Good morning. My name is Helen Gordon. I am the chief executive of Grainger plc, the UK’s largest listed residential landlord. We have 10,000 homes; we specialise in mid-market and affordable homes. We have been around for 110 years—not me personally!—so we have experience of dealing with much of what is in the Bill. Thank you for inviting me.
We support the policy intent of the Bill. We think that there are some unintended consequences in the detail with respect particularly to the grounds for possession, but also to the minimum term of two months and how that might deplete housing stock in the UK.
Q Thank you for coming to give evidence. You will no doubt touch on your wider concerns in answer to other questions, but I want to ask you specifically about student accommodation, in which I think Grainger has an interest. Am I right?
Q I have got that wrong; my apologies. In that case, could you expand on the concerns you touched on in your introduction about the grounds for possession and the notice period?
I think the Bill’s intent was to give security to occupiers. Encouraging long-term renting is absolutely at the core of the build-to-rent business model. One of the difficulties we have is that a minimum term will affect both the planning for build to rent and the financing of it. It will also have an impact on small buy-to-let landlords, as most of their financing has a requirement in it for a minimum term. I do not know whether the Committee is going to speak to the banks about that, but two months would be in breach of most lenders’ requirements. It is definitely in breach of a lot of capital requirements for going into the professional build-to-rent sector as well.
Q Would you accept that if the private rented sector is overhauled and improved, for example if we drive up standards, there should hopefully be a trend towards tenants not needing to move out after that minimum period, and we should have a system in which people have security and have less reason to stay in a property for only a short time?
I think that that is absolutely the intent, and it is the business model. I want to talk about the fact that there is a lot of bad practice. If you go now to Rightmove’s website, or wherever, you will pay significantly more for a short-term tenancy than you would for a six-month or 12-month tenancy. People will abuse that. Searches of Rightmove’s data will give you only a certain amount of data, but we have data showing that in London up to 10% of the people wishing to rent only want to rent for a couple of months. Not having a minimum term greater than a couple of months will lead to a lot of Airbnb and transient renting. That is why, in planning, Westminster City Council and many other councils insist on a minimum term for rental property. The two months approach in the Bill seems to fly in the face of that.
Q Thank you to our witness. You are proposing that tenants should not be allowed to give notice to end the contract for the first six months. What would you say to someone who says that it is unfair for a landlord to be able to end a tenancy early, after less than six months, when a tenant is not able to end it early?
Just to clarify, I think a minimum term of six months would work. That could be four months with two months’ notice. There is a balance between the two. Most landlords will work with a tenant if they make that decision. What I am trying to stop is the abuse of sub-letting and the unintended consequences of financing. Obviously, there is all the protection, so if it does not meet the minimum home standard, it is in breach or it was misrepresented to the tenant, they have all of those grounds, in any event, to leave. But if their circumstances change, I think most landlords would work with the tenant on that.
Q On Tuesday, we discussed the antisocial behaviour grounds. Do you have any thoughts on that?
Absolutely. We have real live examples that I am happy to share with the Committee. We do differ. A minimum build to rent is usually at least 50 homes. The majority of Grainger’s properties are around 250 in a cluster. If you get antisocial behaviour, that can have a very detrimental effect on the whole of the community—we build communities.
Evidencing antisocial behaviour often requires you to get neighbours to make complaints and witness statements, at times when they have been personally intimidated. I have a very live example where we literally had to empty the six properties adjacent to the property causing a problem, and it took something like 15 months to get the ground for possession through the courts.
So we would really welcome lowering the bar on antisocial behaviour. I would particularly like it to reference sub-letting and party flats. There is quite an industry, which, fortunately, Grainger does protect itself from, where people take a property and then sub-let it as a party flat at weekends, causing disruption to the whole block.
Q I have two quick questions. First, the Government are proposing a registration scheme for party flats and Airbnbs, and they are consulting on it at the moment. I understand your concerns, but how does the registration scheme fail to address them? Secondly, I am aware that Grainger has talked in the past about how it uses the consumer prices index and wage inflation to increase its rents, particularly for the build-to-rent market. Could you expand on whether it is still Grainger’s view that it is possible to use some sort of maximum capping clause on rent?
Can I take your first question first? There is a difference in terms of what we would generally say is a party flat. Grainger forbids these things in its lease, and the prospect of anybody who is already in contravention of the lease—probably not paying rent and making a profit rent out of the party flat—going through a registration scheme is pretty unlikely. I am talking about illegal sub-letting as far as the lease is concerned, and illegal party flats.
Explicit on the grounds of possession.
Thank you for also referring to the CPI. For family homes, Grainger offers at least a minimum term of five years, if people want a five-year term. To give people certainty, we have offered CPI uplifts. Obviously, CPI has been quite high until recently, and in our submission originally we said there could be an equivalent of a triple lock, so it could be CPI or another index—wage inflation is a good one because it is linked to people’s ability to pay. That is actually how Grainger currently views how our rents progress in terms of affordability—it is very much linked to wage inflation. Those are just some ideas that we had at the time. To be clear, that is in-lease; it is not forever and a day.
I just want to go back to your point about these party flats. What the Government are consulting on now, which Lloyd referred to, should address that, and also the other consultation on the current 90 days in London. Can you explain what you meant about what Westminster City Council is doing? It has always done the 90 days since the Deregulation Act 2015. That is not just Westminster City Council; it is the whole of London.Q
Yes, you are right; it is across London—some people do not. Westminster is particularly good at it, because of tourism. People come to London for the summer and purport to take a six-month property, and the reality is that they could give notice on day one that they are leaving in two months—it is a cheap form of Airbnb. So this is really to try to put down roots for longer-term communities.
Q On Tuesday, we heard from a number of representatives of renters and landlord associations that a minimum term would be helpful in some circumstances, whether or not that is a two-year minimum term to try to provide the security and build the communities you have described. Do you think that that would be a good idea? How might it work in practice, in terms of some of the notice periods people might be able to give and allowing flexibility for people whose circumstances change?
The business practice on build to rent was quite often to give a one-year, three-year or five-year lease to offer that, with the CPI uplifts within it. Most landlords are happy to give a minimum of 12 months or two or three years. In our case, because we are a longer-term landlord and we know that we will not require the property back for us to live in it, we have offered longer leases. I suppose the in-perpetuity tenancy does away with that need, but linked to that is giving tenants certainty on where their rent would go. Within that, if we had for example put CPI—and we had a very high level of CPI at the end of 2022—our customers could still give two months’ notice; they can leave within that minimum term as well.
Q Very briefly, then, can you tell us the current typical length of a tenancy in one of your properties? Has this Bill affected the pipeline for properties that you will develop in future?
The average stay, excluding our regulated tenancies—many of them have been with us for 40 years—is 32 months. We offer six and 12-month tenancies, but most people like to take a 12-month tenancy.
Has the Bill affected us? We are probably unique in the fact that we have a very good central treasury team, but I know that, for peers in the industry, it is curtailing their ability to invest in the sector until we can sort out that minimum two months, which will affect their financing. I know that others have actually rowed back from investment. The statistics are out there: you can see a drop in the number of schemes coming forward.
Obviously, we already have the courts, the first-tier tribunal and the ombudsman. Grainger’s view is that we would like to improve renting across the UK and for it to be mature and sustainable. If we feel that we have a gap at the moment with the courts and the FTT, I think we could work with an ombudsman.