Sadiq Khan told – Rent control doesn’t work

by Property 118

13:24 PM, 24th January 2019
About 2 years ago

Sadiq Khan told – Rent control doesn’t work

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Sadiq Khan told – Rent control doesn’t work

Sadiq Khan is to make wide ranging rent controls the key policy of his 2020 re-election bid by asking the government to give the London mayoralty the power to control rent increases in the capital.

The Mayor said: “We need an approach to rent stabilisation and control that works in London. Once we have set out these proposals, we will argue the case that ministers must support London’s private renters by putting our plans into action.”

Responding to Sadiq Khan’s rent control proposals, Chris Norris, Director of Policy and Practice at the National Landlords Association (NLA), said:

“The cost of housing is high for everyone, whether you rent or have a mortgage, so the frustration felt by so many people in London, and indeed the UK, right now is understandable. We have a general housing shortage, social housing has been in long term decline for some time, and more and more people have no option but to turn to the private rented sector for a home.

“However, it is frankly bizarre that the Mayor of London should choose this moment in time to develop a blueprint for stabilising rents. It is equally odd that the announcement justifying the decision should be based on rent data for the period 2005 and 2016, when according to the Mayor of London’s own housing data private rents in the Capital have dropped consistently from 2016.

“In the year to July 2018 private rents in London fell 0.3 per cent, compared to an average increase in the rest of England of 1.6 per cent. When adjusted for inflation (as published by the Mayor’s team) this equates to a real terms fall of around 2.25 per cent. So by all means stabilise rents, so long as that stabilisation works whether rents are rising or falling.

“It’s often assumed that high rents are the product of landlords’ greed rather than market forces.  However, housing costs are seen as relatively high because wages have not kept pace with the cost of supply. Capping the rent which can be charged will alter neither of these factors.

“Artificially suppressing rents sounds like an easy solution, but it would be counter-productive and fails to address the root causes of a lack of affordable housing. In fact, history shows that rent controls stifle the supply of housing and reduce the money available to a landlord to maintain their properties.  That benefits no-one.

“The only real solution to the UK’s housing problem is to build more homes whilst bolstering economic growth. The emphasis should be on encouraging more housing in all tenures from a more diverse range of investors and providers.”


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Comments

Sami Houmrani

16:26 PM, 24th January 2019
About 2 years ago

This could curb the Build to Rent sector in London if it is applied to them.

Martin Thomas

9:39 AM, 25th January 2019
About 2 years ago

Great comments by Chris Norris from the NLA - very incisive.

But you know, James Brokenshire is so dopey he'll probably go along with Sadiq Khan. James, don't let the facts get in the way of doing everything you can to 'help' tenants and hit landlords!

Graham Landlord

10:52 AM, 25th January 2019
About 2 years ago

Have we all forgotten, the 1977 rent act, brought in by the Labour Government? A seemingly brilliant idea for Tenants. It converted all existing and new tenancies to protected tenancies. The landlord could only get his property back if the Tenant broke the rules, like not paying the rent. No matter what rent had been agreed, the Tenant or the Council could ask the “Rent Officer” to set a new rent, which was always lower. The result was, lots of illegal evictions using physical force, threats of violence or making the property uninhabitable. Gangster type property investors would buy cheap property with “sitting Tenants” and then throw them out. If you had an empty property the last thing you would do is rent it out. Those Landlords, who didn’t want to illegally evict the tenants, so they could sell the property, had no margin, or incentive to maintain or improve their property. It was a short term sugar rush for the Tenants, and then the availability and standard fell of the cliff.
In the 1980’s I brought a very tatty block of rented flats, whilst this law was in force. Each flat was rented at £50 a week. Being naive, I renovated the first flat that became empty. I then rented it out for £75 a week, the new tenant immediately called the rent officer in, who set the rent at £55 a week. I never renovated a flat again. When a flat became available, such was the shortage of available accommodation, that in the first hour of it being advertised I would get 25 phone calls. People would queue in the street for it to take it “as is”!!
The disaster was corrected by the Conservative Government with the 1988 Rent act which created AST’s . The Government advisers know it is a historically proven disaster, let’s hope some of the MP’s are old enough to remember it.
Graham Chilvers.

Seething Landlord

13:44 PM, 25th January 2019
About 2 years ago

Reply to the comment left by Graham Chilvers at 25/01/2019 - 10:52
I doubt if many members of this forum have had personal experience of life as a landlord prior to 1988 and I for one would be most interested if others could share their memories of those days. Practical examples of the effect of rent controls strike me as much more compelling than any amount of statistical data.

