The idea of implementing rent controls is one that has already existed across many parts of Europe for several years, and Jeremy Corbyn has promised to bring in such curbs if Labour wins the next general election. But views on the effectiveness of this strategy are mixed…
At present, there is no upper limit on how much landlords can increase rents by across England, and Labour leader Jeremy Corbyn’s pledge to impose a cap on rent rises has been welcomed, in theory, by many. However, a number of industry insiders have criticised the idea, arguing that it would harm landlords more than it would help tenants, and with the numbers of renters continuing to rise, increasing the number of homes available should be higher on the priority list.
Capping rents at inflation levels
Between December 2016 and December 2017, average rents across the UK rose by 1.7% – bringing the average rental property’s monthly asking price from £892 to £907, a £25 increase. One of the proposed methods to bring rents under control would be to ensure it can be increased at no more than the level of inflation, which was 2.7% over the same period. This means that a cap at this level could have seen much steeper rent increases over the past year.
However, Bricklane chief executive Simon Heawood, who supports the idea of rent controls, said: “Capped rent rises inside longer tenancies make a lot of sense. Renters get certainty that they’re not going to be priced out of their property on a whim, while landlords get happier tenants that stay longer and therefore improving returns. In fact, we at Bricklane.com are already providing this to our tenants for commercial reasons. We don’t believe that anyone is calling for a cast-iron lock to inflation. Indeed, rent rises could be lower than inflation if the market dictates, in which case we don’t believe tenants would be worse off.”
Rising costs for landlords are passed onto tenants
A picture of greedy, uncaring landlords is often painted by the media and certain politicians, with recent government changes to regulation already having a negative effect on some parts of the buy-to-let market as being a landlord has, in some cases, become more expensive. That these costs are passed onto the tenant is almost inevitable, and Alexandra Morris, managing director of Make Ur Move, believes this issue will ultimately harm the market.
“Most good landlords don’t regularly increase rents, because they want to provide a service their tenants can afford,” said Morris. “This means most landlords experience a real terms reduction in their rental income year on year. Rent controls would represent another burden for landlords who are already facing interest rate rises, tax relief changes and increasing regulation. This could become a further barrier to landlords covering their costs or making a small profit.
“There are also some landlords who wouldn’t have increased rents but now feel they have permission to put rents up in line with the rent control measures.”
Could rent controls work?
Rents have been capped in the UK in the past. The Valuation Office Agency used to set a “fair” level of rent for each property, as well as calculating the amount by which rent could be increased, until the 1988 Housing Act came into play and reduced regulation in the sector.
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In Paris, areas where demand is particularly high have their rents set by a third-party to make them more fair, and in Berlin and Munich there are maximum thresholds in place limiting rents.
In Scotland, the government has introduced indefinite tenancies, while giving tenants the power to complain about rent increases to Scottish ministers, who can then investigate them and potentially impose controls. However, a recent report from ARLA Propertymark has revealed that around 50% of landlords have put their rents up since the move, in response to market uncertainty, as they anticipate difficulties in making ends meet.
How the implementation of rent controls in the UK would affect landlords, tenants and the private rented sector in general remains to be seen, but with the population of Generation Rent at its highest ever level, the growing sector will inevitably face more changes as well as scrutiny in the years to come.
