail. In this respect, the Ministers for Housing and Health and Social Services intend to work together with stakeholders to develop policy options before advancing proposals further.

APPENDIX

Economics Unit

November 2014 Rent Control: An Economic Assessment

This note assesses the high level economic consequences of general private sector rent control and the different forms it can take. It originally formed part of the Housing Minister's comments to P.139/2010 "Rent control: removal of exemptions" which sought to apply a form of rent control to all written leases.

It has been updated by reviewing the economic evidence on rent control in the light of any new information to see if there are any implications for the conclusions.

1. Background

The Private Sector Rental Index (PSRI) in Jersey measures the annual increase in rents on newly rented properties in Jersey. Figure 1 illustrates how the PSRI has changed between 2002 and 2012 (the first and last years that PSRI data is available) relative to the retail prices index (RPI). While RPI has increased by 43% (blue line), the PRSI has increased by 42% (red line), so rents have increased slightly less than overall inflation over this period.

Figure 1: Private sector rental index and Retail Price Index changes 2002-2012

160

Rental index 150 RPI

140

130

120

110

100 90

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Jersey Statistics Unit

Private sector rental prices are driven by the interaction between supply and demand for rental housing. If rental prices are increasing, it suggests that the demand for rental housing  outstrips  supply  so  potential  tenants  are  willing  to  pay  more  to  secure themselves housing, and landlords are able to ask for higher rents. Putting it another way, an increase in supply relative to demand will lead to slower rental price increases than would otherwise have been the case.

Average earnings increased by 39% over this period. This demand-side factor is likely to have contributed to the increase in rental prices seen between 2002 and 2012.

2. Rent Control Summary

Rent control appears an attractive policy on the surface because it seems like it will reduce the price of rental housing, in turn making housing more affordable for those on lower incomes.

However, once one recognises that changes in prices affect the incentives facing landlords and potential tenants and have knock-on effects on supply and demand, rent control can look less attractive. In particular, economic theory, supported by evidence from actual experience, suggests that rent controls:

• Reduces the availability of rental housing

• Reduces the quality of rental housing

• Causes misallocations of housing

• Are difficult to administer

• Do  not  achieve  the  distributional  goals they  are  advocated as the solution for.

Some types of rent control may also not reduce the rental price, but just alter the timing of rental price increases – for example second' and third generation' price controls described below.

Some types of rent control might help improve tenancy security, if the market will not provide a suitable level of security. However, there could be other ways to increase security without the disadvantages of rent controls, like rules controlling contracts between landlords and tenants, for example.

The OECD's economists (based on Andrews , 2011) summarise the evidence well:

"Strict rental regulations are associated with lower quantity and quality of housing and their benefits for tenants are not certain. Indeed there is no clear evidence that  average  rents  in  countries  with stricter  controls  are  lower. Moreover, especially if they are poorly targeted, rental market regulations may  have  undesirable  redistributive  effects  among  different  categories  of tenants."

There are three different types of rent control:

• First-generation' rent controls place restrictions on the level of rents across the whole rental sector.

• Second-generation' price controls allow for some restricted increase in rents to allow for factors such as investment and inflation.

• Third generation' price controls (or tenancy rent controls') place restrictions on the change in rents within tenancy agreements, but not between them.

First  and  second  generation  rent  controls  are  largely  discredited  as  the  evidence suggests that they have the negative effects listed above.

First-generation rent controls are hardly found today. Those countries that combine strong rent regulation with sizable private rented sectors usually have systems that permit rents to adjust to near-market levels even though they are formally 'controlled' (Whitehead, 2012).

The evidence on the effect of third-generation rent controls is more ambiguous, and as a consequence they have more support and are in use in a number of jurisdictions, including Jersey. However, even in this weaker form, most economists believe that rent controls do more harm than good (Jenkins 2009).

The economic consequences of rent controls that lead to rents that are lower than would have been determined by the interaction of demand and supply, are considered in more detail below.