Simon Williams

14:37 PM, 25th January 2019
About 2 years ago

The comment about rent controls and impact on the Government's much loved build-to-rent sector is an interesting one. The adverts I have seen from these corporate landlords, show sky high rents for "premium" accommodation. Old style "hard" rent controls would seriously undermine their business model and reduce investment in that sector. Not sure the government would be too keen and even this government will baulk at the idea of only applying controls to small landlords.

Seems to me Khan is just playing politics. He gets to show he's tenants' champion even if he fails to persuade the gov to back him with new powers. And if Labour gets in, rent controls will be nationwide anyway.

Tories would love more tenant-loving headlines, but I think DCLG are very worried about supply levels and therefore I am not sure we will see hard controls introduced anytime soon unless there is a change of Gov. Or we will get very soft controls like they have in many continental countries where the landlord is free to set a market rent at the start of the tenancy but is only restricted by some X + inflation formula for in-tenancy rises. For landlords like me who usually don't raise rents once the tenancy has started, the availability of a ready formula for annual rent rises might ironically lead to my tenants paying higher rents rather than lower.

Hard controls in New York (often cited by proponents) are dying out as the controlled sector is now smaller than the uncontrolled sector. Whenever a controlled sector tenancy does come up for grabs, it is usually hard fought over by a mass of tenants and the winners are usually the educated young middle class renters with the best references - the very opposite of the people that rent controls are most designed to assist.

Mandy Thomson

9:18 AM, 26th January 2019
About 2 years ago

Reply to the comment left by Graham Chilvers at 25/01/2019 - 10:52
I couldn't agree more. As a child, my family rented one of those private properties for a time - while the landlord was decent, the property had severe damp issues which caused my dad to be hospitalised for six weeks. I also remember the place as a dark, dingy, rather grim place with very basic Spartan kitchen and bathroom.

I believe the property was in that state because there was no incentive for the landlord to raise the standard because of rent controls and, with little incentive for private landlords to rent out in general, we had limited choice of alternative accommodation.

My parents had frequent discussions about "when we get a council house" and also discussions about buying a place that they knew would be too small for our needs - that scheme was abandoned when they were refused a mortgage (my mum was mostly a full time housewife and my dad the only breadwinner).

Do we really want to turn the clock back to those days? As a private landlord, I ensure my properties, though far from high end, are presentable and decent - and yes, I have lived in them myself. They are also in London - while I charge market rents I always keep my rents at the lower end of the spectrum and have only raised a rent once, at the behest of a new mortgage provider.

Dylan Morris

10:09 AM, 26th January 2019
About 2 years ago

What’s the betting on Khan getting his way with this ? Very likely given the current socialist May administration. Perhaps only apply it to private landlords and not incorporated ones ? After all Section 24 only applies to private landlords so why not hammer us a bit more, leaving the bigger players untouched again.

Yvonne Francis

12:36 PM, 26th January 2019
About 2 years ago

Reply to the comment left by Seething Landlord at 25/01/2019 - 13:44
I first became a landlord in 1980. There were of course no AST’s so one of the major difficulties was not being able to get tenants to leave. I consequently decided to rent to students based on the assumption that they would be, because of the nature of the lease and their prospects, very unlikely to stay on. There were also rent controls. If a tenant complained you could have your rent considerably reduced. It was not assessed on market rents but usually cut in about half. It devalued your property as well as the rent control stayed on the house and not the tenancy. In order to get around this I rented through an agent who dealt directly with the Colleges. If Colleges rented properties they could not take the landlord or the agent for rent controls although the downside was that I had to rent through an agent as the Colleges did not rent directly from Landlords. For a number of years this worked but eventually the Colleges realised their disadvantage and stopped. So I had to run the gauntlet and rent my properties on my own. Luckily within one year rent controls had been abolished. It was probably one of the most stressful years I had as a landlord.

The consequence was that there was very little accommodation to rent as not only were there rent controls but sitting tenants. If ever or however rent controls are introduced I sincerely hope it will not be the same as the eighties as that was the stuff of nightmares.

Dr Rosalind Beck

13:05 PM, 26th January 2019
About 2 years ago

Reply to the comment left by Graham Chilvers at 25/01/2019 - 10:52
Excellent comment, Graham, which I have forwarded to Ros Renshaw at Property Industry Eye, suggesting she build an article around it. I don't know if you know, but I used your case study from the Telegraph a few years back in my report into Section 24 (chapter 12). https://www.property118.com/wp-content/uploads/2016/10/6G0YKMd1Wf.pdf

Michael Barnes

22:41 PM, 26th January 2019
About 2 years ago

Reply to the comment left by Dylan Morris at 26/01/2019 - 10:09
S24 only applies to individual landlords because only individuals have tiered tax rates.
If it were applied to companies (disallow finance costs then give a tax credit at lowest rate), then it would have no effect.


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