Rent Controls in London

Rent Controls

Ah, it is silly season again and the old chestnut of rent controls is back in the news.

It is a topic we have written about a lot, most recently here:

https://www.lettingfocus.com/blogs/2014/05/rent-controls/

Jeremy Corbyn has proposed that under Labour, councils could be given powers to control what he calls “skyrocketing rents”. He will be thinking especially of some form of rent control in London.

Of course, real rent controls, where rents are permanently kept at what some government or other deems to be an appropriate level will not work because most decent landlords will simply exit the market.

You don’t have to look far to see what happened next. Four years ago, levels of housing benefit in the UK were capped by the government.

As a result of that policy, today over 90% of private landlords now state “no housing benefit” on their adverts for tenants. (Source: UPAD, online letting agency). And it may be a much higher figure in London.

And so, the poor housing benefit tenants have been left with nowhere to go. If they don’t fancy being forced by the council from their communities to go and live in Skegness or Skelmersdale, where they have no family connections at all, they will instead face having to be put up in expensive and unsuitable B&B accommodation in the capital.

This is not only not suitable for them but is extremely expensive for the taxpayers who have to foot the bill for it.

Sure, the London councils try to find accommodation from landlords by offering them three months’ rent as incentives and other gimmicks, but that does not work either. It’s not enough cash usually, plus landlords have learnt not to trust councils. (This lack of trust is partly a result of the councils’ ludicrous policy of frequently telling tenants to wait until the bailiffs come, when facing a repossession – which hugely adds to costs and stress for a landlord).

So the choices for the housing benefit tenants are – 1) Be uprooted to another part of the UK or 2) go on the streets or 3) be put up in unsuitable B&B accommodation at great cost. (Note: Option 3 is only available for those with small children. For everyone else who declines option 1, they have to take option 2).

And yet despite all this evidence of why rent controls don’t work, we still hear some  politicos banging on about  bringing back “full on” rent controls.

Peter Rachman

The only people to prosper last time this was tried in the UK, was landlords of the likes of Peter Rachman in the 1950s and 60s. He was the type who, on the surface was charging the controlled rents, but whose goons would come around late at night and collect the real rent in brown paper envelopes. Those who didn’t pay got a severe beating. Nice!

He particularly preyed on those new to London who, in those more racist times, had few other housing options. In the 1950s and 60s, these were mainly the new West Indian migrants.

Sound familiar?

Today, we are all too well aware today of illegal migrants  stuffed into cramped, dangerous and unsafe housing, three or four to a room in the capital. All the licensing schemes and all the regulations in the world will not flush these properties or their criminal operators out. Expect more of the same standards of accommodation to flourish under rent controls.

Perhaps the politicians who like the idea of full rent controls are nostalgic for the 50s and 60s?

Even one left leaning economist described rent controls as the best way to destroy a city – even better than bombing it.

Assar Lindbeck, Swedish economist; “Rent controls are the most efficient way of destroying a city, next to bombing it”

If we cannot control the rise in the population in the UK, we need more housing to be built, of all types, including municipal housing. We need to find a way to build on more land, including, yes, green belt land. We  need to make the planning processes simpler.

Longer Tenancies

I am all for rent rises within an existing 3 year tenancy to be limited. Why not?

We don’t hike our rents for good tenants we already have – because the last thing we want is to lose them. However, we need a quid pro quo. So, in exchange for this, it would give comfort to many landlords if recovery processes for non-paying and anti-social tenants were made much faster.

We need enlightened policy in housing. But we do not need silly talk and a reversion to policies that failed in the past.

Maybe Corbyn’s proposal (behind the sound bite) is that rents cannot rise by more than X per cent during a set tenancy. If this is what he’s saying then fine, but please, let’s have some clarity.

Meanwhile, perhaps Jeremy Corbyn could suggest limits on house prices instead? It would make about as much sense. After all, have people not “speculated” on these too?

I have always voted Labour. This may surprise the likes of Corbyn that there are left-leaning landlords. But by failing to think things through properly or to provide some clarity beyond a sound bite, he has just lost my vote.

Academic Research on Rent Controls

There is a lot of academic research on rent controls.

This report, by the Institute of Economic Affairs, looks at the history of rent controls and shows that they are very ineffective, wherever and whenever they have been tried:

http://www.iea.org.uk/sites/default/files/publications/files/DP_Rent%20ceilings.pdf

And this report, by the London School of Economics for the National Landlord Association, found that the evidence for the success of rent controls in other countries was almost non-existent. In most cases, the overall outcomes under rent control systems were worse for tenants than they would have been in the absence of any rent controls:

http://www.landlords.org.uk/sites/default/files/NLA%20Final%20Interim%20Report.pdf

Other work academic research found the same results. This piece from “The Guardian” was clearly amused to note that the politicians in favour of rent controls were embarrassed by their own commissioned report, which found no real case for rent controls:

http://www.theguardian.com/uk-news/davehillblog/2015/jul/10/beware-fine-talk-of-rent-controls

Don’t expect the politicians to look at the academic research when they are seeking votes!

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