Please Note: This Article is 3 years old. This increases the likelihood that some or all of it's content is now outdated.

Newly elected London Mayor, Sadiq Khan, has long promised some form of rent control for the Capital and according to reports in the FT, surprisingly, the policy may get some support from parts of the property industry.

Currently most Londoners are paying in the region of just under half of their take home pay on rent, and that’s before all their other bills. The average rent in London increased by around £17 last year to reach £298 per week and private renting now accounts for 27% of all residential accommodation in the capital, that’s according to the latest English Housing Survey.

All the predictions are that private renting in London will continue to grow rapidly, with the strong possibility that more Londoners will be renting from a private landlord than owning their own home in 2025.

Now the new mayor has been elected he will have the extremely difficult task of trying to control the London housing problem, an issue he focused on heavily during his election campaign. It is obvious that he will take measures soon to try to alleviate the pressures on renters who voted for him in their thousands in London.

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However, as the Adam Smith Institute points out,

“it’s important not to get into the habit of sticking regulatory plasters all over what is in fact a huge gapping oozing wound created in the large part by the planning system”.

Rent control, rent capping, rent stabilisation or whatever term you wish to apply has been tried before in the UK under the Rent Acts, and is in force in a number of major American and German cities, often with the result that it harms the very people it is supposed to help: it harms the poorest, helps the better off, results in poor housing conditions, limits freedom of movement and job mobility and eventually results in low rent ghettos according to some experts.

Moderately priced accommodation becomes universally unavailable available, whilst most advertised tenancies are priced well above the actual median rent, that’s the US experience. At the same time, in those US cities without controls, moderately priced units are universally available.

The trend in recent years for US cities with experience of rent controls has been towards removal of them. The problem is the political difficulty of removing them once they have become established, with vested interests for both poor and rich. But the repeal of controls in Massachusetts, for example, has not led to the widespread evictions and hardships as predicted. The lesson for London perhaps is that rent control is a policy that should be approached with extreme caution.

As the Adam Smith Institute points out:

“Putting a price ceiling on any product below the market rate causes shortages: demand outstrips supply. Landlords will remove their investments if their returns are capped, consequently shrinking the choice of rental properties, but also flooding the housing market and causing a sudden fall in house prices”.

Any policy on rent controls would result in significant portions of in the city being exempt from housing rent controls. This creates a situation of “shadow markets” which means that as controls hold down rents for some tenants, rents for all other rental housing skyrockets. Tenants in rent-controlled tenancies will not move for fear of losing their controlled rental housing, and more desirable neighbourhoods will become unavailable to them as rents there become very highly priced.

As the FT points out, capping increases in rent during a tenancy means that landlords are likely to look for high turnover of tenants to keep up with market levels, which would not be at all compatible with the three-year standard lease Labour are looking for.

The prospect of “rent stabilisation” measures for London is being endorsed by one property expert though. Adam Challis, head of residential research at JLL, the estate agency has told the FT:

“This is being described as rent control but it is more properly described as rent indexing, and set at the right level it is completely palatable to investors, it offers a sense of relative certainty over what future rental growth is going to be.”

Although Richard Donnell, director of research at Hometrack, claims that those “large professional landlords, who are making greater inroads into the UK will accept some form of control on rents”, Lucian Cook, director of residential research at Savills, has said “anything that involves capping rents may be a double-edged sword, where the fundamental problem is scarce supply of new homes, limits on rents could deter development.”

Sadiq Khan’s promise to tackle rogue landlords and letting agents, including the establishment of a publicly funded London-wide non-profit lettings agency to promote best practice, “would require recruiting qualified staff and persuading landlords to sign up, in a market in which “letting agents command a lot of power” Dan Wilson Craw, policy manager at Generation Rent told the FT.

Ultimately Khan’s solutions and a successful policy for tenants will rest on how he addresses the root cause of the London housing problem: a severe shortage of accommodation compared to the rapidly growing population of residents. “The challenge he faces is very significant, given constraints on supply,” said Lucian Cook.

Please Note: This Article is 3 years old. This increases the likelihood that some or all of it's content is now outdated.

3 COMMENTS

  1. There is no intention to implement a price ceiling. It\’s simply a measure to prevent unscrupulous landlords from hiking the price above the market rate and holding tenants to ransom. Stop trying to discredit this idea by painting it as something it\’s not.

  2. \”simply a measure to prevent unscrupulous landlords from hiking the price above the market rate\”

    There is no such thing as a simple way to do this – whatever way you want to try and wrap this, rent stabilisation is rent control.

    Councils are already strapped for time, resources and money, so how do you police such a scheme without increasing manpower?

    It\’s economically illiterate to think you can start controlling the market for rents in London. The only sane way to do it is through restoring the supply / demand balance and let competition between landlords set rents.

    Landlords cannot hike their rents above market levels unless that high rent IS the market rent. Increase the supply, increase competition and the rents come down. All without expensive intervention.

    Spend money on building, NOT on rent controls.

  3. Yes it\’s expensive to police but do you thinking pretending Labour want rent caps to throw voters off the scent instead of admitting there is a problem is right?

    The current government could do more but they won\’t because those landlords would stop voting them in.

    Agree it would be better to build more homes. But that would mean demand goes down and the housing developers would profit less.

    And guess who those developers vote for?

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