Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.

The Government would be “incredibly stupid” not to cap private rents according David Orr, chief executive of the National Housing Federation.

Speaking at the national conference of this trade body for social landlords, he told his audience that private rents are close to a record high, but that the Government was too “frightened” even to start a conversation about introducing rent controls.

This is not the first time and will no doubt not be the last time this is called for. The London Assembly’s housing and regeneration committee, a left-leaning sub-group, has recently called on Mayor Boris Johnson to adopt a London based pilot scheme for – rent stabilisation – rent control by another name.

Ken Livingstone and Jeremy Corbyn (MP for Islington North) have both been advocating the move for some time, and Labour’s housing spokesman, Jack Dromey, has been reported as privately favouring such controls.

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Even the venerated Royal Institution of Chartered Surveyors (RICS), to the consternation of some of their members, has jumped on the market control band-wagon, by calling for a cap on house price rises.

Housing charities such as Shelter have not yet argued for explicit controls, but like Labour, and the recommendations of a recent Communities and Local Government Committee inquiry into the Private Rented Sector (PRS), they want longer tenancy agreements, which effectively lead to the same thing.

If rents keep on rising, pressure from some politicians will inevitably increase as struggling tenants get more public support for the idea. There are far more voting tenants than there are investor landlords.

This threat comes as a severe jolt to landlords, as in recent years there has never been a better time to be a landlord in Britain? Interest rates are at all-time lows and the government is boosting the housing market approaching an election with more cheap money.

Rents continue to rise in most areas, and generally there is no shortage of tenants. It’s all good news for buy-to-let landlords.

Investing in property has been one of the few areas where you could get decent returns on savings since the market crash in 2007/8. With almost all forms of alternative investments posing higher risk, owning a portfolio of rental properties has become, in the parlance of the erstwhile boom time investment gurus, a “no brainer” – I hate that phrase!

It also helps landlord investors that first-time buyers are still finding it hard to save enough for a deposit, especially when you add in stamp duty, and the UK population continues to expand apace. Also, there’s still a long way to go, despite government incentives, and changes to planning rules, before new supply even starts to impact on demand.

The overall result is that rents are high in many areas, especially London; demand from tenants is strong, and the cost of servicing buy-to-let mortgage debt is very low.

The figures speak for themselves. According to the Council of Mortgage Lenders (CML), in the second three months of 2013, 40,000 buy-to-let loans were advanced, compared with 33,000 in the first quarter.

Home ownership is now round 65%, a level not seen since 1987. The proportion of the population now living in rental accommodation is around 17.4%, up from around 6 or 7% at the rental market’s nadir, when rent control was ended in the 1980s – most of which is now provided by small private landlords.

So, is there any wonder more and more people are becoming landlords – it’s become a real middle class occupation, albeit in most cases, part-time. There are estimated to be 1.6 million owners of one or two second homes in the UK.

Landlords worries to-date tend to centre on falling house prices, a hike in interest rates and inflation, a squeeze on wages for tenants, all of which would affect their income stream and overall returns.

But in fact, rent control is a far bigger threat that they should be concerned about.

According to Mathew Lynn writing in moneyweek.com a political backlash is brewing against Britain’s new breed of landlords.

Rent control is an issue being considered this week at one of the fringe events at the Labour Party Conference.

Much as the energy companies and other big corporations are now coming in for Labour’s opprobrium, as Labour politicians begin to reveal their policies and show their true colours, landlords could get the blame for pretty well everything from rising prices to unaffordable rents.

Whether you think that’s fair or not, a political back-lash on an issue of this nature could easily become a real threat to landlords’ incomes.

The argument goes right to the heart of political ideology; whether you believe in a free market to set prices, or you think Government control is acceptable and viable.

Should government get involved in controlling markets, with all the bureaucratic mechanisms needed and the side stepping of the rules that this will inevitably entail, or should they concentrate on righting the imbalance in housing supplying and demand by other means?

We can argue the rights and wrongs of this ad nauseum, as we probably will in the run-up to the next general election, but a major reason rents are rising so fast is because there is not enough housing supply.

Local councils just don’t give permission for enough new houses to be built. Whilst measures are in train to overall the planning system, it’s a long slow process and its impact on the supply situation will not be quick.

The advent of the buy-to-let boom and an influx of private landlords into the market has improved the quantity and quality of the housing stock no end.

By responding to the incentives created by the market, Government and the Bank of England, private landlords have filled a void and provided a valuable community service, at a time when social housing provision has been in severe decline.

All of this could be thrown into reverse if rent controls are introduced again as they were under the Rent Acts, where tenants had security of tenure for life, and rents controlled below market levels.

These controls were imposed on Britain for many years after World War II, until the advent of the Assured Shorthold Tenancy in 1988, and all this did was virtually destroy the private rental sector.

They resulted in a severe shortage of rental property and a deterioration in the quality of the housing stock, as landlords just did not make enough money to keep up with repairs.

Where it has been tried in other countries, the results have always been similar. Allister Heath, editor of City AM, writing recently in the Daily Telegraph, said:

while something drastic needs to be done to tackle Britain’s housing crisis, rent controls would be complete madness: they are one of the stupidest economic policies known to man.”

Likewise, left leaning Swedish economist Assar Lindbeck has asserted,

“In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

Landlords will not want to put their money at risk and invest in an industry where Government controls the price, which will inevitably be set at an uneconomic level.  Rather, the mere threat of this will likely dissuade further investment and will inevitably result in many landlords leaving the industry.

Similarly, if tenants would like longer contracts, there is absolutely nothing to stop them negotiating one with their landlord. In fact most landlords are only too eager to have their good tenants to stay as long as possible.

It’s the bad tenants, the ones that take up to nine months to remove when they are not paying any rent and wreaking havoc in the property that makes landlords hesitant at giving them a long-term tenancy, until they have proved themselves. Why should government have to mandate how long people can stay in a property? One big advantage of renting is the flexibility it gives to both landlord and tenant.

Penalising landlords and jeopardizing their investment returns is surely no way to tackle the housing shortage and rising rent levels. There are other ways and means government can use to find a solution to this admittedly serious issue.

In the coming months and years the logical arguments and the economic realities of supply and demand could easily play second fiddle to new political imperatives.

If house prices continue to rise, and rents along with them, and the public perception is that landlords appear to be prospering while others struggle, then there could be an angry public backlash.

The housing market in the UK is already highly politicised and distorted by Government monetary policy. If the political backlash were to gather momentum, rent controls cannot be ruled out in the future, especially if there’s a change of government in 2015.

The result would inevitably be detrimental to the private rented sector and landlords would leave the market in droves, the end result being even less good housing available for tenants.

For a fuller analysis of the merits or demerits of rent controls, see this article.

By Tom Entwistle,

LandlordZONE®

Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.
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1 COMMENT

  1. Great… The country is in need of property. We keep hearing that young people can\’t get on the property ladder, so isn\’t renting a first stop for most of us? We are providing a service aren\’t we? After encouraging everyone to have a second property, they\’re going to punish us now.

    Will the government focus on utilities overcharging next? Or fuel. Or holiday companies bumping their prices up every school holiday..? Pah.

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