Nationwide Foundation and Generation Rent, the Odd Bed-Fellows

The Nationwide Building Society has an odd bed-fellow in Generation Rent, says David Lawrenson of LettingFocus.com.

Nationwide Foundation and Generation Rent, the Odd Bed-Fellows

Once again there are calls for rent controls.

Most recently these have come from Diane Abbott, the MP for Hackney – and her call echoes some of what the likes of the pressure group Generation Rent have called for.

Generation Rent have requested the following….

• Affordability – the maximum rent would be calculated along council tax bands, with a monthly maximum rent amounting to half of the annual council tax band for a home;

• Transparency – the cap would be based on understood property values and would be set by local authorities, accountable to residents who may want to argue for different limits;

• Flexibility – the calculation above would not be an absolute cap. Landlords would be free to charge rents over and above the limit set, but all rent charged above that level would be subject to a 50% surcharge;

• Fairness – all the proceeds from the surcharge would go into a ring-fenced fund for social house building, therefore ensuring the profits from the PRS helped alleviate the housing crisis.

 

I find common cause with Generation Rent on lots of issues, but not on this one.

How Real Markets Work When Price is Controlled

If you look at the market for any good or service, anywhere in the world where that good or service is supplied by more than say six suppliers, (in economist-speak, markets that are “non-oligopolistic” in nature), you will be hard pushed to find one where price controls brought about anything other than a reduction in supply of that good or service, a lowering of quality or both.

One just has to look at the private rented sector from 1945 onwards to see the impact of this. As price controls were imposed on private rent, honest landlords found they could not make enough return and the supply of available housing for rent crashed. Bad operators, such as the infamous Mr. Rachman, took advantage by charging illegal (above rent capped) rents for utterly crap accommodation. And if any tenant had the temerity to complain, they received a visit from Rachman’s hard men. They soon learnt to “shut up and put up”.

This is the world that advocates of rent control might have back.

If we are to accept a continuing fast rising population (and we will have to unless UKIP somehow wields power), then what the world of housing in the UK really needs is simply more housing (of all sorts).

One way to achieve that is via changes to the planning system to unlock more land. But as this would involve some kind of assault on the vested, powerful interests of the UK’s big house builders, I’m not expecting much to happen, very fast. On this I agree with GenRent.

Another way, which may have more chance of succeeding is to build more affordable, social housing. Again, I agree with GenRent.

The Nationwide Building Society and Generation Rent

Of course, rent controls would hurt not only private landlords’ ability to make a sufficient return, but also their ability to make payments on their buy to let mortgages too. So, you’d not expect mortgage lenders to be too over-keen on rent controls.

So it’s really surprising to us to see that the foundation of the UK’s largest building society, the Nationwide, gave £725,000 to Generation Rent. Link here:

http://your.nationwide.co.uk/your-news/articles/Pages/generation-rent.aspx

In the past the UK’s biggest building society got in a bit of a muddle about it’s strategy for landlord loans.

Indeed, in 2013, for a very confused week or so, they stopped landlords letting to tenants who were on housing benefits, which does not exactly seem to be doing their bit for “generation rent”.

LettingFocus’s Evidence to the London Assembly

But following my evidence to the London Assembly’s Housing & Regeration Committee on the Private Rented Sector in December 2012, and pressure from others, Nationwide did an about-turn and then decided to allow landlords to let to folk with few housing options after all.

You can read more about my evidence to the London Assembly here (open the link below and go to item number 7 for the pdf, then to pages 21-24. The minutes shows the surprise of members Tom Copley and Andrew Boff, in particular, when I told them that lenders, including Yorkshire Building Society and state owned Lloyds Bank forbade landlords to let to people dependent on housing benefit. They were previously unaware).

http://www.london.gov.uk/moderngov/ieListDocuments.aspx?MId=4630

… and you can read more about Nationwide’s two about-turns here….(my blogs of March 6 and June 26, 2013)

https://www.lettingfocus.com/blogs/2013/06/longer-term-tenancy-contracts-and-the-mortgage-works/

https://www.lettingfocus.com/blogs/2013/03/nationwide-mortgage-works-housing-benefit-u-turn/

These days Nationwide are a lot more street smart.

They now allow landlords to issue tenancies up to three years, which is a good thing and which separates them from some other lenders.

In our consulting work with other lenders, we have often shown that such a policy (and also letting to tenants on benefits) can make sense for tenants, for landlords and for the lender – and our work has led two lenders to change policy.

The Nationwide Foundation responded to this blog post. They said….

We are a registered charity that is run entirely independently of the Nationwide Building Society. The decisions we make about what and which organisations to fund are made by our independent board of trustees and there is no oversight or control of these decisions by Nationwide. Nationwide does not necessarily endorse the views of the organisations that we choose to fund, but respects our right to create our own strategy to tackle social issues.

 

It is the Nationwide Foundation which has given funding to Generation Rent. The Nationwide Foundation has no influence on Nationwide’s lending policies and likewise, Nationwide has no influence on which organisations the Foundation chooses to fund.

We have funded Generation Rent to carry out work that will help lead to the improvement of conditions for vulnerable tenants in the private rented sector, including improving decency standards, affordability and professional management of the sector. This is in line with our vision that everyone in the UK should have access to a decent home that they can afford. Until the creation of Generation Rent, there was no organisation representing private renters at a national level, meaning that their views were often not included in the debate about how to tackle the problems in the private rented sector. We are pleased to support an organisation that aims to empower and include private renters in the debates that affect their lives.

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