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Theresa May’s opposition to longer-term tenancies makes no sense at all

The politics and the economics of it are clear-cut. 

By Stephen Bush

Theresa May and Philip Hammond don’t agree on much, but in a rare moment of alignment they have combined to kill off plans to make three-year tenancies for renters the new norm, the Sun reveals. Their reasoning, however, is very different.

Downing Street fears that the plans won’t be able to command a majority in Parliament. This is a particularly silly line of thinking for a variety of reasons. While it is true that 87 Conservative MPs are themselves landlords, both tenants and landlords benefit from longer-term tenancies as it gives both stability and continuity. (For landlords, it also reduces the amount they pay to lettings agents if they are not looking for new tenants continually.)

It also ignores that if the government brought forward decent proposals on renting, they would gain at least a measure of political reward for trying to do something for Generation Rent. (It’s also politically difficult for Labour to vote against the measure, as no-one can plausibly claim that defeating the government on three-year tenancies is going to trigger an early election: it would just be the Labour party voting against a policy it supports and causing misery for its own voters to no good end.) The Conservatives badly need to do something in this area if they are to claw back their losses among renters, and if not this, what? 

What about Hammond’s objection? The Treasury fears that changing the rules will scare off investment in property development, by making buy-to-let landlords, big and small, less attractive lending propositions. Overall, I am not convinced as, landlords benefit from longterm guaranteed revenue just as tenants benefit from the greater security of tenure. There is an open question about whether those changes would result in tougher lending regimes for buy-to-let landlords, but again, it is not wholly clear why this would be the case: an empty property generates no revenue to pay off a mortgage, and shorter tenancies bring greater risks to buy-to-let landlords. Long-term tenancies carry benefits for tenants, landlords, and banks.  

In both cases, it feels like May and Hammond are basing their thinking on an outdated idea of what the rented sector looks like – one in which the bulk of tenants are students or other people at the start of their professional lives, where longterm tenancies work badly for both ends of the equation. But that’s not what the private rented sector looks like in 2018.

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