By John Henwood
Chewing the fat recently with Bertram, an old acquaintance, the subject turned to new and proposed tenancy laws. Bert (not his real name) is a good ol’ boy; as he would self-deprecatingly say, ‘Jersey born, Jersey bred, strong in the arm, thick in the head’.
However, he is by no means the latter. Indeed, through a lifetime of hard work, enterprise and calculated risk taking, he is quite well off. By no means among the super-rich, but as a saver rather than a spender he accumulated sufficient resources to live in reasonable comfort and provide well for his wife and children.
In retirement he invested prudently; he had taken enough risks through his working life and he preferred his own judgment to that of a financial adviser. He preferred banks to the stock and bond markets and was satisfied with a return below that which he might have achieved in less stable investments.
That was fine until 2007 when the collapse of Northern Rock followed by other seemingly solid organisations became a financial train wreck which even destroyed Lehman Brothers, an institution thought to be as safe as Fort Knox. Clearing banks wobbled and it seemed any of them might collapse at any time.
In the UK, the USA and other major nations, massive government intervention gradually stabilised the situation, but public confidence in banks was badly shaken. Interest rates fell to zero and there was even talk of negative interest.
Shocked by the sudden change in his financial situation and with few options available in the recession that followed the crash, Bert turned to bricks and mortar. As he said, people will always need homes and property looked a much safer option than other investments.
He bought three properties, a flat and two semi-detached houses, none of them grand, but all in good condition, and let them to local residents. He maintained them well and was satisfied with a rental return around the same as he had been getting from a bank before the crisis, about 5% a year.
For well over a decade, he was content. He increased rents modestly, never more than the increase in the cost-of-living index, and when inflation spiralled he decided to forego increases believing his tenants were going through a hard enough time.
For some while, certain States Members had been attacking bad landlords, but he was not in the least worried because he knew he was one of the good ones. The attacks went on and after a while he began to feel besmirched by the indiscriminate barrage of assault on landlords. Eventually a range of new laws were proposed by separate government ministers.
Inflation was soaring and the Bank of England was increasing interest rates. Slowly, high street banks responded and, for the first time in nearly 15 years it was possible to get a safe and reasonable return of around the same as Bert was getting from his rented properties and, as he was keen to point out, without the hassle, interference and cost of all the red tape the government is introducing.
He has written to his tenants to say he had decided to sell the properties. They would have first refusal to buy and, if that was not an option for them, they could stay until their lease expired or for six months, whichever was later. Should they find alternative accommodation sooner, he would not keep them to the full term of the lease. He said other landlords he had spoken to were acting in a similar way.
Consequently, three homes will soon be lost to the rental market. I suspect he is right and that many more will get out of the rental business and invest their resources in other, less restrictive ways.
So, what can we learn from this?
Some little while back Ben Shenton wrote: ‘We did not elect a socialist government.’ Well actually, we did. Almost everything this government has done seems part of a wider social agenda of the sort the Labour Party in the UK is fond and which Reform Jersey promotes. They spend our money without, it seems, any thought of sources of future funding; they churn out new regulation without any consideration of the longer-term consequences.
The proposals around the rental sector are examples of social engineering which will lead to more public servants and miles of red tape. The rental market will diminish, rents will increase, the number of those needing housing will increase. The motives may be worthy, but the consequences will be dire. And all because of a few bad landlords.
There must be a better way.