Rent control may harm, not help, tenants

The UK’s private rented sector (PRS) has more than doubled in size in the last 15 years and looks set to keep expanding. The sector accounts for around four million households – some
17 per cent of the total number of households in the UK.

Ensuring this group is adequately protected and has access to reasonably priced accommodation in appropriate locations, while protecting landlords and their rights, is a key and complex challenge facing the UK’s urban hubs.

‘Generation rent’ has had to contend with the clampdown
in mortgage lending after the financial crisis, which forced many would-be homebuyers into the rental market. This growth in the PRS was boosted by a combination of other factors, including the scrapping of rent controls, rising house prices in relation to earnings, and the proliferation of buy-to-let mortgages. In a classic example of supply and demand, the squeeze on supply in the rental market has caused rental prices to rocket, particularly in the capital.

The private rental market is cooling off slightly across the UK, with more favourable conditions in place for people looking to become homeowners. But the challenges facing this group, especially those renting in London, are considerable, with a significant dearth of available affordable property.

In this landscape, rent
control can seem like the obvious solution. According
to a survey conducted by the polling agency Survation, fewer than 10 per cent of British people are against mandatory legal limits on housing rents. However, it’s important to remember that this is a complex, multi-faceted issue, which isn’t going to be solved in a single stroke.

The rental situation in London is unique in the UK and needs to be considered in isolation. But although the situation for
renters isn’t as challenging in
the regions, the housing supply across the UK is still continuing to fall, and future-proofing the sector to protect against the effects of rising demand and falling supply is key.

Berlin is the latest city to enforce rent controls, stipulating that landlords may not charge over 10 per cent more than the local average rent for new tenants. However, it’s vital to keep in mind that our property market is different to Germany’s, and while rent control may work well in Berlin, it won’t necessarily work for London, or indeed the rest of the country.

In fact, a report by the London School of Economics has shown that while statutory longer-term rent-stabilised tenancies may benefit the better-off tenant, they are likely to worsen the position of poorer households looking to rent privately, harming the very people this approach is trying to help.
It’s important to bear these complexities in mind when considering this issue.

Rather than forcing landlords to lower rents or creating fixed caps, I would agree with the report’s recommendation that creating a partnership approach, where councils positively enable longer-term tenancies with index-linked rent increases, voluntarily agreed by landlord and tenant, would create a more workable and positive situation.

This approach could be supplemented by improving transparency and contractual enforcement for landlords and tenants – empowering and protecting both parties. SJ