It’s time to consider introducing rent controls

"Build build build. We must build more homes." Any politician who came out with such a statement would be greeted with near universal applause. Build them and they will clap.

“Build build build. We must build more homes.”

Any politician today can say that and be greeted with near universal applause.

As a country we do need to build more homes and the political class is finally recognising as much.

Today it takes a first time buyer saving half their annual income more than 10 years to put together a deposit for their first home, and in London that figure rises to 24 years.

In part this is down to a surge in property prices caused by a shortage in the supply of new homes. In the first few months of this year alone a shortage of sellers and a scramble by home buyers has fuelled a seven per cent rise in property asking prices, according to the LSL Acadametrics house prices index.

While the government clearly should build more homes, first of all to bring the housing market back under control, there will surely come a time when it is no longer desirable to cover increasingly large areas of land with bricks and mortar.

Such a policy would also likely meet increasing opposition as a result of its own success (as more people own homes they would be more likely to oppose the building of new ones if they think it will affect the price of their own).

There’s also another elephant in the room: second homes. Second home ownership has been found to drive up the price of homes, especially in places where second home ownership is increasingly common such as Cornwall. The higher the rate of second home ownership the more a first home tends to cost.

Second homes in Cornwall actual

In the City of London a quarter of all dwellings are now second homes. Second home ownership also exceeds seven per cent of the housing stock in rural areas like South Hams, North Norfolk, Purbeck and South Lakeland.

Sure, a mass house building programme will bring prices down in the short term, but the tendency for monopolisation within the housing market is surely not that different from anywhere else. The more homes you own the easier it becomes to accumulate more, especially so when property is increasingly viewed as an investment opportunity rather than a place to live.

This is already having a huge  impact on those who have to rent a place to live.

A report out today says that average monthly rents in England and Wales will hit the £800 mark by 2015, a 21 per cent rise on 2010 rates.

Around 40 per cent of people’s take home pay is now going on rent – this excludes the increasingly steep fees demanded by estate agents for ‘administration’ and the deposits lost to landlords who suddenly discover previously non-existent ‘damage’ when it’s time to return the security deposit.

One potential policy response which has been mooted is rent controls. While critics of the policy say it would limit the supply of rented homes, in reality rents are likely to remain high unless the market is regulated more strongly in some way.

Rent controls are also already operating in some parts of the country with a degree of success. There are an estimated 100,000 tenancies in the UK to which ‘fair rent’ rules apply, meaning private sector tenancies that began before 15 January 1989 have rent increases limited to an amount linked to the Retail Price Index.

As Robert Taylor of the Camden Federation of Private Tenants says, the system is “far from perfect” but “very effective” at protecting tenants against steep rent increases.

We all need somewhere to live, but today the freedom to make a large amount of money on the back of this need seems to trump the need itself.

As a first step to tackling the problem, adequate social housing should be built with controlled and sensible rents which undercut the private sector. This in itself would bring down the price of rent substantially.

A cap on rents should also be considered for the much larger private rental sector. Many people below the age of 30 will never own a property, let alone a ‘portfolio’ to make a killing from.

22 Responses to “It’s time to consider introducing rent controls”

  1. LB

    How about dealing with the root cause? Unfettered migraiton?

  2. blarg1987

    L B – You and I had this debate on the TPA, and untill you comprehend that the lack of council houses being built over the last several decades is not a side issue and not a key factor is not accurate.

  3. LB

    Glad to continue it here.

    What was it? 5 million migrants? They have to live somewhere. That takes housing. That reduces the housing available for other people.

    Economics 101. Supply and demand.

    Supply small increases. Demand massive increases. End result – price rises.

    Reduce demand – remove low skilled migrants, don’t allow them in, and prices fall.

    Very simple. All in the government control.

  4. Anthony Masters

    Swedish economist Assar Lindbeck, author of ‘The Political Economy of the New Left’, once said: “Rent control appears to be the most efficient technique presently known for destroying a city – apart from bombing.”

  5. blarg1987

    Hmmm, and how many people have emigrated? 3+ million plus the lack of 2 million homes being built over the last several decades, facor all that in, I think that will easily cover 5 million people comming over unless you are saying they all buy a house each and live by themselves which is not the case.

  6. SadButMadLad

    So you ignore all the evidence from The States that rent control doesn’t work and is actually the worst thing you could ever do if you really wanted to fix the problems with renting. Rent control is so bad an idea it was highlighted in “Friends”.

    To get the other side of the argument, and it is worth reading rather than just saying “nah, I believe James Bloodworth is an expert in everything and I’ll not listen to anyone else to get the full story” read this article in The Register which is about home ownership, the other side of renting – http://www.theregister.co.uk/2013/06/19/how_home_ownership_hikes_unemployment/

  7. citizenandreas

    Where is the 5 million migrant’s figure coming from, a quick look at the census (http://www.ons.gov.uk/ons/rel/census/2011-census/key-statistics-for-local-authorities-in-england-and-wales/index.html) shows a population increase of 3.7 million, 2.1million of whom were migrants between 2001 and 2011, adding Scotland into the mix is not going to boost it hugely it only added 233K people in those years. We can talk about the other years but surely the noughties with the A8 countries entering the EU is the important time period.

    On housing, around 1.5 million houses were built meaning around one new house per 2.5 new people, supply might be tight but not massively so.

  8. evanprice

    There are a number of reasons why people became landlords – one is the prospect of income and capital gain and another is the comparative cheapness of debt.

