The rent control debate:
The government last week published a discussion research document in the House of Commons Library, to help MPs consider the issues.
Since the introduction of the Housing Act 1988 rents on most new private rented tenancies created after 15 January 1989 have been deregulated in England and Wales. This means that most Assured Shorthold Tenancy rents agreed between a landlord and tenant can be set at open market levels.
However, affordability pressures in areas of high housing demand are bringing calls in some quarters for a return to rent regulation. But the difference is, this time the focus has been on so-called “rent stabilisation” as opposed to all-out rent control, by which the latter would mean returning to a system of setting rent ceilings.
This government’s briefing paper claims to provide an overview of the debate around rent control/regulation and includes some research information on a small selection of international rent regimes.
The statistics on renting, UK’s second largest tenure
Recent figures produced by a landlord survey and the 2017-18 English Housing Survey show that the private rented sector (PRS) has grown ever more popular over the last 20 years and overtook social housing as the UK’s second largest tenure in 2011-12.
There are now estimated to be 4.5 million households renting privately – around 20% of all households – and the rental market is predicted to continue growing. Not only do private landlords now house far more welfare assisted tenants than in the past, the proportion of renting households with children has increased considerably.
As housing costs have increased it is now evident that private tenants spend a bigger proportion of their household income on rent than do social tenants in assisted council and housing association properties.
Although it has remained the case since 1989 that private sector rents in England and Wales are deregulated, in the devolved nations, in Scotland and Northern Ireland, different approaches are being taken, hence calls to consider these softer approaches in England & Wales as well.
Rent deregulation since 1989, the removal of lifelong security of tenure, and the availability of competitively priced buy-to-let mortgages, are attributed to the exponential growth in private renting over the last nearly 30 years.
With more and more tenants being housed in the private sector, as opposed to council and housing association social housing, it was thought by government that Housing Benefit payments would “take the strain”. However, the government is now becoming concerned about the “ballooning” expenditure on Housing Benefit. In 2013 the Department for Work and Pensions estimated that £2.9 billion (33%) of private sector Housing Benefit expenditure in 2010/11, could be attributed to real terms rent growth over the previous ten years.
An increased focus on affordability
There is an increased focus on the affordability of private rented housing for lower income groups, says the briefing paper, particularly in high housing demand areas such as London and the south east: “In 2017-18, the median rent for a two-bed property in London was around half the monthly salary of a London resident working full-time. In England as a whole, the proportion was 26%.”
Another concern is the number of tenancies being ended and tenants evicted, particularly those low income tenants living in relatively high-rent locations with diminishing levels of Local Housing Allowance Rates. The authors of Homelessness monitor England 2018 have identified a link between evictions and Local Housing Allowance (LHA) rates.
Since 2010 Housing Benefit expenditure has been reduced by introducing several restrictions on eligibility, and by freezing LHA rates, but with some flexibility in the most expensive areas. In their 2018 report, Rugg and Rhodes say that the LHA “constitutes an increasingly stringent mix of both first and second generation rent control.”
However, The English Housing Survey 2016-17 found that 69% of private renters found it “easy” to pay their rent with only 9% in arrears, and with little or no difference in these rates between London and the rest of England. In fact, private renters were found to be less likely to be in arrears than social tenants.
But, there is no doubt rent control is back on the political agenda – those landlords who can remember the pre-deregulation days will be apprehensive about that. However, the debate so far is focussing on rent regulation during the term of the tenancy rather than controls that would restrict rent from open market levels at the outset of a tenancy.
Predictable rent increases
Alongside the debate on rent runs the continuing theme of longer tenancies and more security of tenure. There is currently an ongoing government consultation on “Overcoming the barriers to longer tenancies in the private rented sector,” the results of which are now awaited.
Shelter it seems is arguing for a “stable rental contract” of five years during which annual rent increases would be index-linked, e.g. to the Consumer Price Index (CPI).
The Labour Party’s 2017 Manifesto said:
“Labour will make new three-year tenancies the norm, with an inflation cap on rent rises”. Generation Rent would go further and has referred to setting a maximum rent based on Council Tax bands “with a monthly maximum rent amounting to half of the annual council tax band for a home.”
Ironically, fixing rents tothe CPI could work in most landlords’ favour. By regularising the expectation of an annual increase for all tenancies in-line with inflation, rents would probably increase at a faster rate. Currently, many landlords with good regular rent paying tenants will often resist making rent increases, sometimes for several years, simply because they have more to lose if a good tenant decides to leave. If it became the norm that rents increase annually, it could make a landlord’s life a lot easier.
With all these suggested reforms however, the government has to weight the impact of them on the profitability of the operations of both private landlords and the increasing number of institutional (build-to-rent) landlords, so as not to trigger a sell-off of rental properties. This would only go to exacerbate the already difficult rental market for tenants in terms of the supply of good affordable rental accommodation.
Professor Christine Whitehead and Peter Williams’ study on “Assessing the evidence on Rent Control from an International Perspective” (October 2018) concludes:
“…the PRS is a key part of the solution to UK housing problems and this requires a more positive stance towards the sector. The focus for reform should be on putting in place a system which allows indefinite tenancies, and which imposes a degree of rent stabilisation alongside a much better enforcement system which tackles both poor landlords and tenants.
Advocates of rent control and more security of tenure often cite different regimes operating internationally as being highly successful, but as Whitehead and Williams drew comparisons with different rent regulation regimes operated elsewhere in Europe, they said:
“When seeking to learn lessons from alternative regimes it is important to bear in mind that the private rented sector in the UK is not directly comparable to that in, for example, France, Germany and Switzerland, where a much greater proportion of the population sees private renting as the ‘normal’ choice of tenure.”©LandlordZONE® – legal content applies primarily to England and is not a definitive statement of the law, always seek professional advice.