Across the course of 12 blogs, I thought it would be useful to sum up some of the key housing policies which are being proposed, or being discussed as we speak. This is the fifth in the series.
The rules in the sector from April 2015 will be social rents will increase in line with the Consumer Price Index (CPI) + 1% each year (it’s currently Retail Price Index (RPI) + 0.5%).
A move to rent controls which allow for this kind of increase every year for most landlords (and letting agents) could actually be a good thing. Currently from the research I have done and having produced the Belvoir Rental Index since March 2008, rents have hardly increased at all since the highs of 2008, bar London, especially for those who have stayed in their existing accommodation.
And the independent Index of Private Housing Rental Prices from ONS backs this up showing private sector rents are not ‘spiralling out of control’ as many headlines and reports claim.
In fact their latest quarterly data shows:-
Rents rose in Great Britain and England by 1% in the 12 months to Sept 14
In Scotland they increased by 1.4% and in Wales by just 0.2%
London, where it’s being suggested rents are ‘out of control’ by many, they were recorded rising by 1.5%.
Who is supporting rent controls?
The main supporter of pure rent controls is Generation Rent. They claim there is a rent “affordable crisis” and that tenants in London are paying “on average £188 more than those with a mortgage each month.” But this figure ignores the additional costs of home ownership including maintenance and it’s based on an owner having a 27% deposit – so not a robust comparison as it’s like comparing the cost of a rental car with one you own.
They suggest “a living rent pegged at 35% would be £391 per month for a single person” and that this is ‘scaled up for each additional bedroom.”
The system would work “based on Council Tax bands and the rents would be capped at 50% per month of the annual council tax band for the home.” An example given is Croydon. They have “a band A (pretty much a bedsit) band of £780. The rent cap would therefore be £390 per month.”
From a policy perspective, Labour are backing rent caps as opposed to rent controls. They are suggesting a new ‘formula’ is created so excessive rent rises can’t be imposed on tenants. They have yet to explain how this would work, but are considering linking them to average rent rises, inflation or a combination of the two.
What are the ‘unintended consequences’ of rent controls?
The first unintended consequence can already be proven. Under a rent control environment in social housing, rents have risen by 22% since 2008, private rents have increased by only 7%. Regular increases which don’t always happen with long term tenancies if the tenant is a good one, may now be imposed if built into the tenancy agreement. This could result in tenants paying more, not less rent and the policy benefiting landlords and agent instead of tenants.
However, the biggest unintended consequence is that the rent controls described by Generation Rent may well make private renting unaffordable for landlords, therefore reducing supply. They don’t appear to have taken into account the cost of supplying legally let private rental accommodation, which in London is enormous. If cap/controls make private renting unaffordable, landlords will just sell up, moving their money elsewhere, reducing supply.
Finally, we are literally just about to turn the corner with much needed institutional investment, not just in lucrative London, but in the regions too. This type of investment is vital to helping us close the housing supply gap and offers tenants long term rents from professional landlords which will much improve the Private Rental Sector. Talk and implementation of rent controls and caps could, as it did in the late 1960s scare away the very accommodation tenants desperately need.
