Will the Renters Reform Bill cause a landlord exodus? Does it matter?

The Renters Reform Bill is intended to shift the power dynamic towards renters and away from landlords – but will that shift cause landlords to sell up and leave the sector for good?

That’s been the warning from the landlord lobby in the lead-up to the bill’s introduction to parliament on Wednesday.

The private rented sector has grown in recent years and is now home to 11 million renters in England, many of whom have been unable to get a social home because there aren’t enough of them or buy a property because house prices are too high.

That has meant demand for private rental properties has soared and prices have grown along with it to hit record highs.

With landlords now facing new legislation that means they cannot evict tenants without giving a reason or reject tenants because they have children, pets or receive benefits, the concern from some quarters is that landlords will give up on renting and sell up.

David Smith, a landlord of one property who wrote in to The Big Issue, said renting out a property had become a “pointless business”. He cited increases in capital gains tax, a £600 rise in mortgage payments and the inability to claim tax relief on the mortgage as reason to “sell it and pocket the cash”.

Oli Sherlock, director at rental market expert Goodlord, also warned Renters Reform Bill may backfire on tenants.

“Right now, all the anecdotal evidence points to a rising number of landlords deciding to sell up,” said Sherlock. “This, combined with a chronic lack of new rental homes being built, is creating a supply and demand issue that is driving up rental prices, creating despair for tenants seeking new homes, and resulting in market conditions which this bill hasn’t been designed to fix.”

As the government bill moves through parliament, this narrative is likely to continue, amid warnings the bill will be watered down to suit landlords. One Conservative MP told the i this week landlords were already “dropping out of the market and then going into Airbnb”.

The National Residential Landlords Association said there is evidence that renters reforms may prove the last straw for some landlords.

Chris Norris, NRLA policy director, said: “I think one of the big functions of the NRLA at the moment is to try and calm down landlords a little bit because I think there tends to be a knee-jerk reaction when big announcements are made.

“We have to try and calm members down and explain to them how long these things take to work through and although we expect the big headline reforms to come into force there are details to be worked out.

“But we know that lots of landlords have been considering their investments, considering their businesses for some time for a whole host of reasons and this kind of piles on top.”

A recent NRLA poll, carried out before the Renters Reform Bill was published, found around a third of its members planned to sell up in the next five years.

Around 17 per cent gave the reason of rental reforms offering the opportunity or driving them to sell a property – that rate was similar to landlords who planned to leave due to rising mortgage rates or upcoming deadlines to make homes more energy efficient.

“I think when you roll those three things together, you are gonna have quite a significant proportion of landlords, at least selling some property might not be all of it,” said Norris.

He added: “The caveat, we always have to point out in terms of our polling and our members is, just because landlords are selling these properties obviously doesn’t mean the property disappears.

“What we don’t have a great deal of sight of is where it goes. We started trying to ask our members a bit more about if they know if they’re selling to another landlord and it’s about half of the sales I think that we’re seeing at the moment, but it’s not always that clear.

“So some of it is staying in the market, some of it is just consolidation.”

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But is a landlord exodus and rising rents a likely reality?

Darren Baxter-Clow, a principal policy advisor at the Joseph Rowntree Foundation (JRF), described the claims of an exodus as “nonsense”.

Baxter-Clow said there is reason to believe there has been an increase in the number of landlords selling properties in recent years.

When a landlord sells a property they are required to pay capital gains tax and official data on tax receipts shows the number of additional properties sold has increased since 2016. This is likely due to tax changes affecting landlords that came into force in 2016, said the JRF housing expert.

But there is evidence that more landlords have entered the market. There was a surge of investment in the private-rented sector during the stamp duty holiday during the pandemic, according to government data.

Research from UK Finance also showed that the number of outstanding buy-to-let mortgages reached 2 million at the end of 2022. That was up 2,000 on the previous year, reaching a record high.

“Far from an exodus, we’ve actually seen a quite significant influx of investment in the private-rented sector in recent years so those claims just don’t seem to have any real credibility,” said Baxter-Clow.

“New legislation could obviously change that. There might be landlords who have desire to sell up in response to having a bunch of new obligations. And certainly, in combination with higher interest rates, that might happen. 

“But we shouldn’t really worry too much about landlords selling up. If landlords don’t want to rent properties out to a minimum decent standard or provide tenants with basic rights like security then they’re probably not in the right market.”

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If landlords do decide to sell up, what’s to stop rents rising further?

The Renters Reform Bill does give tenants the power to tackle rent increases but otherwise the legislation does little to stop the demand issues causing rising rents.

Building more social homes is one long-term solution to the affordability issue facing renters.

Letting landlords who want to sell their property offer it to local authorities and housing associations to rent out at more affordable rates could also be part of the solution.

This is already happening in parts of the country. The Right to Buy-back scheme in place across 14 London boroughs saw 1,500 homes brought back into public use last year. 

Piecemeal schemes are running in other parts of England but the Affordable Housing Commision called for a National Housing Conversion Fund to be introduced as far back as 2020.

“Those homes don’t just disappear,” Baxter-Clow added. “Actually a landlord selling up could create opportunities, either for first-time buyers to access those homes or, with the appropriate support from government, councils could buy them up, retrofit them and get them out as social housing, which we would like to see them do.

“What we need to be doing is having a smaller, better quality private-rented sector and more people moving into ownership, if that’s feasible for them, or social housing.

“We’ve seen an explosion in the private-rented sector since the early 2000s and it’s taken a very long time for regulation to keep pace with the expansion. Really this legislation is much needed and it’s great that it’s happening but it’s delayed and it’s really playing catch up with the reality for a lot of renters.”

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