Rent Control: Arguments For And Against

By Londonist Last edited 112 months ago

Last Updated 13 February 2015

Rent Control: Arguments For And Against

Photo by Andy Worthington from the Londonist Flickr pool

Rents in London are too high. It's a rare (and brave) soul who'll deny this. One possible solution often bandied around is rent control — the majority of Londoners (not just those renting) are in favour, but the majority of economists are not. We've asked two people with different solutions to the problem to give us their point of view.

We DO need rent control

Becky Ely rents privately in north west London. She started a petition in favour of rent caps nine months ago — you can follow the campaign on Twitter.

Rents are out of control. Due to the shortage of housing in London and the fact that many people need to live in London for work, landlords are charging such high amounts for accommodation that they are pricing many families and young people out of the capital. A few months ago I started a petition for a London Rent Cap, which now has over 66,000 signatures and counting. It seems to have really struck a chord with Londoners — over 50% of Londoners rent and 24% are private renters. Several people who have signed my petition have said that they had to move out of London because of the high rents. Others are worried they will have to move out very soon as their salary is no longer enough.

The Guardian reported that a lecturer at the London March for Homes has to spend three quarters of his salary on rent. Others who have signed my petition have reported that they are spending a similar amount. Yet anything above a third of your salary is seen as an unaffordable rent by housing charity Shelter. The National Housing Federation recently reported that many private tenants are being forced to cut back on food to afford their rent. This is a shocking situation and needs urgent action by politicians.

My petition calls for a rent cap at levels much closer to social rents, similar to the Swedish model, where private landlords are not allowed to charge more than 5% above social rents. My petition states that no one should have to pay more than £200 a week in London. I chose this figure because I thought that anything over £200 a week would be very difficult for a family with an average income to pay. Either both parents will work and will need to pay child care costs — which are extremely expensive in London — or one of them will stay at home to do the child care, which will mean they have to survive on one income. The average UK income is about £27,000 or £409.90 a week after tax so even £200 a week is almost 50% of that.

A Rent Cap would also stop a small group of landlords becoming rich from all our rent money. A rent cap would be good for the economy: tenants will have more disposable income to spend on consumer items and this will help boost small businesses in London. Tenants will be more able to save, more able to pay for essential items like food and bills and will be less likely to get into debt and have to resort to payday loans.

Rent control works in other countries like Switzerland, the Netherlands and Germany, where tenants have much greater rights and the landlords are happy with the situation. Around 50-60% of the German population rent, and renting is not seen as an inferior option. Most European countries have some form of rent control and we had it in the UK until 30 years ago.

There is no evidence to support the claim that a rent cap would see landlords remove their properties from the market. When Thatcher deregulated the rental market, there was not suddenly an influx of private landlords who had previously been deterred. Numbers remained very similar. I would be glad if there were fewer buy to let landlords in any case, as it would mean it was easier for first time buyers to buy properties instead of being outbid by the buy to let landlords.

Introducing a London Rent Cap would be a very popular policy with the public and will mean ordinary people and families will not be forced out of London, the city they work in and love. We need politicians to recognise that property should not be seen as an investment but as a home.

Building more homes is the answer, says Ryan Bourne. Photo by Simon Crubellier, in the Londonist Flickr pool.

We DON'T need rent control

Ryan Bourne is Head of Public Policy at the Institute of Economic Affairs.

'The rent is too damn high' — on that we are all agreed. The annual housing benefit bill now stands at around £24bn and yet still more and more families spend over a third of their incomes paying rent. It’s tempting then, particularly for those who believe high rents arise because of landlord power or 'exploitation', to suggest government capping of rent levels.

This is hugely misguided. Rent caps are probably the best researched and understood form of price control. There’s an overwhelming consensus of economists who believe they are very damaging. Why? Capping prices at below market levels creates shortages of rentable property — especially in areas where demand is very high and hence rents high in the first place. It’s more profitable for landlords to find other uses for the property. That’s why in the 20th century, rent controls in Britain were associated with a collapse in the rental market from 90% of overall properties to just 10%. Introducing rent caps then would mean fewer people who want to rent would be able to.

For landlords who continue to rent, the suppressed return means they are more willing to let properties fall into disrepair — worsening landlord-tenant relations. Of course, those lucky enough to be able to continue to rent with charitable landlords benefit from below-market rents, but international evidence suggests that this might not help the poor. It depends of course on how the properties are allocated.

Just because rent controls would be damaging, however, doesn’t mean we are powerless. High rent levels are really driven by the same phenomenon as high house prices more broadly — a chronic under-supply of new properties in areas where people want to live. In fact, if anything recent rent rises have been below price rises — suggesting landlords aren’t being greedy, but setting rents according to market conditions.

Unfortunately, the UK’s extremely tight planning laws, including green belt restrictions which prevent the expansion of cities where people want to live (like London!), height restrictions on buildings and the extremely long development process (including section 106 agreements etc) severely constrain new supply. So as demand keeps rising, prices are just pushed up and up. This increases the burden on families through increased rents and the taxpayer through housing benefit payments too. It also makes it more difficult for people to live or move to the areas where they work.

Academic estimates suggest that these planning restrictions have raised rental and housing costs by as much as 35-40% above what they would be in a more liberal regime. This, not rent controls, also explains why it is so much cheaper to rent in other countries such as Germany.

If we really are serious about reducing rents and making it more affordable to live in the capital, we should not hark back to the failed policies of the past, but instead pressure our politicians to make it much easier to build — especially in areas where price rises are telling us there’s huge demand. For London, this means liberalising planning restraints so we can build both up and out.