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London Rent Control – could it be a reliable remedy to the UK’s housing crisis?

February 7, 2019

London mayor Sadiq Kahn’s recent call for new rent control measures in the capital has got many people talking. From landlords and tenants to economists and politicians, everyone has an opinion on the potential consequences of any such interventionist policy.

“London is in the middle of a desperate housing crisis that has been generations in the making,” Kahn explained in an interview with The Guardian, where he announced rent control as the flagship policy of his upcoming campaign for re-election in 2020. While the London housing market undoubtedly presents a challenge (the statistics on increasing rent prices, living costs and housing shortages speak for themselves), the mayor’s assertion that “the arguments for rent control are overwhelming” does need further examination.

What is rent control?

Let’s look at the facts.

So what exactly is rent control? Has it ever been used in the UK before? And would rent control ultimately work in London or the rest of the UK today? Let’s look at the facts.

While rent control is a term that can be applied to various policies, it essentially means any measure taken by authorities to limit the amount of rent a landlord can charge their tenant. Rent control can take the form of a complete cap on rent, a cap on increases in rent (typically tied to inflation) or a temporary freeze of rent rates.

It’s the definition of rent control that poses one of the biggest problems in the rent control debate. Until we know the exact policy what Sadiq is going to propose, how can anyone make reliable forecasts about its consequences?

In the meantime, we can take a look at the real-world effects of rent control introductions…

London is in the middle of a desperate housing crisis that has been generations in the making

Sadiq Kahn, The Guardian

History of rent control in the UK

Rent controls were in place in the UK for the majority of the 20th century.

Many people – especially those under 50 – will be surprised to know that rent controls were in place in the UK for the majority of the 20th century.

From 1915 to 1968, controls of some description on both rent and mortgage interest payments were implemented nationwide.

It wasn’t really until the Housing Act of 1980 that the then Conservative government began to deregulate the private rental market, with the complete removal of rent controls on all new tenancies in the Housing Act of 1988.

Since then, private rent prices have been dictated by market forces and the landlords themselves.

The latter period of full rent controls starting in 1939 coincided with a severe housing shortage as a consequence of WW2. While these rent controls protected tenants from the inevitable market inflation in rent, the resulting hit on rental yields caused some landlords to sell up their properties and pursue alternative investment avenues.

A parliamentary report on the history of rent control has stressed that it’s problematic to analyse the effects of individual policies when they are viewed in a vacuum

“The decline of the [private rental] sector after 1945 has been attributed to a ‘complex set of factors’ of which rent control is one.”     

Rent control and its effect on the housing market

The principal criticism of rent control is its perceived impact on the housing market

The principal criticism of rent control is its perceived impact on the housing market.

Many people argue that restricting rental yields will inevitably lead to a shortage in rental properties, as buy-to-let investors abandon ship for investments offering better ROI.

While there will inevitably be some market attrition, the real issue is the scale of investment loss and what could be put in place to plug the housing gap.

Implementing rent control in isolation is bound to discourage investors and potentially intensify the housing crisis – all other factors being equal. However, if they were introduced in combination with a boost in the housing supply – either through new council housing projects or tax-incentivised private sector housing developments – it could be argued that the reduction in buy-to-lets would be a price worth paying for lower average rents.

In fact, a study conducted by Cambridge University in 2015 surveyed landlords to see how they’d react to a handful of rent control scenarios. These ranged from a simple cap on rent increases to a comprehensive reduction of rents by two thirds. The study found that most scenarios would only lead to an “aggregate loss of rental income to the sector of between 0 and 5.5 percent”. While many landlords couldn’t currently shoulder a 5.5 percent decrease in income, that figure likely reflects the consequences of the extreme end of the rent control spectrum – one that is very unlikely to be adopted by London’s mayor.  

So would rent control work in London?

As rent control can refer to any number of different policies, no one can answer this question with any real confidence at this moment in time.

The answer is – it depends. We know, it’s unsatisfying but there are many factors at play in the UK’s housing market. The main factor being the type of rent control policy, but also including aspects such as the areas being targeted, the current state of the housing market, the size and speed of implementation – the list goes on and on.

As rent control can refer to any number of different policies, no one can answer this question with any real confidence at this moment in time.

Once the details of Sadiq’s proposed rent control measures are announced, we will be able to provide a more in-depth analysis (so stay tuned!).

What we can say for sure is that the current status quo in the private rental sector isn’t working for many renters in the capital, with the average Londoner now spending more than half their income on rent. There is potential for rent control measures to redress the current tenant-landlord imbalance but there is also a real risk of exacerbating the current housing crisis. For it to be successful, rent control will need to be implemented intelligently, with the considerations of both tenants and landlords in mind, and in harmony with other bold housing policies.

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