The private rented sector continues to move up the political agenda.
This week the London Assembly’s Housing and Regeneration Committee published a considered and sensible report about the sector called Rent Reform: Making the Private Rented Sector Fit for Purpose. The report contrasts the problems of the sector in Britain to the successes in many other continental countries where regulation and affordable rent levels are the norm.
Some of the facts listed by the Committee are fascinating. The private rented sector in London has grown by 75% in 10 years, is now bigger than the social rented sector and in 12 years’ time on current trends will catch up with home ownership. Private landlords receive over £13 billion in rents from over 800,000 London tenants. Median rents grew 9% in 2012, rising to £1,196 per month, which can be compared to gross monthly incomes under the minimum wage of £990 and £1,368 for the Living Wage. In two-thirds of London boroughs the cost of private renting is more than half average wages. For working and non-working tenants, the cost of Local Housing Allowance grew 36% between 2009/10 an 2011/12 to more than £1.9 billion.
The profile of private renters has also changed dramatically, reflecting the groups who have been squeezed out of social renting and priced out of home ownership: low income households and ‘generation rent’.
The Committee makes a wide range of recommendations although it is the analysis of rent levels that is probably the most interesting. Learning from the experience of other countries and our own history, they do not recommend rent control as we have previously known it but a new ‘rent stabilisation’ approach which is a feature of many mature European private rental markets. Linked to longer tenancies, especially for families, this approach looks to make rents more predictable throughout a tenancy. The report also speculates about the possibility of linking rent increases to an inflation index.
Lettings agencies come in for criticism, as well they should. Their interests are different from those of both landlords and tenants because they benefit most from frequent turnover and increases in rent between tenancies. Tenants lose out due to rent inflation and landlords lose out because they experience more void periods. The Committee goes along with reputable agents who have been calling for regulation and also supports the Livingstone plan to establish not-for-profit agencies.
It is rare to find any consistency of opinion between Boris Johnson and his London Assembly Tories and the Government, but they are united in their view that nothing much should be done about the private rented sector in London. In a dissenting note, the Tories on the Committee argue against any form of ‘artificial control’ of rents, arguing that it is only increased supply that will bring rents under control. This basically means doing nothing at all while we wait for demand and supply to come into some form of balance. And it begs the question as to why an increase in supply of 75% in 10 years has failed to bring rents under control.
There is so much steam in the rental market at present, with buy-to-letters outbidding first time home buyers and rents racing well ahead of incomes and prices, that some form of intervention is essential. Employers have started complaining about the impact that housing costs are having on their businesses and their ability to recruit staff. The Committee quotes evidence that the supply available to people on Local Housing Allowance is being heavily squeezed, with for example only 5% of lettings in Barnet falling within the LHA cap. David Cameron and Iain Duncan Smith’s promise that rents would fall due to the benefit changes looks embarrassingly wrong; instead many more low income people are being forced out of the capital altogether.
With the Tories committed to the free market and Labour resistant to anything that looks like ‘old-style’ rent control, the rent stabilisation model looks like the best option available, but more work is needed on the detail.