    In relation to the first, the rents currently being achieved in most of the UK is probably less than 4-5% gross. Once expenses and other costs are factored in, this translates to an income of about 3-4% or less before tax. That assumes that the money invested was not borrowed – if borrowed, then the income will be around 1-2% or less before tax

    As to capital gains, many of these have been wiped out by the property price downturn in much of the country. A lucky few have continued to retain their gains, and fewer still are continuing to see gains, and the reality is that although there may be continuing capital gains to be had, these will be relatively modest for most of the UK over the next 5 years or so.

    You mention deposits – there is now a legal requirement for deposits to be placed in approved deposit schemes or appropriate insurance schemes to be used. Many landlords are no longer taking deposits at all. Any that do enter into a scheme will find that when tenants leave and there is a dispute about the deposit, then the arbitration scheme comes into operation. The result is that it would now be pretty difficult for landlord’s to abuse the system in the manner that some did in the past. The truth is that there are bad landlords and bad tenants. At the moment, the regulations protect the good tenant, but they do not protect the good landlord.

    As to ‘fair rents’, usually when set they are set, they are set at a market rate – so there would be no immediate saving. Combining it with considerable security of tenure provisions may limit a landlord’s ability to increase rents in line with the market (fixing it to RPI instead – although the irony of that is that the difference between RPI and CPI is housing costs), but it would also remove many smaller – and often better – landlords from the market.

    The real problem is the increase in the number of households – this has been created by immigration, but also by changing lifestyles. The combination of a restrictive regulatory framework – which disadvantages the person who wants to develop on a small scale by creating costly barriers to entry – the onerous demands for ‘public goods’ – which makes the economic considerations paramount for anyone seeking to develop any land – the ever increasing dependence of Governments on increasing house prices (which, although already increasing, accelerated dramatically in the period after 2000) – and the comparative cheapness of debt – have all conspired to make rents increase. Dealing with these issues, rather than merely attempting to place a plaster on the sympton that is increasing rents, would be a better solution – in my view.

  9. LB

    Hold on, 5 million more units (1 unit = 1 person being housed) are needed to house 5 million incoming migrants.

    You can’t spin it any other way

    Without 5 million migrants, there would be cheaper housing. Period. It’s supply and demand.

    Then you have the other demographics.

    1. People living longer
    2. People getting married latter
    3. People getting divorced
    4. Holiday homes
    5. Smaller families (with the same population – think it through)

    However that’s small.

    Then there are the councils like Southwark. Kicking people out of properties and keeping them empty, in the hundreds. See the Heygate estate. No doubt, backhanders galore. It’s hard to explain otherwise.

    Planning law. That’s a biggy too. Drives up the cost of land, because the supply is curtailed. High taxes – less money to buy. …

    Pretty much all the roads lead to the state. Migration the biggest cause. Planning the next. Tax as well.

  10. blarg1987

    Hmm, so how do you explain many migrants being familieis of say 2 + or living 4 – 5 to a house whish = a unit? That torpedoes your point that you need 5 million houses for 5 million migrants, you keep going on about the deficiet and say we should be realistic yet you are not realistic about housing.

  11. LB

    1 person – 1 unit.

    I never said you need 5 million properties. You’ve made that up.

    You need housing for 5 million people.

    That’s increased demand, and that given the small increase in supply, means increases in prices. Economics 101.

    If we had no migrants, or better still, no low skilled migrants, then that’s only housing for another million. Except 2 million have emigrated, so that means a 1 million person reduction in demand. Supply up, demand down, lower prices. Economics 101 again.

  12. LB

    2 million emigrated.

  13. LB

    A major part is Brown’s tax raid on pensions.

    People have been put off pensions by this, and high charges.

    So they moved into property.

  14. blarg1987

    But still you do not include the lack of new houses being being as a factor, also immigrants can share a unit, e..g couples two to a room etc which reduces the units required.

  15. LB

    Repeat after me blarg. One migrant does not equal one house. One brit does not equal one house.

    You’re deliberately misreading what I’ve written.

  16. blarg1987

    No I am reading what you have written but you are confusing one migrant must equal one unit which is not the case.
    Also a house can equal several units so the lack of new housing (equally many units in your view) means that it is a larger factor then immigration.

  17. LB

    No – read read.

    I said 1 migrant 1 unit. I also said 1 unit is not one house.

    As a rough estimate you can use 2 to 1 property.30 million households in the UK, 63 million people.

    Each house – 2 units of housing.

  18. blarg1987

    No 1 migrant does not equal 1 unit, 1 unit can have 2 or 3 migrants in it which is where the confusion lies. For example a couple in a one bedroom flat, is considered one unit hoever there are two of them sharing a bed is two people in one unit.

  19. LB

    Less than 2.

    2 people per unit on average in the UK.

    But migrants are better off than Brits aren’t they? They aren’t on benefits. So on average they will have less people sharing each property.

    Unless of course, they aren’t better off.

  20. Tom

    Rent control works very successfully for landlords and tenants in Germany. Properties are maintained and the rent is set by the local town hall. Landlords have a right and proper responsibility – but not a meal ticket.

  21. Savonarola

    If Landlords are charging too much and you legislate them to stop, you have not cured the problem, you have merely placed a lid on the boiling pot as opposed to cutting the gas

  22. mattwardman

    >Rent controls are also already operating in some parts of the country with a degree of success.

    A list of areas of the country, please.

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