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Labour's Reforms Could Ruin London's Rental Market

14/05/2014 11:43 BST | Updated 14/07/2014 10:59 BST

Last week, the Labour Party revealed how it intends to reform the private rented sector if successful in its bid to win next year's general election. In short, Miliband's plan is to make three-year tenancies the norm, cap rents and ban extortionate letting agent fees for tenants.

Labour is building its campaign around a commitment to tackle what it calls the "cost of living crisis" and the rental sector is seen as a pivotal part of this. Undoubtedly, rental affordability is a problem in London and voters are supposed to see this as a way of shifting the balance of power in the rented sector away from the landlords towards the tenants. This would essentially reverse the policy put in place by Thatcher's government.

Although we don't do politics here at Rentonomy and support both landlord and tenants' rights equally, I can't help but feel Miliband's proposals just aren't feasible. Instead of actually fighting back against the much bemoaned cost of living, the Labour Party is ignoring the source of the problem - supply.

Cost of living crisis could worsen

I have always been an advocate for levelling the playing field for tenants; the fees letting agents force prospective renters to pay simply for putting them in touch with a landlord and showing them around the property are extortionate. However, Miliband is simply talking about banning these fees and not taking landlords into account.

If the reforms were to come into legislation, letting agents would just pass these fees onto landlords, who would consequently raise rents - it would just be a vicious circle and tenants would still be out of pocket.

Miliband also promised to cap rent rises during tenancies if Labour is successful in the next general election. Although this may not sound like the worst idea in the world, landlords are rational economic beings and would increase the initial rent so they don't miss out financially.

The final arm of Miliband's reform is to bring in three-year tenancy agreements to protect tenants from being evicted. These would begin with a six-month probation period and if tenants don't breach their contracts this would then be elongated to the full three years.

The problem here is landlords already want tenants who stick to the rules to stay in their property for as long as possible because it's cheaper. They don't have to spend extortionate rates to repeatedly advertise their property and know the tenants are trustworthy. The question therefore is, why change the current process in such a way?

All Labour would achieve here would be to remove the main selling point of renting in London - flexibility. By tying tenants down to three year leases, many could be put off from renting all together.

Clearly then, Miliband's proposed reforms would struggle to make a positive impact on London's rental market. In fact, it could make things worse if Labour implements this legislation and fails to act on the overriding issue of housing supply.