Private rents are soaring: is it time the state stepped in?

Market fundamentalists say to leave the market, it will fix itself - but that experiment has been tried and it has failed. We need more statecraft to fix the problem.

Market fundamentalists say to leave the market, it will fix itself – but that experiment has been tried and it has failed. We need more statecraft to fix the problem.

At the start of the week a YouGov survey for the Times found that of the 52 per cent surveyed who thought the coalition deserves credit for the recovery in the economy, nearly two-thirds said it should go to the Tories, while only 35 per cent said the Lib Dems.

But if George Osborne deserves to take the lion’s share of the praise, should he not also be subject to the flak for a poor recovery that has resulted in few people feeling the benefits of the economic upturn?

Today the flat and house share website Spare Room release data suggesting that tenants are struggling as their rents rise faster than their incomes, which ends up impacting on their overall budget. What does recovery mean if people are feeling no benefits in their pay packet each month?

The research finds that since 2009, UK rents have risen by 10 per cent while tenants’ accommodation budgets have fallen by 0.5 per cent. According to ONS data the average earnings of a UK worker is only rising by 1.7 per cent per year, and yet average rents are rising by 5 per cent annually.

Unsurprisingly some places are feeling the squeeze more than others. In London, rents on rooms have soared by more than a quarter (26 per cent) in the past five years. Rents in Scotland have increased by almost a quarter (24 per cent).

This tallies with other recent research earlier this year which suggested that Londoners spend on average 59 per cent of their incomes on rent, as private rents swallow around half of a household’s monthly earnings.

The diagnosis is rather a simple one: the rental market in the UK is broken, it is not working for consumers, and risks pushing more people in to unmanageable debts. Some 9m people in the UK are using credit to cover rent or mortgage payments, and 1m of them are using high cost credit such as payday loans.

Shelter, the homelessness charity, who uncovered those figures point out that in 2012 they received just under 9,000 calls regarding debt issues with rent, but in just two years that number had gone up by a third. While trouble paying rents is not a new issue, it is a problem on the rise, getting worse before it gets better.

What’s more, in rental arrears it has been found that Britons sit on a £5bn black hole in hidden debt. Research carried out by Demos in the year found that households have an average of £200 in unpaid rent, council tax and utility bills, which are not included in formal debt figures.

Ed Miliband earlier in the year spoke of the plight of Generation Rent, those young people just starting out independence for whom private rental is the only option, and who suffer significantly at the hands of skyrocketing prices.

Miliband said that this generation is often left ignored and insecure for too long. As Prime Minister, the Labour leader would tackle the cost of living crisis, perpetuated by high rents, by placing a ceiling on how much rents can rise in the areas where they are a problem.

This move was widely criticised at the time by the right. Mark Littlewood, the Director General at the Institute of Economic Affairs, said:

“Labour’s proposals to hold down rent increases will do nothing to alleviate this. To deal with high housing costs politicians must urgently liberalise the UK’s draconian planning laws.”

But this is presumably made on the assumption that with a greater amount of housing stock prices will fall as a consequence of more competing housing suppliers. The experiment to try and get the market working for consumers through this way has been tried and failed. In areas with the greatest amount of privately rented rooms prices don’t fall because if market price is high there is no incentive for private renters to lower theirs.

What is needed is a new kind of statecraft in the rental sector. Not a state that swamps the market by controlling all prices, but one that seeks to protect the budgets of tenants by stepping in where the market has failed them, capping prices that have grown excessively at speeds that catch renters unaware.

Furthermore, this statecraft would seek to extend new rights to tenants as well as limits on the charges and fees that landlords are allowed to pass on to renters.

As Alex Hilton of Generation Rent, a campaign organisation for affordable privately rented homes, has said:

“Not only do we need more house building to bring supply back in line with demand, but stronger rights for renters through secure tenancies and lower letting fees would help keep a lid on exploitative rents.”

The market for the private rental sector has been broken for years, but there are too few tools in our toolbox to properly deal with the situation. Market fundamentalists say leave it alone, it will fix itself. It hasn’t. Others have been too quick to assume only government price caps are the answer. But what’s needed is statecraft: more rights for tenants and a focussed cap on rental price growth considered excessive.

Carl Packman is a contributing editor to Left Foot Forward


Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.