Manchester rent caps: would they curb house prices or choke the market?

 

A report released last week called for rent caps to be imposed on private lettings in Greater Manchester to control house prices, but the RLA has warned they could have the opposite effect.

Increased devolution to give Greater Manchester the power to create “rent pressure zones”, where top prices are capped at a certain level in the private rented sector, has been proposed in a new report from the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA), in conjunction with housing association One Manchester. The areas targeted would be those where rents are especially steep in a bid to help young people save to get onto the housing ladder.

However, the Residential Landlords Association (RLA) has argued that Manchester would suffer from a drop in supply if such a move were made, as it would put landlords off the rental market there – and as a result, this could push house prices in some areas higher.

The argument for rent caps

House prices in Manchester have quadrupled over the last 20 years as the city’s status as a top business location away from London has risen. The city also has a higher than average private rented sector, and rental costs have also steadily climbed over the years.

According to the report, young people are the most affected by these high prices, alongside the increase of the “gig economy” where jobs and incomes are less stable, which is a barrier to getting on the housing ladder. A reported 48% of young renters in the area had to cut back on essentials like food and drink to cover their housing costs (while 33% across England said the same), and only 22% of people in Greater Manchester could access help from the “bank of Mum and Dad“, compared to 25% across the country.

The report comes up with three key proposals:

  1. “Escalator ownership” – allowing youngsters to rent for cheaper to help them save and buy a portion of the house they live in (provided by housing associations)
  2. Identifying a network of Communities Letting Agencies – not-for-profit agencies that help low income households into accommodation, making it easier for young people to access affordable homes
  3. Mortgage providers, landlords and housing associations working together to create new minimum standards when checking out prospective buyers and residents, to allow for young people working in flexible employment or those with poor credit histories

Hannah Webster, report author and senior researcher at the RSA, said: “A new Greater Manchester housing devolution deal should give mayors and councils Scottish-style powers to cap runaway rents in areas like central Manchester.

“These ‘rent pressure zones’ would help those facing steep rents in certain neighbourhoods, without taking the step of introducing rent controls across the board. In Greater Manchester we suggest that individual councils have the opportunity to propose and review potential zones.”

The RLA’s objections

According to the Residential Landlords Association, while rent caps may sound like an ideal solution, they are unlikely to have the desired effect over the long-term and could actually make the situation worse.

They have suggested that the supply of rental homes should instead be increased in order to provide more homes to meet the very high tenant demand in Manchester.

John Stewart, policy manager for the RLA, said: “Rent controls are on the face of it an attractive but simplistic and populist approach to the increased cost of housing. In reality they make the situation for tenants worse. All the evidence from around the world where they have been introduced shows that they reduce supply and drive up the cost of housing.

“Having controls on rent is not much help to a person who cannot find somewhere to live because of the cut in the number of properties available. Instead, the Mayor of Greater Manchester needs to work with the private rented sector on how to boost the supply of homes for rent to meet ever growing demand.”

Can rent controls work?

Rent controls have been imposed in other cities across the world, including San Francisco and parts of Germany, with varying degrees of success. In San Francisco, those who started renting at the beginning of the scheme had benefited the most from rent savings, but over time the number of rental properties available depleted, and rent controls applied to a lower proportion of properties. The result was that, over time, average rents rose even higher. This meant that those coming to the rental market later (generally the younger generation) had much higher rents to pay.

In Germany, where just 51% of people are homeowners, the rent caps did not apply to properties that were newly refurbished or being rented out for the first time, which again meant a mixed picture of success.

Earlier this year, London Mayor Sadiq Khan proposed rent controls in the capital to curb the rising rents, but this was met with much criticism along the same lines as the RLA’s argument – that the move would push landlords out of the sector, resulting in a dearth of rental homes available, more pressure on social housing and the ultimate result of prices being pushed higher.

Gemma Burgess from Cambridge University’s Centre for Housing & Planning Research, commented at the time:

“I’m very dubious that rent control could help tenants and not reduce the stock of rental properties. You need to significantly increase supply before you look at rent control.”

At present, the proposal is in the form of a suggestion from the report by the RSA and One Manchester, with no indication that action will be taken to impose rent controls in Manchester in the immediate future, if at all.

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Manchester rent caps: would they curb house prices or choke the market?

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