The Rent Trap: exactly how do we get out of it?

rent trap cover

Steve Hilditch reads and enjoys a new book on the private rented sector, but thinks the ‘what should we do about it’? question remains to be answered.

 

What to do about private rents has been a perennial debate over many years. There are several issues that have to be addressed.

First, there is now huge evidence that extremely high rents are a fundamental cause of poverty, especially in London and other high demand areas, as shown by the recent London Fairness Commission report. Even for those who are better off, many now pay half, sometimes well over half, of their income to their landlord. It has a major impact on their standard of living and the reward they receive from working.

Secondly, because there is major shortage of social housing, many more people on low incomes, families with children, and vulnerable people are living in the sector and need (even with IDS-inspired cuts) increasing amounts of housing benefit to be able to afford somewhere to live. This is unproductive public spending which does not create an asset, except for the landlord, or any long term social benefit.

Thirdly, the growth of private landlordism has been fuelled by demographic change, easy buy to let mortgages, and the dearth of options in low cost home ownership and social renting. For a decade private renting has produced a much better return than other forms of investment, and a double return at that – a good yield on money invested and seemingly guaranteed capital growth at the same time. No wonder it has come to be seen as an alternative pension scheme. But it is often forgotten that the finances of many landlords, especially those with big mortgages, are vulnerable to economic and tax changes and especially to a change in interest rates should it come.

Fourthly, there is the question of what to do about a market that has many dysfunctional features and especially the often poor behaviour of the intermediaries between landlords and tenants, the letting agents. Many do a good job, but others make money by encouraging rapid tenant turnover and by charging exorbitant fees.

Fifthly, it remains largely an amateur industry in which many landlords do not know their statutory responsibilities, and some who know their responsibilities breach them daily. Value for money does not feature highly amongst the comments made about the sector.

One of my concerns is that the whole debate has become confused by a lack of definition of what is meant by ‘rent control’. Many people are now in favour but they are often talking about very different ideas. If rents are not set by the (highly imperfect) market, what should they be linked to? Incomes? Costs? Inflation? Property values? Every option is problematic in its own way. Some advocate the setting of all rents by a Government body, others using the same term have in fact being arguing for some form of ‘rent calming’ or ‘rent increase control’, on a model similar to that advocated by Labour and the Greens before the General Election or as recently agreed by the Scottish parliament. 

These issues, and others, deserve proper debate but that is a rare commodity amongst the accusations and counter-accusations about bad landlords and bad tenants and the pervasive view that ‘private markets work’. An excellent new book on ‘The Rent Trap’, (purchase here ) written by Samir Jeraj and Rosie Walker for the Left Book Club,  published by Pluto Press, is a well-researched and well-written attempt to provide the evidence on which the debate can be based. The authors take us through the history of private renting and the various attempts to regulate rents, managing to separate fact from fiction about the legislative regimes we have experienced over the last 100 years. They provide a wealth of material about what happens in other countries and how other societies manage to have a more mature market with sensible regulation: longer tenancies, greater security, and more moderate rents. Private renting in the UK is part and parcel of the culture of short-termism and making a quick buck that is the UK’s problem. Other countries tend to look at investment for the long term.

There is also an excellent infographic based on the book, which is worth a look.

Good features of the book are the effective use of case examples to illustrate points and the inclusion of extensive comments from interviews with both landlords and tenants. I like the way they consider the point that ultimately private renting is a moral question as well as an economic question: is private landlordism just an honest investment in bricks and mortar or a mechanism to ‘trap and tap’ people with no choice. Why have we allowed so much public (landlord tax relief and housing benefit) as well as private money to be spent on a system designed to make profit by exploiting the most basic need, for a home, when there are far cheaper and better alternatives available? Social renting is an obvious alternative and the growth in private renting highlights the disastrous failure of Governments to deliver that which they say they hold most dear, the aspiration of home ownership.

Ultimately, the authors say, it is the growing gulf in housing wealth between the haves and have nots that is creating increasing discomfort and unease, even amongst landlords. The degree of disquiet, amplified by increasingly loud campaigns, holds out the prospect of a movement for change. But, they say, it will take a brave politician to bring that change about because it runs counter to the prevailing narrative on the efficacy of private markets.

The book is a good and thought-provoking read, more enjoyable than most housing policy texts, packed with helpful information and interesting perspectives. But I felt it had the final chapter missing. It is sub-titled ‘The Rent Trap: how we fell into it and how we get out of it’ but I don’t really think it achieved the latter. It alludes to what should be done, it indicates a direction, it says what is wrong, but it doesn’t set out a plan for examination. This matters because it is vital that we try to understand what further interventions might do to the sector and whether seemingly good policies might have unplanned and damaging consequences.

Here are a few of the questions that need to be answered:

  1. Rents are too high, but they reflect the high value of property in our housing shortage. By how much do we want them to come down and how quickly?
  2. If effective rent control led to a flight from the market by landlords, does the assumption that the resulting fall in property prices would be good for first time buyers hold up? How would we avoid a repeat of the negative equity disaster of the 1990s?
  3. If landlords removed tenants in even larger numbers than they do now, what would happen to the homeless people that would result?
  4. What precise form should rent control take? On what factors should rents be based? Should there be a formula calculation with a range of elements, and what should they be? Or should it really be a rent increase modification policy designed to dampen inflation?
  5. It’s fair enough to say rents are unaffordable but how exactly should they relate to incomes?
  6. Even in the best scenario, private landlords will be with us for many decades to come. What level of profit is it fair for a landlord to make?
  7. How should Government support the sector? What should be the tax and tax relief regime? What should we do about housing benefit, what is the right course to drive between providing HB to enable tenants to pay market rents and having policies that help deflate the market?
  8. Some politicians have already been brave enough to propose policies to start to tackle the sector. At the 2015 General Election Labour and the Greens both went for a rent dampening mechanism. Would these policies have helped? And what should we make of the recent legislative effort in Scotland?

There will be a discussion opportunity with the authors at an event in May.  Details on Eventbrite.

 

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