It’s time to revive rent controls

By:
6 Oct 17

Rent controls are common across Europe and a levy on excessive rents could help generate revenue to build more social housing, says Generation Rent’s Seb Klier

Jeremy Corbyn’s speech at this year’s Labour Party conference, where he committed to introducing rent controls if elected to power, brought back into public debate one of housing’s great controversies.

For while rent control continues to confuse and divide the housing sector, politicians, and commentators, it is an enduringly popular policy amongst the general public.

The arguments against rent control are well-rehearsed: the system we had in the UK up until the late 1980s (where there was an absolute maximum rent that could be charged on a property) meant the sector shrunk as landlords sold up, and those who remained were unwilling to invest in in the upkeep of their properties.

This, we are told, led to poor quality homes for renters, and an overall negative effect as fewer homes were available for tenants. Despite this being orthodox opinion for many years, however, many of its assumptions are deeply questionable.

The shrinking of the private rented sector in the post-war era didn’t actually reduce housing supply (those homes didn’t suddenly disappear) and there’s plenty of evidence to suggest it was actually the mass building of council housing, and the increased availability of homeownership, that made private renting a less attractive option for tenants.

Furthermore, the regrowth in private renting over the last 25 years hasn’t actually added new homes – it’s simply that buy-to-let landlords are outcompeting first-time buyers, while those who inherit a home can see a healthy return if they do let it out.

Unfortunately, there have been many negative results arising from the current market, where any rent can be charged, and where rent can go up annually by any amount.

Private renting is once again the home of poverty in high-value areas like London, and the ending of a private rented tenancy is the leading cause of statutory homelessness.

The cost to the state has also ballooned and we now spend close to £10bn annually in Housing Benefit going directly to private landlords.

So should we be considering some form of rent control as part of the solution to the housing crisis? If we did, it wouldn’t be unusual.

The UK is an outlier when seen in the context of the rest of Europe, where most countries (including those with much larger private rented sectors) have some form of controls on what can be charged in rent.

These are often in the form of what is sometimes called ‘rent stabilisation’, where limits on rent rises  are set over a period of years – pegged perhaps to RPI, wage growth or some other index.

While this would be a step forward from our current system, it has two central flaws. First, in many areas, the rent is already unaffordable, and will remain so, even if limits are imposed.

Second, it doesn’t address the real need to redistribute some of the huge gains that landlords have made in recent years towards solving the housing crisis.

Savills recently found that renters pay £54bn per year to landlords, more than double the amount that homeowners pay in mortgage interest payments.

Private rents are going into the hands of a relatively small section of the population, rather than circulating around the wider economy or being invested in more productive ways.

Generation Rent has proposed a system whereby a ‘living rent’ is set (at 30% of local earnings) and any rents charged above that limit are subject to a large levy.

Enforcement would take place through a licensing system, and the receipts from the levy would be ringfenced for building genuinely affordable social housing.

This would push down rents but also ensure that those who benefit from high rents are then helping to solve the housing crisis.

Despite the prime minister’s recent pledge of an extra £2bn over five years for affordable housing, we know there is a crisis in funding for genuinely affordable homes, and this would provide a revenue stream.

It would also put on a spotlight on private renting and the tax regime more generally. The London Borough of Newham recently found that up to half of its landlords were avoiding tax on their rental income.

In the midst of the dual crises of housing and public funding, it’s time for those who’ve benefited so much from rising house prices and high rents to make a larger contribution.

Seen in this way, rent controls can go beyond supporting individual tenants and be used to create the stock of social housing the country so desperately needs.

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