Sadiq Khan has warned that Londoners could see private rents rise by almost 20% over the next five years unless he gets powers to control the sector, emboldened by his recent re-election.

The capital’s mayor cites new analysis by City Hall which shows that, if left unchecked, average asking monthly rents in the capital could rise to almost £2,300 by 2025.

Despite the cost of renting falling in some parts of London during the pandemic, it still has some of the highest rental costs in the world, with Londoners paying on average 35% of their income on rent.

Khan was re-elected in May, pledging to lobby the government to give him the power to introduce rent controls through a proposed London Private Rent Commission.

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He has also called for powers to freeze private rents to protect renters from the ongoing financial impact of the pandemic.

Since being in office, he has introduced two online tools enabling Londoners to name and shame rogue landlords and allowing renters to check whether their landlord has a property licence. 

Khan says he plans to stand up for London’s renters by transforming tenancy laws and wrestling back control of runaway rents. “Todays’ analysis paints a stark picture of the next five years if landlords are allowed to increase prices unchecked,” he adds.

“If we want the next generation of nurses, police officers, transport workers and key workers to train and work in the capital, we have no option but to keep a check on spiralling rents.”

Alicia Kennedy (pictured), director of Generation Rent, says: “Over the past decade it has become impossible for many people to live close to their workplace or support networks they rely on, while others cannot afford to start a family.

“Without urgent action on rent levels, more Londoners will face these dilemmas in the 2020s and quality of life will deteriorate.”

rent arrears

Timothy Douglas, (pictured) Policy and Campaigns Manager for Propertymark, says: “Letting agents and landlords have been, and continue, supporting tenants through the pandemic, which includes agreeing to reductions in rent in order to sustain tenancies and this should be reflected in the Mayor’s approach to housing going forward.

“There is no evidence that rent controls prove to be effective and they generally lead to unintended consequences that reduce investment, drive down standards and lessen the number of properties available to rent. Additionally, the Tenant Fees Act introduced a cap on deposits and limits the charges that tenants face.

“High demand coupled with a shortage of supply is usually the reason for increased rents. Consequently, if the Mayor is concerned about the cost of renting he should be working with Councils across London to build more affordable homes as well as freeing up land under his control for development.”

Read Landlords’ reaction to rent controls.

7 COMMENTS

  1. I lived in London from mid ‘70’s to 2010.

    I can tell you from first hand experience that rent controls don’t work.

    Up until the introduction of the system we have today the situation in London was dire. There was no incentive for landlords to rent to tenants because once they had a tenancy, they were pretty much there for life on fixed (Low rents)

    For tenants it meant that the only properties available were really disgusting. We look at Rising Damp as a fantasy comedy these days but in reality, as a tenant I lived in one such house myself as did thousands of others.

    There are still some of those “Fixed” tenancies remaining and when those properties come to market, they achieve about half the market value. That is an illustration of how rent controls deter investors. Who’s going to invest in a property that cannot be sold for anywhere near its true value?

    The only way to get tenants out was to “Send the boys round” and the phrase “Pick your window you are leaving” came into use.

    That type of behaviour has pretty much disappeared because possession for the main part (pre-covid) is relatively straight forward.

    The system we have today for the most part works perfectly well for both parties and it was introduced simply because the PRS was failing everyone. It keeps a fairly even balance between tenant needs and the landlord’s ability to manage and profit from investments. Proof of that is the grown in the sector as a whole but especially corporations seeking to enter the market that is a clear sign that there are reasonable returns on investment and therefore investors willing to invest.

    Prior to covid the level of actual evections requiring court intervention was pretty low given the 4.5 million households that rent in the PRS.

    We all know the basic numbers…

    To achieve 5% annual return on a property that costs £100,000 the rent has to be £5000 pa

    In London 2 bed flats can easily cost £500,000 therefore rents of £25,000 are required to make 5% return on investment. That is not “Excessive” rent or greedy landlords it’s simply the minimum required gross return before costs and taxes and large corporations entering the PRS will also be seeking the same sorts of returns as Mr & Mrs Smith who have a couple of rentals.

    For our younger members here is a list of interest rates on savings back to 1980

    https://www.swanlowpark.co.uk/savings-interest-annual

    Prior to the financial crash (2007) average interest rates on savings was 5.5%

    So it doesn’t take much working out that if Bank of England start increasing rates to combat looming inflation then interest in investing in PRS with all the hassles it has will quickly dissipate, shrinking the size of the PRS which I cannot see will benefit tenants.

    If we return to anything like historical interest rates then the increased regulations and any rent cap that khan wants will create an exodus from the PRS as investors sell up and get a similar return on their “Savings” for doing nothing.

    The economy is changing, in all likelihood there will be people moving around the country for work, just look at the investment going on in the north with Nissan etc. People will need rental accommodation to move to those jobs and the “Council housing” model of tenancies for life prevents that mobility so ONLY the PRS can fill the gap.

    The likes of Shelter, Gen Rent, Sadiq Khan, Labour Party etc NEVER address the mobility issue nor the economic realities of the market, even the Tories have lost the plot and are pursuing socialist housing policies.

    History, like dodgy fashions have a habit of repeating themselves and if the future is a return to the past, then expect the same outcomes as we had previously.

    • I agree. I pulled out of London 7 years ago and currently one of my former London properties a 2 bed flat has just re-sold and the new buyer paid £45,000 LESS than what I sold it for so my buyer lost out.

      With the move to home working and people moving out of cities I suspect the London sales and rental market will be stagnating or in gradual decline over the next decade as govt look to invest in the north and the likes of Khan playing politics for votes when he has zero clue about even the basic economics of the sector.
      Describing Landlords as “Greedy” is the perfect illustration of his lack of knowledge.

  2. Dave, this is one of the best – and bang on the money – comments I have seen on here. As a student in London in the 1980s I lived in a rat-infested hell hole in the East End. Renters today live in luxury by comparison with most landlords busting a gut to provide good accomodation.

    • Thanks for the nice comments… I just wrote from experience current and past as I feel many today have not lived through rent controls therefore have zero idea of the downsides and the unforeseen consequences of what re-introduction of rent controls will bring.

      Unfortunately because Labour hold sway in London they take those voters for granted just as they did in Scotland and the north. They clearly learn nothing from the beatings they have taken at the ballot box over the last 15 years so I expect khan to plough on regardless and Starmer hasn’t got what it takes as far as taking control of Labour.

      Its in investors & tenants interests to point out the huge holes in rent regulations.

      I might have been your neighbour in one of those East London doss-houses ha ha ha.
      By comparison todays tenants live in cosseted luxury.

  3. Has Khan heard of Supply and Demand? Its the best rent control that exisits.

    Its a shame he does not use the same gusto on knifecrime in London as he does on Landlords, but then again, he wants the student / popular vote, and gets lots of publicitiy having digs at landlords.

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