Tenurial ‘competition’, maturation of housing systems and the private

rented sector: An international reappraisal

Kath Hulse, Colin Jones and Hal Pawson

Introduction

• Re-appraise the role of the PRS internationally • Broader issues - nature of tenurial

‘competition’ and the maturation of housing systems

• Key theoretical perspectives • Case studies of a small number of countries in

Europe and Australasia• Role of governments in relation to the PRS

Unitary and Dual Markets

• Kemeny dichotomy• The unitary rental market in countries like Germany

contrasted with dual rental systems in Anglo Saxon countries• In unitary markets, governments ‘take part in the

construction and continual maintenance of markets’ and PRS regulated/supported to compete equally with ‘cost’ renting in the social housing sector

• In dual system PRS is unfettered, unregulated and effectively protected from competition by residualised social housing

• In unitary market two tenures, rental and home ownership, whereas in dual markets rental split into two, ie three tenures

Unitary and Integrated Markets

• Later paper Kemeny distinguishes between unitary and integrated rental markets

• Integrated market - renting has developed to a point that they can compete without the regulation of PRS

• Process sees gradual relaxation of rent control and regulation of the private rented sector

• Social cost housing is not only competitive with PRS but also offers wide market coverage

Underlying Dynamic

• This work is primarily theoretical with key concept is maturation

• Process is common to all housing in which purchasers incur debt, including owner occupiers as well as owners of rental property

• Over time real value of outstanding debt on a dwelling decreases, even with modest long term inflation.

• In this way attractive older properties in the social housing stock can generate surpluses to cross-subsidise newer housing, providing they can be retained by social landlords

Process of Change

• Eventually rents necessary to cover costs will fall, enabling ‘cost renting’ to compete with private landlords on equivalent terms without subsidies or legislation preventing competition

• Integrated housing system - social housing is competitive with the PRS, offers wide market coverage - alternative to home ownership

• Kemeny’s explanatory framework on the process from unitary to integrated

Commentary

• Kemeny’s ideas - comparisons of dual/ unitary systems, or change from unitary to integrated systems

• Implicitly assumed dual systems = steady state/ not dynamic, fossilised by govt policy settings

• Dual systems are changing

Kemeny and PRS• The PRS is a ‘bit player - only differentials in rent levels

between private and social rented sectors relevant• Other characteristics of the PRS are disregarded, such

as housing type and size, quality and location, as well as profile of households living in the sector

• PRS in dual system is focused on temporary renters: transient stage on a path to social housing or owner occupation

• PRS is only a staging post between the central dual pillars of the tenure system

• But dual rental systems has identified long term renters in the PRS

Hypothesis• Major contention = Kemeny model underplays the current

nature of tenurial competition and position of the PRS • Changes to socio-economic-political system and labour

market support this view• Welfare systems have changed - state sought to roll back

responsibilities including privatisation of housing and creation of a new pattern of rights and responsibilities

• Particularly important to those identified as having dual systems

• Repositioning of state - expand role of the private sector in provision of housing for low income households

Implications• Dual rental markets cannot be in a stationary state• Influenced by functioning of economy, role of the state, and

the choices and aspirations of households • Changing role not simply constrained to liberal welfare

regimes• No longer stark distinction dual versus unitary systems• PRS not simply a consequence of the national social housing

model but are shaped by household preferences and trans-national imperatives

• Demographic trends /flexible labour markets/geographic mobility contributed to a greater demand for PRS in all countries - increased investment in PRS

Empirical Analysis

• Use dichotomy between dual and unitary rental systems

• Reviews international evidence on both the recent dynamics of change affecting the PRS and government policies towards the sector

• Investment in PRS supply/property upgrading • Access to the PRS for low income households

Policies toward PRS investment/supplyDual Systems

• Expansion of private rental in dual countries has stemmed almost entirely from small investor activity following 1980s deregulation which removed rent control and drastically diluted security of tenure

• In Australia, small investor activity has also been incentivised by various tax incentives

• PRS stock in these countries is predominantly single family rather than multi-unit accommodation.

Policies toward PRS investment/supplyUnitary Systems

• Unitary markets -long term rent regulation of PRS and security of tenure, and sector has predominantly old and small properties, much of it multi-unit buildings

• Regulation has gradually begun to ease in all three countries

• Rents on dwellings constructed after 1991 in Denmark are exempt from rent control.

• In 2004 Dutch government announced a quarter of the private rented sector was to be gradually deregulated

Comparative Roles

• In policy terms major differences toward PRS but it is unclear what the consequences are for characteristics of tenants

• Long term private renters are becoming more prevalent in dual markets

• In UK - 1988 to 2004 the percentage of young people aged 25-29 that are private renters rose from 16% to 31% (Andrew, 2006).

Promotion of PRS and access for low income households

• Unitary market countries have not been identified beyond general strategies to promote the sector via deregulation and subsidies including rent allowances.

• Explicit policies in dual markets - Australia and Ireland as having been particularly active in recent years in this sphere.

• Hybrid schemes targeted at the lower end of market offering subsidies to private landlords

Conclusions• Changes to PRS can be related to revisions in the role of

state and developments in the labour market• Focusing on PRS has highlighted the limitations of the

dual/unitary dichotomy• No distinct differences in the size of PRS in two market types

although differences in the characteristics of the housing stock, size of landlords and tenants.

• PRS is growing in dual markets - declining in the unitary markets.

• Part of the reason is the deregulation of the PRS in dual markets but unitary markets are interestingly now following

• Governments in both types of markets are now set on stimulating investment in PRS although governments in dual markets are leading the way with specific measures