Reduces the availability of rental housing

Rent controls set a limit on the absolute level of rental prices or the rate at which they are allowed to increase. In turn, this raises demand for housing relative to the market equilibrium  (since  the  rental  price  is  artificially  low),  and  reduces  the  supply  of housing (since landlords would be less willing to rent), creating an excess demand for rental  housing.  In  addition,  third-generation  rent  control  creates  an  incentive  for tenants to stay in the same property, which reduces the turnover in the rental market.

Reduces the quality of rental housing

Rent control destroys landlords' incentives to maintain the housing stock. There is little incentive for landlords to invest in their properties to maintain and improve them if it will make no difference to the level of rent they will receive.

Further, since price can no longer be used to allocate housing to those who are most willing to pay for it, another system of rationing is required. At best, the mechanism will be some form of waiting list or queuing system.

However, it is quite plausible that the allocation mechanism becomes the willingness to tolerate bad housing conditions. In other words, since landlords will no longer get a higher rental price in return for maintaining their properties, they will neglect to do so, and the allocation of housing will then be made based on those who are willing to tolerate a poor standard of housing.

Causes misallocations of housing

Restrictions on rental price reduce its ability to bring supply and demand into balance; therefore other mechanisms must be used.

When there is excess demand for rental properties and rental prices cannot adjust upwards, landlords might choose tenants based on other characteristics. The chosen tenants will not necessarily be those who would have valued renting the property the most – this is the misallocation of housing. The consequence is that some tenants will be less happy with their rental property than they would otherwise have been without the rental controls.

There is also evidence that rent controls, particularly second and third generation controls, create an incentive for tenants to remain in a property for longer than they would otherwise, and an incentive for landlords to select short-term tenants so that they are able to adjust rental prices between tenancies.

The flip side of this is that it might help improve tenancy security, if there is a reason to believe that the market will not provide a suitable level of security. However, it would be necessary to demonstrate this market failure exists and that a form of rent control is the best way to address it. There could be other ways to increase security without the disadvantages of rent controls, like rules controlling contracts between landlords and tenants, for example.

Another case where rent control causes a misallocation of housing is where rent controls  are  stricter  in  social  rental  housing  compared  to  private  rental  housing, leading to lower rents in social rental housing compared to the equivalent in the private market.

This  unintentionally  leads  to  a  misallocation  of  housing  because  it  makes  social tenants less likely to move when they would otherwise want to, because they would have to forego the rent advantage relative to the private market (Flatau 2003). This also slows down or prevents other would-be tenants from moving to more suitable housing in the social and private rental sectors.

Rent control is difficult to administer

As mentioned above, restrictions on price reduce the ability of the price mechanism to bring supply and demand into balance; therefore other mechanisms must be used. This may be queues or quality deterioration, but it also creates a significant incentive for a black market' in rental housing. This could manifest in a number of ways, including side-payments, bribes, over the odds payments for non-regulated items – for example items of furniture. If a rent control system is to work and be considered fair, these transactions would need to be policed, which is difficult and potentially costly.

Rent control does not achieve the distributional goals that it is often advocated as the solution for

Where rent control is effective at reducing rental prices, the evidence suggests that any benefits to tenants from rent controls are poorly targeted. Tenants as a whole do not benefit – some tenants lose out, while others gain – and there is little evidence that those that gain are the poorest or most vulnerable.

Some types of rent control may not reduce the rental price

There is some evidence that the effectiveness of second and third generation rent controls is reduced by the ability of landlords to set the initial rental price. To the extent that tenants are willing to pay a higher initial rental price in return for controlled increases, rent control simply alters the timing of payments rather than reducing them (Figure 2).

Figure 2: The growth of rents under third-generation rent controls

Tenancy starts in period 1 and rents are reset each period' of, say, 3 years' duration, at a time when markets rents are rising strongly.

Source: Ball (2010)

The consequence of this is that households who move often (more than average) pay too much rent (above the market rent that would have existed without the controls) whilst those who move less often pay too little rent.

3. Conclusion

The economic literature on rent controls is fairly conclusive. Rent controls create substantial inefficiencies in housing markets without any redeeming contributions in terms of redistribution or fairness objectives.

