Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.

We’re just one week away from the election result, and going by the opinion polls it looks like either one of the two main parties could just about get a majority, but not enough of a majority to govern without the help of other parties.

That leaves more questions than answers for England’s Private Rental Sector (PRS). In Scotland, Wales and Ireland there are already moves afoot or embedded legislation now giving more security of tenure and other protections to tenants. It looks like England is the last man standing as far as maintaining the flexible principles of the Assured Shorthold Tenancy (AST), so influential in growing the PRS over the last 20 years.

We’ve already seen a Lib Dem inspired change in the law which is likely to be effective later in the year, most likely October. Whilst the anti-retaliatory eviction rule brought about in the Deregulation Act 2015 is perhaps the mildest of the possible changes being touted in the various manifestos, it is still a sweeping change.

It leaves the goal wide open for those tenants so minded to stymie any attempt at eviction, or to delay the eviction process by at least 6 months, added on to an already lengthy process. My prediction is that this measure alone will drive some landlords out once they experience being stuck with a bad tenant under these new rules.

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Labour is committed to price controls, not just in private renting but also in energy markets, rail transport, housing, wages in the labour market, healthcare and higher education. No doubt these polices will have voter appeal in some questers, but as far as being economically literate, they are disastrous. Anyone old enough to remember the fiasco of the Retail Prices Commission of the 1970s will recall how everyone’s energies were put into getting around price fixing, and the army of bureaucrats enforcing it, rather than getting on with creating wealth.

Price fixing has been tried many times and in many countries and never has it proved successful. It has been said that it led to the decline and fall of the Roman Empire when they imposed price controls to address the manifestations, rather than the root causes, of their problems. Diocletian, the Emperor, imposed price controls backed up by the threat of execution for alleged violators.

Whichever party you look to, today’s British political parties are promising to rig markets and fix prices. Labour and the SNP are the worst, of course, but the Tories and Liberal Democrats are not too far behind. Price-fixing has not been this popular since the 1970s.

Anything that disrupts prices inevitably will damage economic efficiency, trigger decisions that reduce economic output and overall welfare and eventually result in the sort of anti-consumer chaos and scarcity created by central planning in Soviet era Russia.

Of course policies being put forward by the political parties might not be that bad, but they will still seriously disrupt a rental market which hitherto has been free to fix market rent rates. Price controls in the rental market will discourage new investment, lead to a deterioration in the housing stock, as landlords find they don’t have enough surplus to carry out proper maintenance, repairs and refurbishments, and a reduction in rental housing supply. In the end it will be the tenants at the bottom end of the market, the very people the policies are supposed to help, that will suffer.

The real problem in the housing sector, which successive governments have failed to adequately address, is one of supply.

Making it less profitable for investors to allocate capital to buy-to-let will merely reduce supply and in the end push up rents.  Where tenancies are extended by law to three years, Labour’s policy, the landlords’ risk will increase, so higher returns will be needed to persuade them to invest. Something they will just not do if prices are fixed and they face long drawn out legal battles to remove delinquent tenants.

Britain faces some really tough social problems. These will not be solved by bribing voters with seemingly desirable policies such as fixing rent levels and making it difficult for landlords to run a profitable operation.

A chilling fact is that the analysis above holds true not only for the case where rent controls are in place, but even when they are only threatened, as now. The mere anticipation of controls is enough to have a cooling effect on investment, witness the drop in energy stocks when controls on these prices were announced, and the collapse in building company shares this week when Labour publicised their housing and renting policies.

Not only does rent control stop new construction, by reducing supply it destroys neighbourhoods. A real-life example of where rent control has been applied, entire neighbourhoods in New York City became decayed and abandoned. That’s because as demand outstripped supply, there is little incentive for landlords to keep their properties in a decent state, especially in poor parts of town.

That’s the exact opposite of what’s needed here: we need more good quality affordable housing which provides warm and safe accommodation at the bottom end of the market. Controlling rents and preventing or delaying evictions, even when they are fully justified, will never achieve that.

Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.
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4 COMMENTS

  1. \”A successful government policy is one which fails to achieve the exact opposite of what it sets out to do\” Sir Humphrey………….

  2. I\’m on the tenant side of the fence at this point in addition to owning my own semi which is currently mid slow renovation. I spent many years as a tenant. I never broke things, always paid on time and didn\’t upset neighbours. I had good landlords and total p1ss takers.

    There\’s a bottom line here, guys. These restrictions are being mooted because mixed in with the good guys there are still very bad landlords on the loose who didn\’t get rooted out with the TDC\’s as was intended. You haven\’t self regulated your industry, now legislation is being threatened. That\’s democracy in action.

    • Although as you say there will always be some bad landlord. In my long experience the majority of landlords provide a good service. A tenant is never forced to take on sub standard property. The horror stories (tenant side) are almost exclusively tenants who are illegal immigrants (or tenants with a poor credit history) who won\’t pass reference checking with most landlords. I am sure the majority of horror stories concern tenants who don\’t pay their rent and trash the house; in that case it is crazy to legislate to allow them to stay longer. It\’s just common sense that no landlord wishes to lose a tenant who pays the rent and looks after the house.

      The notion of rent controls is madness and will certainly reduce the private rented sector. It is being put forward to win votes and for no other reason.

  3. These changes do concern me as a landlord
    The policy makers don\’t really understand the landlords task because they have never been in the business.
    All they are concerned about is votes and pleasing tenants who outnumber landlords and letting agents by at least 10 to 1
    I\’ve been letting good well appointed flats in good areas to working and professional people for many years.
    I have in that time experienced somewhere above 100 tenancies.
    Most of these tenancies lasted between 6 and 18 months with the odd one up to 6 years.
    In all that time never asked a single tenant increase their rent becuase it suits me if tenancies don\’t change with all the hassle you get marketing and installing a new tenant which usually involves some refurb work.
    So it would probably suit me if inflation linked rises were brought in.
    Three year tenancies would not particulalry concern me.
    It\’s the ability to remove a bad tenant quickly that to my mind is the most important thing for me.
    Even with the type of tenant I have and my strict vetting I have had my share of problems.
    It\’s the nature of the business and human nature that sometimes tenants resent their landlord even if its a good one and relations get strained, especially when rent is not paid on time or they are not looking after the property.
    It is perfectly reansonable for a landlord to evict the tenant if they are being unreasonable and putting the landlords business at risk.
    To my mind these new rules will not help landlords and as the article says, will result in landlords quitting.
    That won\’t help other tenants who are looking for good clean accommodation.

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