As the UK awaits the publication of the Government’s White Paper on housing a new analysis suggests that policy makers could learn a lot from the property market in Germany.
On the face of it the two nations have very different housing policies and plans with more people in Germany renting than owning a home but a study from think tank the Institute for Public Policy Research, much can be learnt from the letting sector in Germany at a time when more people in the UK are choosing to rent.
Indeed, the private rented sector (PRS) in England is growing rapidly, in part in response to the increasing unaffordability of home ownership and the declining supply of social housing. There is mounting concern that across a range of indicators it is a poor substitute for both of these main alternatives.
In the UK Tenants enjoy limited rights, their tenancies are short and rents, while in the short-term more affordable than buying, are rising faster than incomes, preventing tenants from saving for mortgage deposits or even meeting the everyday costs of living.
The IPPR research report said that the PRS does not need to be a poor relation to home ownership or social renting and Germany shows how it can work with a stable and secure market with 40 million plus tenants.
It suggests that the UK can learn from Germany in areas of tenancy security, controls on cost, and tenant representation. ‘We recommend greater balance between the rights of a tenant and the rights of a landlord in England through longer tenancies, help with the costs associated with renting, such as deposits and letting fees, and stronger, more formalised representation,’ the report says.
It points to a number of similarities between the German and English rental markets, including the processes for finding a property to rent, checks on tenants’ finances, and expensive deposits. There are also similar ownership patterns as in both countries most landlords own only one or a few properties.
There are, however, many areas of divergence in which the German PRS appears more attractive offer to prospective tenants. Notably, German tenants enjoy strong security of tenure. Most tenancies are indefinite and only in very limited circumstances can landlords evict tenants. In England, the assured shorthold tenancy is sic to 12 months as standard, and landlords can evict tenants at the end of the initial contract period without justification.
The report says that tenants in Germany therefore enjoy more stability and assurance in their living arrangements and tend to move house less than their English counterparts. German tenancies last, on average, 11 years compared to only 2.5 years in England. However, it adds that for all these advantages, longer term tenancies in Germany can make it difficult to access new rental properties.
In Germany the proportion of tenants overburdened by their housing costs, in that they are paying over 40% of their income towards housing, is much lower than in the UK at 23% compared to 33%.
The report explains that in Germany rent controls place strong restrictions on in-tenancy rent increases, and the new ‘rent brake’ will make it more difficult for landlords to charge higher rents when re-letting a property. England’s rent control system has, in contrast, all but disappeared.
It recommends that the UK should learn from Germany and move towards a system of longer term rental contracts and more protection for tenants and to do so there should be change to gradually increase the length of current tenancies.
It also suggests that not for profit lettings agencies and public online lettings services, such as RentSquare, could provide incentives and services discounts to private landlords offering longer term rental contracts.
The Valuation Office Agency should publish more granular detail on the local cost of renting, so that tenants know whether they are paying a reasonable local rate and this should include the full range of property types and property sizes alongside the average prices, it adds.
‘It is important to note, however, that while England can learn a great deal from Germany, there remain areas in which the German rental offer can be improved. German law, for example, should be revised so that the costs of modernisation for energy efficiency improvements can no longer be transferred entirely to the tenant in the form of increased rents, a system that sees sitting tenants often having to end their tenancies as rents become unaffordable, and which indeed may be abused to encourage tenants to move out, and circumvent other tenancy protections,’ it concludes.