The impact of rent control

money_handover

Past attempts

For many years, rent control was considered an out-dated practice from a bygone age, with a history of failure and complications around the world.

In the UK specifically, the various Acts which introduced rent control in the private-rented sector had a dramatic effect on the proportion of households renting from a private landlord. As the chart below illustrates, the sector shrank dramatically after the introduction of controls in the Rent and Mortgage Interest Restrictions Act 1939, and continued to decline as the legislation was tightened through the 1950s, 60s and 70s.   It was not until the reforms of the 1980s that the private-rented sector turned the corner.

Even so, the initial pace of change was slow.  The modern rented sector only really developed after the enactment of the Housing Act 1996 when the Assured Shorthold Tenancy became the default tenancy and lenders felt secure enough to expand mainstream lending to individuals.

chart

Political agenda

Yet, despite the wealth of evidence to suggest that statutory price capping does far more harm than good to the supply and quality of rentals, it is back on the agenda for some politicians.

The appeal of price controls to politicians is simple. It is a basic concept, easy to understand and able to appeal to a certain group of voters with whom it is often difficult to engage. Unfortunately, while the concept is simple, the practical and economic consequences are incredibly complicated and difficult to model.

The impact

Those proposing rent control tend not to consider its impact on the wider society. The use of rent ceilings has been shown, time and time again, to reduce the quality and quantity of property available to rent legitimately, while fuelling the growth of a black market. It wasn’t difficult to find somewhere to rent in the 1980s, but few renters were ever offered a full tenancy, with all the protections that entailed.  For good or ill, many properties were let on a “licence to occupy”.

Were a future government to introduce such a policy after the May General Election, the impact would undoubtedly be a reduction in the the number of properties available to rent and the exit from the market of a large number of responsible landlords who simply are not prepared to deal with inevitable reduced income or the higher costs that will follow as service providers, such as mortgage lenders and insurance providers, seek to off-set their risk.

Rents will be held down as politicians – looking to gain votes – will be unwilling to face the wrath of five million private renters. As the cost of renting to the consumer sinks below the natural market rate, artificially kept below the level needed to ensure that the landlord can maintain it properly, and inevitably squeezing profitability out of the equation, people will vote with their feet. Investment will move away towards other markets and assets better able to provide a reasonable return.

Shortage of housing

The impact of this will be felt more widely than simply by those who rent or let. The issue we face in many parts of the country is a shortage of all types of property for people to live in. Rent control will not increase the number of properties; indeed, it will have the opposite effect, driving investment away from these areas and further reinforcing the divide between high and low demand areas, as developers will no longer be able to cover the risk of new projects by selling off-plan to landlords keen to invest in residential property. Unless there is an increase in first-time buyers willing, and – perhaps more crucially – able to buy to compensate, housing development will fall away, further restricting supply and making it even more difficult for those seeking housing, both to rent and to buy.

The policy of rent control has failed whenever it has been introduced; the re-introduction of rent control in the UK will fail and will cause more damage to the housing sector, and to those that need to be housed.

Be heard

If you’re concerned about the impact this could have on you, enter your question via the survey. The NLA is holding a hustings event, on Monday 2 March, where there will be an opportunity to question policy leaders from all parties. The most popular questions, collected from our survey, will be presented at the event.

4 thoughts on “The impact of rent control

  1. Government rent control is flawed. You only need to watch TV programs to see the regional variations based on property purchase values. A “fit-all” would be impossible. The answer to government is that demand controls the rent values – more “Council Rental” building to replace what was lost in “right to buy” would control rent overall. Exeter is high demand, sales average about one to two months at good prices, even in BuytoLet.
    Tony. Exeter

  2. It is the wrong solution to a problem which is really a shortage of social housing. All political parties have failed to address this issue and to make it a major item in their policies, especially the supply of affordable housing for families..

  3. Rent Control is one of the Act which back fired. It never attains the object it aims but really it aggravate the basic problem of housing. The only section which benefit from the Rent Control is the tenants who already have in their possession any rent controlled building. The aspiring tenants are the worst hit as well as the landlords (or rather Building owners) who let out their buildings. The buildings which come under Rent Control are getting deteriorated due to lack of proper maintenance. As supply reduces the rent and premiums increased.

  4. I remember the problems of the Rent Acts very well. By the time I started looking for a home in 1978/9 the only rented property available was really horrible, usually filthy shared bathrooms and kitchens (in one case between 12 rooms) furniture was disgusting and none of the places I looked at had any semblance of regular maintenance, wood was rotting and unpainted, light switches filthy, carpets worn through to the canvas. Additionally these places were very expensive, not much less than the monthly payment on a mortgage. Even though I did not want to ‘settle down’ and tie myself to one area, I felt that the incentive to own was overwhelming, so I did.
    I have always striven to be a good landlord, keep my property in excellent condition (to have it in a condition in which I would like to live in it) and make it clear from the outset that if we get on, my tenants can stay up to three years on a rolling tenancy. In fact, a few stay longer than that. On the other hand there are such people as bad tenants …. even if the political parties don’t acknowledge it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s