In the run-up to the general election in May the idea of imposing rent controls on UK landlords again became a topic of heated debate, especially as Labour committed themselves to a form of rent control or “rent capping” in their election manifesto.
Of course, with a Conservative victory it is unlikely to happen. But some MPs, particularly those on the left are yet to be convinced that rent control is not a viable solution to an overheating rental market.
According to a new report commissioned by the National Landlords Association (NLA), in order better to understand these interventionist policy proposals that were put forward by Labour during the election, rent control is unlikely to work well in the UK private rented sector (PRS).
The report, which is an interim report, produced by the world leading London School of Economics, “looks at evidence from the UK as well as from other countries where stronger regulatory policies are already in place, including Germany, Ireland, San Francisco, New York and the Netherlands.”
Particularly, the NLA states, the interim report suggests that:
- In Ireland – which apparently provided the model for the Labour Party’s proposals – controls introduced in the last few years have had very limited effect. The country is experiencing a housing crisis, with rapidly rising rents and a near-standstill in new housing production.
- In Germany – often cited as the best example of a country with a stable PRS – the system of indefinite security and in-tenancy rent stabilisation has in the past been cushioned by low house prices and demand. Moreover, initial rents can be well above current market levels in high-demand areas.
- In San Francisco and New York – the main beneficiaries are older middle class households and the young hardly get a look in.
Carolyn Uphill, Chairman of the NLA, said:
“The report is required reading for Labour leadership and London Mayor hopefuls, who seem to be ignoring both academic evidence and the overwhelming rejection of similar policies by the electorate last month.
“Private rented sectors in many countries, regulated or not, are facing major problems in high demand areas. Market fundamentals cannot just be regulated away”.
Kath Scanlon of LSE London told the NLA:
“In light of the various proposals put forward before the General Election, we were asked to explore evidence from other countries about how rent controls and other regulatory policies affect the private rented sector.
“We found clear evidence that inflexible controls reduce supply, but the strongest message was that what may work in one country cannot simply be transferred to a different market and institutional environment”.
During the election campaign there were calls to abolish business tax relief for buy-to-let landlords, alongside the introduction of rent controls. But the LSE report found that where rent controls had been applied, the negative impact on the market are usually offset by a more favourable tax treatment of landlords. The proposals would therefore have been a double whammy for landlords and therefore doubly unlikely to have worked.
Mrs Uphill continued:
“The taxation of buy-to-let is a touchy subject for some, even though landlords in the UK receive no special treatment compared to other businesses.
“This report reinforces why successive governments have chosen to treat landlords as businesses. Doing so encourages best practice and, above all, helps to ease the housing crisis.”
LSE’s final report is due to be published later in the year. It examine London in more detail to see specifically how renters in the Capital would be affected by various proposals for change.
LSE’s interim report can be downloaded here