A pledge by opposition leader Jeremy Corbyn to introduce rent controls in the UK if he wins the next general election has been heavily criticised and would be another blow to an already struggling buy to let sector.
Corby said in his main speech at the Labour Party conference that the housing system has failed and he promised to do something about it by bringing in controls and outlawing what he called gentrification developments.
‘Rent controls exist in many cities across the world and I want our cities to have those powers too and tenants to have those protections. We also need to tax undeveloped land held by developers and have the power to compulsorily purchase. Families need homes,’ he told the conference.
He believes that interventionist policies are popular with the public who he thinks would back plans to keep rent prices down. He could be beaten to the post as several local authorities in Scotland are already looking as the possibility of introducing controls under new powers due to come into force later this year.
Generally rent controls cap the amount that a landlord can charge in the private rented sector in specific zones where rents are judged to be too high for ordinary people. Any increase would be set at a certain value for the area.
The Mayor of London Sadiq Khan is a supporter of rents controls. He would like to introduce them in London where some figures suggest that average rents reached 7% of disposable income in 2016.
But opponents of the policy argue that it would ultimately harm the most disadvantaged by encouraging landlords to leave the market which would limit supply even further at a time when demand is rising.
David Cox, chief executive of the Association of Residential Letting Agents (ARLA), believes such a move would seriously deplete the private rented sector. ‘The last time rent controls existed the private rented sector went from housing 90% of the population to just 7%. Whenever and wherever rent controls are introduced, the quantity of available housing reduces significantly, and the conditions in privately rented properties deteriorate dramatically,’ he said.
‘Landlords, agents, and successive Governments over the last 30 years have worked hard to improve the conditions of rented properties and this is like taking two steps backwards. Rent control is not the answer. To bring rent costs down we need a concerted house building effort to increase stock in line with ever growing demand,’ he added.
David Smith, policy director of the Residential Landlords Association (RLA) said the policy would be a diaster for tenants too. ‘History has proved that they stifle investment and reduce supply, making it much more difficult for tenants to find somewhere decent to live. This is what happened before they were lifted in the 1980s and it led to a reduction in the quality of rented housing available,’ he pointed out.
‘Private sector rents are increasing by less than inflation and the call for rent controls is a diversion from the real need to increase the supply of rented housing to meet the fast rising demand. The private rented sector has invested in providing homes for the population, putting more homes into use than any other landlord type. Instead of attacking landlords, the private rented sector should be seen as part of the solution to the housing crisis,’ he added.
Rent controls would be another blow to the buy to let market, according to Mike Richards, director of Mortgage Concepts Associates. ‘If we have got landlords at the moment who have been hit by everything the current government has thrown at them, restricting or controlling rents is going to be the final nail in the coffin,’ he said.
‘We have got landlords who would have liked to buy more properties who are never going to do that now. We have got stress rates and margins that have been made vastly worse in most cases,’ he pointed out.
He added that if Labour did bring in the policy it would have to make concessions in other areas such as reversing the extra 3% stamp duty on additional homes which has hit landlords and reverse some to the tax changes that are resulting in higher costs for landlords.