The Prospect of Rent Controls
11th February 2015
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Not content with annoying the business community, Labour have also announced rent control policies which will inevitably impact the UK’s private landlords.

Supporters have welcomed the initiative, pointing to the successful regulatory framework operating in Germany, whilst others predict that investment into rented homes will dry up, established landlords will quit the business, and an informal, unregulated sector will sprout up behind the backs of professional letting agents to prey on the poorest households.

Labour’s main proposals are to require landlords to offer 3-year tenancies, and to restrict rent increase during that period. In fact both of these can achieved under existing legislation; a tenant can request a 3-year agreement with an index-linked rent increases, and these can be written into a tenancy agreement if the landlord agrees. Labour’s proposal simply makes this a legal requirement.

There are a number of problems with this. Currently lenders aren’t keen on buy-to-let loans on properties let for more than one year at a time; they will need assurances that their interests are protected otherwise the whole idea is a non-starter. No doubt some kind of indemnity policy will be involved, which will increase costs straight away, or they will impose even higher interest rate for the long-let period.

Labour already tried rent controls in the 1960s and 1970s, which are widely believed to have damaged the sector and led to poorer housing being available to tenants. Furthermore the example of Germany cannot really be equated to theUKas the housing market and population growth there is flatter; in the few cities where demand is comparable to the UK the success of their policy is rather less clear.

Will either of these policies have a measurable impact anyway? The most recent English Housing Survey shows that between 2008/09 and 2012/13 private sector rents (uncontrolled, remember) increased by 6.5%, whereas social sector rents increased by over 25%. Over the same period inflation was 16% so private renting actually got cheaper, despite all the increased regulation. Surely market forces will continue to more effectively restrict rents than artificial controls.

And demand for longer tenancies? According to the Residential Landlords Association over a third of tenants stay in a home for less than a year, and fewer than 20% rent a home for more than five years. The question here would have to be - is this because of tenants' precarious position on 12-month agreements, or because they feel that renting is financially ruinous compared to home ownership? I suggest the latter.

Maybe the UK can move to a more German-like rental market, with families happy to rent longer-term, but while house prices continue to boom and house building continues to fall way behind demand, Labour's proposals are more political positioning than an evidence-based attempt at a real a solution.

About the Author

Carly B

Member since: 8th May 2013

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