2023 could be a landmark year for the private rented sector if Michael Gove succeeds in his pursuit of reforming the balance of power between landlords and tenants.
The Renters’ Reform Bill, which has been drifting around the corridors of Westminster like a legislative tumbleweed since 2019, has been extensively commented on by the NRLA, the Law Society, Shelter, Generation Rent and a host of other stakeholders over the years. Each has come with its own level of enthusiasm and recommendations, but collectively the sector is waiting with bated breath to see if the government will deliver on its promise to introduce the Bill before the end of this parliamentary session, perhaps as soon as mid-May.
One area of the Renters’ Reform Bill that has received significant attention is the proposed ban on Section 21 evictions, or so-called ‘no fault’ evictions, which are a leading cause of homelessness in this country and too often misused by landlords in response to reasonable requests by tenants for repairs or remedial works. However, there are also legitimate applications of Section 21 that benefit tenants and property managers alike, none more so than in the student sector.
Fixed-term tenancies are the mainstay of the student PRS, helping to ensure tenancies’ start and end dates align with the academic year. This seasonal predictability benefits both property managers and students by keeping the demand for student accommodation in balance with the supply. Many commentators worry that, unlike PBSA, student HMOs are unlikely to be granted an exemption or any concessions to protect fixed-term tenancies – a move which could cause significant disruption to HMO property managers. A House of Commons Committee report published in February 2023 warned that this could drive many smaller landlords to exit the market entirely, leading to a contraction in the supply of student accommodation.
However, any contraction in supply would be unlikely given the growing line of institutional buyers looking to expand their student HMO portfolios in the face of pervasive Article 4 directives. Following a decade of extensive investment in PBSA —which has, in some circumstances, resulted in localised gluts of luxury accommodation— pension funds and asset managers are turning their attention to student HMOs to diversify their tenant base and broaden their exposure to the domestic student market.
A bigger concern is the impact on students’ choice that would likely result from any disparity in rules governing PBSA and HMOs. Moving from PBSA to HMO from one year to the next could become more challenging for PBSA tenants, who would still be subject to a mandated tenancy end date. Limited by the choice of HMO stock that happens to become available around the time they move out, they could inadvertently be forced to rent another PBSA room.
Students looking to move from one HMO to another may experience the same impact on their choice. Currently, all properties are released in a city around the same time, which prioritises student choice and rewards good quality houses with plenty of interested house- hunters. If properties are, instead, sporadically released to the market, students may be forced to settle for lower-quality housing. In cities with a net surplus of student HMOs, the incentive for a landlord to improve the quality of their property may diminish as a result unless other provisions are made in the Bill to improve baseline standards.
Under the Renters’ Reform Bill, it is expected that tenants may only need to give two months’ notice to end a tenancy. This is ultimately a free option that tenants can choose to exercise at their discretion. So, unless incentivised, student tenants would presumably serve notice just before they intend to leave. Thanks to existing fixed-term tenancies, property managers currently know almost a year in advance when a student property will become available, allowing them to align remarketing with peak demand. A change to this dynamic would force property managers to delay marketing the property, so it is reasonable to assume that the house-hunting season would therefore extend considerably. This would represent a huge shift from the status quo but could serve property managers well; a more evenly distributed house-hunting season is easier to resource and less chaotic for all parties involved.
Interestingly, all this isn’t without precedent. The Private Tenancies (Scotland) Act implemented sweeping changes to tenancy laws north of the border but didn’t offer exemptions to the student HMO sector. Trends emerging post-covid indicate that there is a growing level of institutionalisation of student HMO stock, although it is fair to say that the private landlord exodus has as much to do with the growing level of local and city regulation as it has to do with the ban on fixed term tenancies.
Property managers in Scotland have acknowledged that they have made some operational changes to accommodate the shifting landscape driven by the ban on fixed-term tenancies in student PRS. But given the regulatory, economic, and societal shocks that have plagued the market since 2020, it is nigh on impossible to discern the isolated impact of this regulatory change on the Scottish student PRS with any confidence.
On the surface, it feels unlikely that the Renters’ Reform Bill will be as disruptive to student property managers as some fear, although we may see it accelerate the shift towards institutional management of the HMO sector if the Government follows in Scottish footsteps by not offering exemptions on fixed-term tenancies to student HMOs. Any disparity in tenancy legislation between HMO and PBSA could limit student choice in some cases, although the natural cadence of the academic year would invariably serve to somewhat counter-balance this as students will always tend to align moving houses with their summer break. All eyes are on Mr Gove as to whether any of the materialises anytime soon, however.
* Tom Walker is a co-founder of StuRents, the biggest UK student accommodation platform *
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