Richard Blanco, London Representative for the National Landlords Association (NLA) explains why the UK must not return to Rent Control.
There has been a worrying increase in calls for rent controls recently. In December 2012 the Labour Party Private Housing Policy Review called for annual indexation of rent increases once the initial rent has been set. More worryingly, MPs including Jeremy Corbyn, and this week David Lammy, seem to be calling for a return to something akin to 1970s housing policy. Lammy’s comments were in response to the testing of the Government’s overall benefit caps, equivalent to a benefit ceiling of £350 per week for single individuals and £500 for families.
During an interview about the caps on LBC Radio, David Lammy stated that rents in London had risen by 7% in 2012. This is indeed the case and it is so because house prices also rose by 6.8% in the capital during the same period; increasing rents merely reflects the increasing cost of buying and maintaining rental property.
The government hopes that the relaxation of planning constraints will encourage more house building and it has set local authorities ambitious targets. The Bank of England’s funding for lending scheme has increased the flow of mortgage finance and the government hopes its help to buy scheme will enable buyers with small deposits to gain access to home ownership. However, fundamentally we need to build more housing and free up mortgage finance to take pressure off rents. The private rented sector now stands at just below 18% of all housing stock while social housing’s role continues to decline.
All of the government measures – if they are successful – could take years to feed through into the housing market. Meanwhile, benefit claimants affected by the welfare cap are, on average, £93 per week short of the amount they need to pay their rent. The answer according to many is for landlords to reduce their rents accordingly.
But we forget that landlords need to cover their costs to stay in business and will only continue to invest if there is the possibility of profit. Why is it that shops, garages, plumbers and other small enterprises can make a profit but landlords shouldn’t?
The idea that landlords are raising rents just because they can also seems to be gaining currency at the moment. Yet according to the NLA’s latest tenant survey, 67% of tenants say their rents had not risen in the last twelve months. Many landlords opt not to raise rents once the tenant is in situ, only reassessing rents between tenancies.
So, are rents controls really a viable solution?
Residential letting contracts were de-regulated by the Housing Act of 1988 and the 1989 introduction of the Assured Shorthold Tenancy. Prior to that, rent controls were the norm and the private rented sector shrank to 8% of all housing stock. A re-introduction of rent controls would cause the sector to shrink back into decline.
In addition, lenders would be less likely to offer buy-to-let mortgage finance if there uncertainty over whether rents could cover mortgage payments. Landlords would stop buying and many would withdraw from the market as their businesses cease to be viable.
And institutional investors who work on a 20 to 30 year timescale and are just starting to take an interest in building to let on a large scale would certainly about-turn on any investment proposals.
Indeed, the artificial suppression of rents sounds like an easy solution. But it would reduce the stock available through the private-rented sector. The lack of growth in the social sector means that demand would not be met, so we would see an increase in homelessness and families would be placed in temporary accommodation at huge cost to the public purse.
Rent is a product of the value of housing, which is in turn a consequence of its availability and the cost of provision. You cannot influence the former without addressing the latter. Rent control is not the answer.