The London Mayor is being urged to forget about rent controls. Instead, say critics, he should be increasing the supply of rental homes by attracting more people to invest in the capital’s PRS.
Earlier this year Sadiq Khan called on the Government to give him the power to cap London rents. His aim is to “fundamentally rebalance London’s private rented sector” and make it fit for purpose. There is no arguing with the fact that renting in London has become increasingly unaffordable. Average monthly rents increased by 35% between 2011 and 2018 according to the Valuation Office Agency. And the latest English Housing Survey reveals that private renters in the city spe3nd a massive 42% of their income on rent compared to 30% in the rest of the country.
So the mayor has a point. But rent controls are not the answer. As Paul Sloan, development director for Haart, said in the press last week: “Rent controls sound great in theory, but unfortunately, the reality is that they simply do not work. Around the world, we have countless examples of cities which have introduced rent controls, but that has done nothing to address affordability issues.”
Believe it or not, if you go back 80 years or so, there was significant institutional investment in housing which left the market due to rent controls. At Ringley we think it’s simply nonsensical for the Government, having spent five years enticing the institutions back into the rental market, to even consider now preventing them meeting their investment criteria by capping rents.
The problem with rent control is that landlords are put off entering or staying in the market. It’s a simple equation: fewer landlords mean fewer homes to rent. This in turn is likely to push up prices even further. And as Paul rightly points out – this is the very thing the controls are brought in to avoid. The RLA gives the example of Berlin, where rent control actually made rents rise by about ten% over two years. Before they were introduced they rose by about 1-2% per year.
The other key point is that capping rents may also make landlords more inclined to cut corners and less inclined to maintain their properties to a high standard. This means, over time, the quality of rental housing could start to fall and tenants could find repairs and redecoration being ignored or carried out less frequently. We say the key to a properly functioning market is supply. The Government must focus on height, density, planning delays, clear guidance and other supply accelerators such as getting land banks developed and encouraging partnerships to release land. The key objective must be to better serve residents by giving them more homes to rent and more choice. Ultimately this will address affordability