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Rent controls: should they be reintroduced?

With 9 million people dependent on the private rented sector, calls for rent controls have been increasing. But what are the arguments for and against?

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Guardian Professional, Monday 5 August 2013 08.00 BST

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To Let signs

"The median rent rose 9% in London last year, while pay only rose 2%". Photograph: Christopher Furlong/Getty Images

FOR: 'We cannot solve our problems with free market solutions'

Darren Johnson Green Party

Darren Johnson, Green party member of the London Assembly

Tackling rising rents without rent controls is like tackling poverty pay without the minimum wage. Opponents of the minimum wage said there was no use bucking the market and it would only make things worse. But it actually made things better.

The key argument against rent controls – that they would reduce supply – only works if we think the private rental market supply is the key solution to our housing woes. In a well-functioning market where private landlords and developers are likely to meet demand that argument can be convincing.

But London's housing market is dysfunctional. The mayor recently admitted he expects housing costs to keep rising for a decade; my research suggests it will be for even longer than that. We cannot leave the quarter of Londoners who rent privately to wait that long.

We also cannot solve our problems with free market solutions. As Shelter has recently argued, private developers alone are very unlikely to get close to meeting our housing needs. Countries such as Germany have more stable housing costs because the state takes a stronger role in constraining demand, building and refurbishing homes, releasing land and keeping rents under control.

London cannot become Berlin overnight, but we can start with modest reforms that protect tenants from the worst elements of our housing market immediately.

We need to at least stabilise rent increase. The median rent rose 9% in London last year, while pay only rose 2%. The typical experience for a young Londoner today is being moved around every 12 months by landlords eager to raise their rents to the ever-higher market rate. People on very low incomes are being priced out, as my rent map graphically illustrates.

The majority of the London Assembly supports a modest proposal: a rent control that prevents landlords from raising rents each year by more than an inflationary index. It wouldn't cap rents or reduce them, but it would slow the frenzied rise in this broken market. Similar systems operate elsewhere in Europe, along with much longer and more secure tenancy agreements.

We already have a very weak rent control, of course. People can challenge rents far above the market rate at a first-tier tribunal. But this obscure process offers no protection if the market is rising rapidly, and weak tenancy protections mean the landlord could just evict the tenant in retaliation for complaining.

The sky would not fall in if we looked to a fair inflationary index instead of the dysfunctional market rates.

With mortgages so cheap, London's private landlords would not up sticks if they could only have increased the rent by 3% last year instead of the average 9%. Even if they did, that would reduce demand for buying housing, helping first-time buyers who are crowded out by buy-to-let investors with their wealth and tax breaks.

Nor would institutional investors be scared off by the prospect of tenants who stay in the properties for several years with predictable, but fair, rent increases each year. If they were scared off, then good riddance; we can't base our housing policy on such appalling insecurity and unaffordability.

A stabilisation policy would also have no impact where rents are stable or falling.

If we combined rent controls with capital allowances for landlords, it could also see housing conditions improving. The idea that all rent controls mean a return to the most squalid of 1970s rented homes is a nonsense. We can only end our housing crisis if we look beyond free market solutions.

AGAINST: 'Rent controls would only plaster over the cracks'

RLA chairman Alan Ward

Alan Ward, chair of the Residential Landlords Association

The arguments for rent controls are superficially attractive. The reality however is that such a solution amounts to a short sighted, political sticking plaster that would lead to widespread disinvestment and the creation of ghettos of slum housing within 10 years. The London-centric calls for such controls ignores the evidence that controlling market rents would choke off investment in much needed new homes and reduce the choice tenants have over their housing needs.

If letting agencies are to be believed, rents are now at a record high and unaffordable for many people. But they would say that wouldn't they? After all, it is in their interests to puff up how much they can get for their landlord clients.

The reality, however, is that in most of the UK rents have actually fallen in real terms. In June, the Office for National Statistics published statistics that found between May 2005 and May 2013, private rental prices increased by 8.4% in England overall and 11% in London. Inflation, meanwhile, increased by 30.2% over the same period. All of a sudden the argument that landlords are somehow profiteering does not seem quite as convincing.

Where high rents exist, such as in London, it is a result of landlords responding to market pressures. Rent controls would amount to treating only a symptom of the problem, namely the chronic shortage of properties to rent.

We have published a detailed manifesto outlining how best to support the almost 90% of landlords in England who, as individuals, rent just one or two properties out, to increase the supply of new homes available. Where is the plan for growth in the private rented sector from those calling for rent controls?

If those advocating rent controls are as committed to housing growth as they claim to be, it is time they come clean on the devastating impact that such controls would have on much-needed investment in new homes. As former housing minister Grant Shapps said: "Rent controls resulted in the size of the private rented sector shrinking from 55% of households in 1939 to just 8% in the late 1980s." Is that what proponents of rent control really want to see? Tenants denied choices over their housing needs and reduced incentives for landlords to compete on quality, service and cost.

It is little wonder that the cross-party select committee into the private rented sector concluded: "Rent control would serve only to reduce investment in the sector at a time when it is most needed. We agree that the most effective way to make rents more affordable would be to increase supply, particularly in those areas where demand is highest."

Rent controls would lessen investment in new homes when we need more and serve only to paper over cracks in the market. As with so much in the housing world, for some, it is far easier to achieve a cheap political point by calling for rent controls than to provide a detailed prescription for growth in the private rented sector. And ultimately tenants would lose out as they find themselves forced into slum properties rented by Rachman landlords, operating outside the legal market.

Where do you stand on the rent controls debate? Let us know in the comments section below

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