As we approach the general election in May, in which housing and in particular the Private Rented Sector (PRS) could be a major election issue, yet another report, this time from Civitas, a democracy and freedom think tank, is recommending more drastic government regulation of the PRS.
Rent controls would be the order of the day according to Civitas: “indefinite tenancies within which rents… would only be allowed to rise in line with a measure of inflation.”
The growth of the PRS since 1989 when the market was de-regulated by the then Conservative government has been exceptional; around four million homes now rent privately in England, which accounts for 18 per cent of all households. This doubling in the size of the sector since 1989 has led to more households now in the PRS than in social housing. Owner-occupation has declined and now a quarter of private tenants are claiming housing benefit to help meet the rent.
In other words, as housing affordability has declined, particularly among the younger generation, 1.2 million private landlords now house a far larger proportion of the population, estimated at 9 million tenants, including many who were traditionally in social housing – council and housing association tenants. What’s more, on current protections landlords could account for around one-third of the housing stock by 2030.
However, these optimistic protections have reckoned without the political back-lash which now appears to be developing surrounding the PRS and buy-to-Let.
Writing in the Daily Telegraph Richard Dyson argues that rent controls and the measures now being proposed by the main opposition party, several MPs, campaigning organisations and charities, could be the final straw for landlords. Rent controls he claims would spell disaster for thousands of buy-to-let investors
Buy-to-let investors are blamed for forcing up prices and preventing the younger generation from buying. There’s growing resentment towards landlords when the general public read media stories about “millionaire landlords” able to claim business tax relief on their mortgage interest when ordinary homeowners can’t.
However, most landlords today don’t conform to the traditional robber baron image: most are ordinary working people who have rented out their own home, a second home, or an investment home they bought for future pension income. By far the majority of private landlords (over 75%) have no more than one or two properties.
Although on paper these people are “asset rich”, in reality many have little equity in their investments and the cash-flow they generate from rents is not significantly more than their costs.
With interest rates at ultra-low levels for several years now, short term buy-to-let investments have been largely viable. But when interest rates increase, as they inevitably will do, and if rent rates are capped, as many are now suggesting they should be, landlords would find themselves out of pocket on a monthly basis.
Couple this with the proposed compulsory long-term (or indefinite) tenancies, and restrictions on evicting bad tenants, which are also being proposed by the campaigning organisations, and it won’t be very long before private landlords are looking for the exit.
Richard Dyson says, not only are all mortgage rates at rock bottom, many landlords still benefit from legacy “tracker rates” issued before the financial crisis. They, like owner-occupier mortgages, played a big part in helping landlords survive through the difficult years after the credit crisis after 2008.
When interest rates begin to return to realistic economic levels, capped rents and other drastic regulatory restrictions on landlords’ freedom to operate a viable business will inevitably prove fatal for private renting and buy-to-let.
The Civitas Report: The Future of Private Renting: Shaping a fairer market for tenants and taxpayers
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