Whatever else we imagine the legacy of COVID-19 to be, uncertainty is a given. The Bank of England predicts massive economic growth in the coming year. This will likely be fuelled by the boom in consumer spending expected when all the unspent income built up during lockdown is unleashed not just on the high street, but also in the holiday and hospitality industries and, naturally, in the lettings industry and property market.
Nevertheless, it is impossible to predict whether the effect will be felt in the same way across all sectors, or whether there will be a significant imbalance of winners and losers…
Resilient Market
The property market has shown remarkable resilience in recent years, emerging relatively unscathed from the crash of 2007. Even the lockdown, with its premature easings and subsequent re-impositions, has not knocked it off course. This was helped enormously by some of the Chancellor’s emergency measures, such as the extended stamp duty exemption and his encouragement of mortgage repayment holidays. Estate agents and solicitors report feverish levels of conveyancing activity.
However, the effect of the pandemic on the rental market may be more nuanced. Stories abound throughout 2020 of rising unemployment – with the sudden loss of income making rentals unaffordable. Those stories were certainly true, but perhaps not as widespread as reports suggested. According to the National Residential Landlords Association (NRLA) 90% of tenants have continued to meet their rental obligations. At the same time, the moratorium on the use of Section 21 has given anxious tenants a sense of security. Gloomy predictions of an imminent eviction crisis may be overstated.
Co-operation
Precisely because the pandemic was so unprecedented and unexpected, landlords and tenants alike found a common cause in the need to adapt in the interests of all parties. We saw the adoption of rent reductions and deferrals designed by landlords to ease the hardship of their tenants, in recognition of the new and intractable reality. In cases where rent arrears did accrue, landlords have tried to opt for communication and mediation rather than the blunt instrument of court action. This cooperative spirit has undoubtedly helped to protect the image of the private rental sector.
It’s not just existing tenants who have had favourable experiences. Many landlords have been offering virtual viewings to enable prospective tenants to explore the market and find suitable homes despite the harshest social distancing rules. The flexibility shown on both sides of the relationship bodes well for the future.
Changing Dynamics
Lockdown has had some interesting effects on other practices within the sector too. Property management software has become popular in recent years and the use of property inventory apps has really taken off in response to the necessity of carrying out virtual inspections. The pandemic has done nothing to change the importance of inventories and inspections but the willingness of landlords and tenants to co-operate and communicate in this new virtual world has proved invaluable.
However, there is evidence to suggest that many tenants have been prompted by recent events to seek ways around the existing status quo regarding tenancies. The most common tenancy period offered by landlords in the UK is twelve months. There is a perception that the status and protections of tenants have been eroded since the replacement of secure tenancies with assured tenancies by the 1988 Housing Act, which was then largely superseded by the assured shorthold tenancy. Since 1997 there has been no minimum tenancy requirement, a two-month notice period and of course the Section 21 mechanism which will soon become available to landlords again, even though there are longer-term proposals to scrap it altogether.
Having tasted the unpalatable possibility of losing their homes, many tenants are looking at the private rental sector with fresh eyes. The possibility of taking out three- or five-year leases direct with councils offers an attractive alternative, giving much greater security. As the vast majority of private landlords own just one or two properties, they may find it hard to compete on an appropriate scale. If they are to remain in the market they may need to adjust their business models. On the other hand, if there is an exodus of landlords the market as a whole may well come down to creating investment opportunities for new entrants and for existing landlords wishing to expand.
The UK has always been unusual among European nations for what some see as a stigma attached to renting. The emphasis has been on home ownership for decades. But the very uncertainties that have had a negative effect on that sector, where the decades-long commitment to mortgage debt has often proved unmanageable under the economic pressures of lockdown, are now starting to reveal the rental market in a new light.
Although it has none of the benefits of ownership neither does it impose the potentially crippling responsibilities? Renting has the advantage of allowing tenants to move quickly and easily from one location to another without worrying about the dreaded property chain. If longer-term tenancies become more common, as seems entirely possible, this won’t limit those freedoms but will give much-needed certainty and stability.
Market forces, tenant expectations, the collaborative experience engendered by the lockdown and possible legislative reform all point to a long covid effect which at least in the private rental sector if nowhere else, can be greeted with cautious optimism.