In a recent opinion piece in the Guardian, the ex-Green Party leader and incumbent Brighton MP, Caroline Lucas, recommended the introduction of a rental commission.
Lucas focuses on recent price rises of rental rates across the UK. Notably, Lucas’ constituency in Brighton has seen some of the highest rental growth over the past year or two. In 2015, the seaside city saw rental rates rise by an average of 18% – this makes the countrywide rental increases of 4.9% seem small in comparison!
With these rises, it now means that some tenants have to spend as much as two-thirds of their monthly income on rent. In order to address this, Lucas seeks to amend the housing and planning bill to include the establishment of a living rent commission. This commission would establish what a living rent should be via a formula based on certain variables.
Lucas seeks to base the living rent by linking it to the living wage according to geographically diverse incomes, rental rates, and length of tenancies. She even recommends introducing a rental mechanism which could limit rental costs based on inflation and unfairly high prices from landlords. Furthermore, citing the evidence from European countries from Northern Europe – in particular Sweden, Germany, and France – she argues that these rent controls provide much more secure tenancies and, as a consequence, a far more stable rental market.
Are rental caps as successful as Lucas would portray? We think not.
Lucas’ assertion of Sweden being a beacon of political enlightenment and economic efficiency continues the overly idealistic view of the Nordic market. Instead, the rental market price range is extremely diverse and, in some respects, over-regulated by the government. Rental prices can vary wildly, due to the fact that there are not enough state-regulated rental companies that offer rental-capped apartments. Some sources state that it can take as much as 20 to 30 years to get the front of the waiting list for a regulated apartment. Indeed, only 40% of residents manage to receive a contract after being on the waiting list. Furthermore, the rental caps have reduced incentives for private landlords to enter the market, causing a housing supply crisis in some parts of Sweden, particularly immigrant regions which have seen large population increases over the past few years.
With so few regulated houses available, it means there is a huge second-hand subletting market. There are strict rules about subletting, such as the need for valid reasons for moving (studying, moving in with a partner) and price limits (tenants can only be charged up to 15% more than their own rent). Moreover, the price limits mean that there is also a thriving black market for rents in Sweden. One recent study has suggested that average rental prices increased by as much as 20% in certain regions of Sweden, whilst foreigners are also prone to be overly charged since the complex regulatory system can mean they do not know their own rights. This does not seem like such a success story now, does it?
France, too, has recently seen a housing crisis, which some have suggested is a result of President Hollande’s rental caps in expensive neighbourhoods. French housing is still extremely expensive compared to the average income of many people, whilst there is also a huge lack of supply on the market. It seems rental controls have been unable to solve the problems they were intended to, if not exacerbated them.
Lucas’ plan for rental caps are only a short-term solution to deeper, underlying problems in the housing market. Whilst they may help certain vulnerable parts of society in the short-term, they do not address the lack of supply which is the root cause of the housing crisis. Rental caps only worsen the supply of new housing since it discourages the private sector to invest in new projects. Moreover, population and demand will continue to increase in cities, putting additional strain on the restricted supply. Encouraging investment and competition in the rental market is the key to solving the crisis and meeting ever increasing demand.
So how can Arthur help solve the problem?
We at Arthur maintain that rental caps are infeasible – the idealism is desirable, but the realism is impossible. Arthur offers a far more simple solution to rental problems than the complicated and costly commissions devising arbitrary living rental costs (which will be outdated soon after they are formulated).
We believe that communication between different parties in the buy-to-let market can help compromises be met by both parties. Landlords do not want to have issues with tenants – a high turnover of tenants can be a headache. Vacancies can be an even bigger problem. Instead, it is better to resolve problems via communication between both parties. Arthur can offer these solutions, being an integrated platform to connect different user-groups involved in the rental process. By being better connected, misunderstandings can be avoided and the two groups do not have to be as antithetical as the media would portray.
Arthur can be beneficial for all parties. Landlords. Tenants. Even the entire rental market. Try us and see for yourselves.