The Blog

Laws to Control of Rents: Is It Time to Examine This Again?

One of the strange features of the British political establishment and the media is that policy ideas that were a matter of political consensus between the Conservative and Labour parties in previous generations, and are part of the political consensus between left and right wing parties throughout the developed world, are treated here as being radical, dangerous and destructive. The British establishment has a tendency to support the status quo, regardless of its merits, and to be hostile to any suggestion of change. However, if changes implemented, it is the new status quo which is defended.

Take the issue of rent controls. In a relatively small country with substantial pressures on a limited supply of housing, the free market has driven up rents and will inevitably drive up rents in the future. The annual growth in average rental values for the three months to August 2015 was 10.5%. This was higher than 2014 (8.1%) and 2013 (4.9%), all at a time when wages are hardly rising at all.

Demographic changes mean demand for more household units will continue to increase, but the constraints of the planning system inevitably restrict the number of new dwellings that can be built. Buy-to-let landlords with access to capital will always be able to outbid other purchasers, but this causes rising property prices and inevitably mean that rents will have two rise further as landlords seek to recover their investments. This is a mess, is destructive of local communities and is unsustainable.

As a matter of principle, it is hard to see why restricting the rents that a landlord can charge for renting property is a greater intrusion into the freedoms of landownership than restricting the ability of a property owner to build on their own land. There is a consensus in UK politics that ownership of land does not give property owners an unencumbered right to develop land as they consider fit. Until the 1980s there was also a consensus that there was a public interest in restricting rents that could be charged to residential occupiers. However all that was swept away in the free-market economic revolution of the 1980s. Today there are no restrictions on the rent that a landlord can charge for the vast majority of rented property.

The Labour government between 1997 and 2010 did not reintroduce rent controls for new tenancies, but used the housing benefit system to subsidise rents for those that could not afford the escalating cost of a home. That did not stop the increase in rents but meant that taxpayers were subsidising the effects of the free market.

The Conservative government, through a variety of mechanisms including the benefit cap, have been unwilling to continue to use taxpayers money to subsidise ever-increasing rents. However the result has been social cleansing in London where rents are highest, overcrowding but no increase in supply of affordable housing.

The policy answer to this adopted by Labour and Conservative governments in previous generations to a lack of housing was to subsidise the building of social housing by public bodies and to control rents. However, the political consensus having changed the free-market solution, few UK politicians have been prepared to accept that this is not an area where the free-market delivers the society. With the election of Jeremy Corbyn to leadership the Labour Party we may well see some new thinking in this area.

As always, it is worth looking abroad for examples. Rents in Paris rose by 42 percent in the last 10 years, according to official data. In August 2015 the French government introduced controversial rent controls in Paris and made these optional other cities. They were vigorously opposed by property owners and estate agents but supported by 75% of the public. One of the arguments in favour of the changes was that rental costs in France were 50% higher than in Germany. Germany, Sweden, the Netherlands and Switzerland already implement similar rent control laws. There are also controls on rents across large parts of the United States.

It is clear that Jeremy Corbyn favours both rent controls and the re-introduction of public subsidy for housebuilding by local authorities. Far from being radical, these ideas were part of the mainstream consensus of UK politics for most of the last century. They would bring us back into line with the political consensus across most of Europe and the United States.

It is Britain that is out of step with the international consensus on this issue, not the new leader of the Labour Party. It seems likely that any proposal to reintroduce rent controls will face a barrage of negative media coverage, prompted by the usual vested interests. However, with an increasing proportion of British families living in houses that they rent rather than own, a policy proposing the re-introduction of rent controls is likely to be as popular in the UK as it is in France.

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