By Nick Clay, National Residential Landlords Association (NRLA)
The Lettings Industry Council (TLIC) report Beyond Section 21 reviews reforms to the court and bailiff process, along with strengthening section 8 grounds and using mediation and the potential for these reforms to benefit landlords and tenants.
It is possible to quantify these benefits, and also acknowledge further benefits which add to the case for introducing reforms. The use of project appraisal techniques can demonstrate the net benefits of the approach proposed by TLIC.
This blog post briefly introduces some of the elements which can be modelled in a Cost-Benefit analysis of the proposal.
Net benefits of the proposal
There are four main benefits to these proposals:
Firstly, the legal costs saved through implementing the reforms. The more cases are resolved through mediation the greater the benefits to landlords and tenants. Mediation offers a much cheaper route to justice and conflict resolution.
Legal costs are not just solicitor and barrister fees. Court time and administration also add to costs. These are a financial and time cost. There is also an opportunity cost saving as courts and administrators time are no longer filled with housing claims and resolution. Freeing up courts enables capacity to address case backlogs in other legal areas.
Swifter resolution of disputes is also beneficial to the broader housing market. Where a landlord is better able to take possession where they are entitled to do so, this benefits not just landlords but tenants too. Swifter resolution to possession claims means tenants benefit from a better functioning private rental market.
With the implementation of these reforms, landlords would be able to take possession and place property back on the rental market more quickly. They would therefore benefit from the rental income they presently lose from court delays and an under supply of bailiffs.
The quicker resumption of rental payments with existing tenants as a result of mediation also benefits the rental market more generally – it provides assurance to the supply side of the rental market.
Outside the scope of the report are a range of wider, societal benefits which extend beyond participants and wider stakeholders in the private rental sector. These benefits are an aggregate of several economic impacts which emerge as a consequence of the move to a new approach to housing justice.
New infrastructure is required – to house both court facilities and administrators. There is also the need to provide necessary digital infrastructure which adds to total investment.
This investment yields a range of construction and supply chain benefits. Construction benefits are often relatively small. But the legacy of this investment would be a local expansion of highly skilled, well paid jobs across a range of legal and administrative occupations. All of these have positive benefits on a local area – and these benefits become still bigger through so-called multiplier effects.
One example: The spending of the wages by those employed in these jobs support yet more local jobs and so on. The spending of visitors to the Housing Court raises induced spending in the local economy - and so the economic benefits continue.
The geographic location of these new facilities can be chosen to maximise the local impact of these Wider Economic Benefits (WEBs). In larger conurbations the net wider benefits will be small in the context of the large economies. In smaller cities or larger towns these impacts will be more beneficial.
These benefits can be further leveraged through using the local Housing Court as a centrepiece of a wider regeneration initiative. Court square regeneration projects and wider ‘civic quarter’ schemes are typical examples of how investment in local legal and court facilities stimulate wider business, leisure and retail investment in a physical town centre location.
All of the above are quantifiable but there are also other local societal benefits which emerge as a consequence of a better functioning PRS. Many of these are less easily measurable.
For example, the assurance a better functioning system of legal redress brings would raise the willingness of landlords to let at LHA rates. Changes thus enable the PRS to play a greater role in local housing & homelessness policies. In turn, improved housing options leads to enhanced outcomes across a range of employment, health and neighbourhood-based measures.
Beyond Section 21 sets out how the PRS can benefit from a set of justice reforms which represent improvements to the present system. This is a system which was already creaking before the Covid-19 pandemic.
The NRLA have used the very basic set of assumptions of costs and benefits associated with the revised model as the basis for a cost-benefit analysis. On this basis the NRLA have estimated net benefits could be worth a total £360m+ (on an NPV basis) up until 2049. This does not include wider economic benefits (WEBs) nor the societal benefits which will be local and scheme dependent. Even without including these wider benefits, the NRLA calculation is a not inconsiderable return on modest outlay.
Finally, it is also important to note that the approach on which this modelling is based has made a modest change to the profile of capital expenditure: If the capital investment is ‘front loaded’ – which is a not unreasonable assumption – the model outlined in Beyond Section 21 becomes an ideal catalyst to help “build, build, build” the economy out of recession.