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.
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.