So, rent controls will drive ‘three out of five landlords’ out of the market?

What an unhappy coincidence that on the day the Residential Landlords Association chose to bleat about Labour’s planned rent controls, the private rented sector was fingered as one of the main reasons for the growth in the numbers of homeless families. The latest Homelessness Monitor, published by Crisis, shows that losing a private tenancy now accounts for almost one-third of official homelessness cases and is the reason behind most of the recent growth in caseloads. Private sector rent levels are also helping to drive up homelessness because they are often too high to be eligible for housing benefit. One effect is ‘the mass removal of benefit-dependent families from the private rented sector in parts of central London’.

Yet Alan Ward, RLA chairman, claims that three-quarters of landlords have been freezing or even cutting their rents, that three out of five will leave the market if they’re subject to rent controls, and the result would be ‘many tenants paying more than they do at the moment’. Let’s take a closer look at these three points.

If RLA members really have been freezing rents they must be in a minority. Indeed, we already know they are, because Britain has approaching 1.5 million private landlords, of whom just over one per cent (17,000) are RLA members. So even if all of them froze their rents, regrettably it wouldn’t make much difference. However, in another unfortunate coincidence for Alan Ward, this week saw the ONS correct its own figures for private sector rent increases and, surprise, surprise, they have been revised upwards. The new figures show that rents have been going up by just over two per cent annually since 2011. (RLA members must be bucking the trend.)

Disregarding for the moment these official figures, let’s look at Alan Ward’s odd claim that rent controls would lead to private tenants paying more than they do now. Is he saying that official limits would lead to faster increases than those decided by the market? He seems to be, as he cites figures showing that social sector rents have been increasing proportionately faster than private ones, although the link with private sector rent controls is unclear. But is he right? The UK Housing Review shows private and social rents as a percentage of average earnings, and by this yardstick council rents have grown in ten years from just over 10% of earnings to 13%; housing association rents have grown from 12% to nearly 14% (although Affordable Rents are 18% of earnings). Over the same time frame, average private rents have risen from 21% to 26% of earnings. So will rent controls mean that private tenants pay more? – I don’t think so.

Finally, we apparently face the prospect of three out of five landlords leaving the sector if rent controls are introduced. This sounds a bit like those celebrity threats to leave the country if top rate taxes are increased. However, even if it happened, would it matter? After all, practically all private landlords acquired their property by buying it (rather than building it). Assuming they wouldn’t have a collective fit of pique and leave their houses empty, they’d either be bought by other landlords or by first-time buyers. In the process, they might even bring house prices down a bit.

The RLA is not alone in perpetuating the myth that private landlords are propping up the housing market. Only last month, the chairman of the National Landlords Association (membership: three times that of the RLA) said that landlords are ‘keeping a supply of well-maintained homes on the market when previous governments have failed to incentivise or stimulate more housing.’ And they do this by ‘putting much needed money into rented homes’. On this logic, the next time there is a critical shortage of something (say, petrol), those people who rush out to stock up on it will be applauded for helping to keep up supply.

Don’t get me wrong. Red Brick is all for an active and well-functioning private rented sector. But the price for the sector’s massive growth in the last decade (unforeseen even by supposed housing experts) is surely some much-warranted attention by government to ensure that it’s working properly? Let’s bear in mind that the sector now houses more households than social housing, and that many of them are vulnerable. Let’s bear in mind too that private landlords get three times as much subsidy through housing benefit as they did a decade ago. As well they get tax relief on their borrowing and interest-only mortgages that are unavailable to first-time buyers, allowing them to plan for a zero tax bill. Next time they claim that governments shouldn’t influence their rents, they should be reminded how much effective subsidy is going into their pockets.

Of course the hyperactivity by landlord groups is not unrelated to the Tories’ claim that the future of the rented sector is now a ‘key battleground’. Housing minister Brandon Lewis somehow believes that rent controls are a tax that is passed on to tenants, so he too seems to think that constraints on prices do, perversely, lead to them going up. He also believes that ‘a larger rental sector cannot be achieved with unnecessary regulation that strangles industry in red tape’. Tenants might argue that, far from being unnecessary, a mechanism to restrain rents is absolutely vital. They might also ask Mr Lewis, if he is so averse to red tape, why he insists on landlords making complex checks on tenants’ immigration status, given that this is hotly opposed by landlords, whom he is anxious to please? Wasn’t it the Residential Landlords Association who called them bureaucratic and overly cumbersome? Be careful, Mr Lewis, so much extra red tape might drive landlords out of the sector.

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4 Responses to So, rent controls will drive ‘three out of five landlords’ out of the market?

  1. Pingback: The hypocrisy of Mr Clegg | Red Brick

  2. Iain Morgan says:

    As a responsible estate and lettings agent, we at LDG support any policy that targets rogue landlords, but the Labour Party’s attempts to help Generation Rent certainly appears to be putting responsible landlords at a disadvantage.

  3. Clive Riley says:

    The average yield for letting to tenants claiming housing-related benefit is 6.6%, which is higher than for any other tenant group, except migrant workers. In comparison, the lowest yields come from the letting of properties to executives.
    And the commercial opportunities this market offers to landlords is increasing with over 1.4 million housing-related benefit recipients living in privately rented accommodation.
    But this does not mean the claimants are not working. London is the only part of Britain where working households claiming benefits for private rented housing eclipse those where no-one is working, according to a report by think-tank and lobbying organization London Councils that also found the number of people receiving help with their rent has fallen in inner London since May 2011.
    Not only do landlords who rent to those claiming housing-related benefit have access to a large and growing sector of the rental market, local authorities will find accommodation for those on housing benefit by using registers – at no cost to the landlord – which can save a considerable amount on advertising and agency fees.

  4. Commenter says:

    “If RLA members really have been freezing rents they must be in a minority.”

    In fact, the RLA claim is consistent with data reported by ONS in their methodological article on the revised private rents index.

    They refer on p. 76 to data from Countrywide’s 75,000 properties showing that “For Great
    Britain, the vast majority (75 per cent) of rental prices do not change when a contact is renewed”. And on p. 70, referring to data on rents collected by the VOA, they say “around 70 per cent of
    properties do not experience a price change as the result of an update”, with updates usually happening after between 12 and 14 months.

    Not surprisingly it’s a different picture in places like central London, but then they’re not very representative of the country as a whole.

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