THE CENTRE FOR MARKET AND PUBLIC ORGANISATION The Centre for Market and Public Organisation, a Research Centre based at the University of Bristol, was established in 1998. The principal aim of the CMPO is to develop understanding of the design of activities within the public sector, on the boundary of the state and within recently privatised entities with the objective of developing research in, and assessing and informing policy toward, these activities. Centre for Market and Public Organisation Bristol Institute of Public Affairs University of Bristol 2 Priory Road Bristol BS8 1TX Tel: (0117) 33 10799 Fax: (0117) 33 10705 E-mail: [email protected] Ensuring Compliance: The Case of the Private Rented Sector Martin Partington, Alex Marsh, Robert Lee, Frank Stephen, Dave Cowan, Helen Carr, Caroline Hunter and Tony Crook Papers from a 1day Workshop 23 March 2006 Working Paper No. 06/148 ISSN 1473-625X CMPO Working Paper Series No. 06/148 Ensuring Compliance: The Case of the Private Rented Sector Martin Partington1, Alex Marsh2, Robert Lee3, Frank Stephen4, Dave Cowan5, Helen Carr6 Caroline Hunter7 and 8 Tony Crook 1 Special Consultant to the Law Commission 2 School for Policy Studies, University of Bristol 3 Law School and ESRC Centre for Business Relationships, Accountability, Sustainability and Society, Cardiff University 4 School of Law, University of Manchester 5 School of Law, University of Bristol and CMPO 6 School of Law, University of Kent 7Centre for Social Inclusion, Sheffield Hallam University 8 Department of Town Planning, Sheffield University March 2006 Keywords: regulation, law and economics, governance, compliance, renting JEL Classification: K10 Address for Correspondence School of Law University of Bristol Wills memorial Building Queens Road Bristol BS8 1RJ 0(044)117 331 5122 [email protected] www.bris.ac.uk/Depts/CMPO/ CMPO is jointly funded by the Leverhulme Trust and the ESRC Martin Partington Special Consultant Law Commission Conquest House 37/38 John Street Theobalds Road London, WC1N 2BQ Alex Marsh School for Policy Studies, University of Bristol 8 Priory Road Bristol, BS8 1TZ [email protected] Robert Lee Co-Director The ESRC Centre for Business Relationships, Accountability, Sustainability and Society Cardiff University 55 Park Place Cardiff, CF10 3AT [email protected] Frank Stephen School of Law The University of Manchester Oxford Road Manchester, M13 9PL Dave Cowan School of Law, University of Bristol and CMPO Wills Memorial Building Queens Road, Bristol, BS8 1RJ [email protected] Helen Carr Kent Law School Eliot College University of Kent Canterbury Kent, CT2 7NS [email protected] Caroline Hunter Centre for Social Inclusion Sheffield Hallam University Howard Street Sheffield S1 1WB [email protected] Tony Crook Department of Town and Regional Planning University of Sheffield Winter Street Sheffield, S3 7ND 2 Index Introduction....................................................................................................4 Private renting: The regulatory challenge ...................................................6 Abstract ......................................................................................................................6 Introduction................................................................................................................6 The nature of the sector and the issues faced.............................................................7 Enforcing obligations.................................................................................................9 How big is the compliance problem?.......................................................................10 The ‘puzzle’ of voluntary compliance .....................................................................13 Embedding economic transactions ..........................................................................13 Implications for regulation.......................................................................................15 Conclusion ...............................................................................................................16 References............................................................................................................16 The private rented sector: The regulatory landscape...............................19 The origins of private sector rent regulation............................................................19 The macroeconomics of rent controls......................................................................22 The current state of the private rented sector...........................................................25 Privatisation, deregulation and liberalisation...........................................................27 Market failure and regulation...................................................................................28 Conclusion ...............................................................................................................32 Regulation of private rented housing: A law and economics perspective .......................................................................................................................34 Introduction..............................................................................................................34 Regulation and Market Failure ................................................................................34 Contracts ..................................................................................................................35 Game Theory ...........................................................................................................37 Implications for Policy.............................................................................................40 Conclusions..............................................................................................................41 References............................................................................................................41 Governing the ungovernable ......................................................................42 Abstract ....................................................................................................................42 Introduction..............................................................................................................42 On housing ‘problems’, ‘questions’ and ‘crisis’......................................................43 The modern housing crisis.......................................................................................46 Crime control crisis..............................................................................................46 A specific problem: Security in the private sector...............................................47 A Case Study: Houses in Multiple Occupation (HMOs).........................................50 Context.................................................................................................................51 The judgment .......................................................................................................54 Creating governing communities.........................................................................55 Conclusion: From rachmanites to partners to governors .........................................57 References............................................................................................................58 Ensuring compliance: the case of the private rented sector - some concluding reflections.................................................................................64 References............................................................................................................66 Annex A: Powerpoint slides - Professor Michael Ball ..............................67 3 Introduction Professor Martin Partington Special Consultant to the Law Commission for England and Wales The papers in this collection were presented at a workshop held in London on 23 March 2006. The workshop concerned the regulation of the private rented sector in England and Wales or, as one of the participants put it, how best to ensure responsible renting. It was arranged by the Centre for Market and Public Organisation, University of Bristol, with the assistance of the Law Commission for England and Wales. The topic is a key part of the programme of work currently being undertaken by the Law Commission on the reform of housing law - see generally: http://www.lawcom.gov.uk/renting_homes.htm http://www.lawcom.gov.uk/docs/issues_paper.pdf http://www.lawcom.gov.uk/housing_renting.htm The workshop brought together a group of leading academics from a range of disciplines, who were invited to apply their different disciplinary insights onto the issue of how should private renting be regulated. It was not necessary that speakers should know a lot about the rented housing market. Rather we wanted to encourage them to share their understanding of regulation acquired in other areas of activity and explore how insights from other contexts might apply to the private rented sector. When organising this event, we hoped that there would be a series of presentations, which would both inform the ongoing work of the Law Commission but also offer important contributions in their own right. The contributors fully matched up to this expectation, and this is why we are publishing this volume now. All the presentations given at the workshop appear in this collection