If the objective is to support those on low incomes in obtaining affordable housing, then this objective would be better achieved using other policy levers such as the tax and benefit system. If the objective is to reduce the price of rental housing then there are only two options; (1) increase the stock of rental housing (or the supply of housing more generally), or (2) reduce the demand for rental housing.

More generally, rental regulations should strike a balance between landlords' and tenants' interests, create security of tenure (if the market fails to deliver the right level of security) and avoid affecting sitting and new tenants differently.

References

Overall

Andrews , Sanchez and Johansson (2011) Housing markets and structural policies in OECD countries, OECD Economics Department Working Paper No. 836 http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=ECO/WKP( 2011)5&docLanguage=En

Ball, M. (2010)  The  UK  private  rented  sector  as  a  source  of  affordable accommodation Joseph Rowntree Foundation Housing Market Taskforce http://www.jrf.org.uk/sites/files/jrf/rented-accommodation-private-sector-full.pdf

Heath (2014) Rent control in the private rented sector (England), House of Commons Library, Standard Note: SN/SP/6760 http://www.parliament.uk/briefing-papers/SN06760/rent-control-in-the-private-rented- sector-england

Jenkins (2009) Rent Control: Do Economists Agree?, Econ Journal Watch, vol. 6 Scanlon, K. and Whitehead, C. (2014) Rent Stabilisation: Principles and international experience –  a  report  for  the  London  Borough  of  Camden,  London  School  of Economics http://www.lse.ac.uk/geographyAndEnvironment/research/london/pdf/Rent- Stabilisation-report-2014.pdf

Turner & Malpezzi (2003) A Review of Empirical Evidence on the Costs and Benefits of Rent Control

Whitehead,  C.,  et  al  (2012)  The  private  rented  sector  in  the  new  century – a comparative approach, University of Cambridge http://www.lse.ac.uk/geographyAndEnvironment/research/london/pdf/The-Private- Rented-Sector-WEB[1].pdf

Reduces the availability of rental housing

Sims,  David  P.  (2007)  Out  of  Control:  What  Can  We  Learn  from  the  End  of Massachusetts Rent Control? Journal of Urban Economics 61(1): 129-51.

Reduces the quality of rental housing

Gyourko, Joseph, and Peter Linneman. (1990)  Rent Controls and Rental Housing Quality: A Note on the Effects of New York City's Old Controls. Journal of Urban Economics 27(3): 398-409.

Moon, Chooh-Geol and Janet Stotsky. The Effect of Rent Control on Housing Quality Change:  A  Longitudinal  Analysis.  Journal  of  Political  Economy,  101(6),  1993, pp. 1114-1148. Henry O. Pollakowski (2003) Rent Control and Housing Investment: Evidence from Deregulation in Cambridge, Massachusetts

CESIFO working paper no. 4608, Richard Arnott (2014) Tenancy Rent Control and Credible Commitment in Maintenance

Causes misallocations of housing

Ault, Richard W. John D. Jackson and Richard Saba. The Effect of Long Term Rent Control on Tenant Mobility. Journal of Urban Economics, 35, 1994, pp. 140-58

Flatau, P. Forbes, M. and P.H. Hendershott, and G. Wood (2003), "Homeownership and Unemployment: The Roles of Leverage and Public Housing", NBER Working Paper No. 10021.

Glaeser  and  Luttner  (2003)  The  Misallocation  of  Housing  Under  Rent  Control, American Economic Review

Gyourko, Joseph and Peter Linneman. Equity and Efficiency Aspects of Rent Control: An Empirical Study of New York City. Journal of Urban Economics, 26, July 1989, pp. 54-74

Rapaport,  Carol.  Rent  Regulation  and  Housing  Market  Dynamics.  American Economic Review, 82, 1992, pp. 446-451

Simmons, Tammie X. and Stephen Malpezzi. Rent Regulation and Mobility in New York City. University of Wisconsin, Center for Urban Land Economics Research Working Paper, 2003.