Blog: Would rent controls really improve the private rented sector?
RICS UK Residential Director Andrew Bulmer on some of the issues and views driving the debate about rent control in the UK’s private rented sector.
Longer tenancies and rent caps
Organisations such as Shelter campaign for longer tenancies because some tenants fear their landlord may not renew a letting. If this happens soon after a family has just moved in and children have started school, for example, this obviously causes pain.
However, issues exist with longer tenancies. For example, some buy-to-let lenders may not allow them, and if a tenant is going to sign up for three years then some kind of rent review seems reasonable. And how should landlords remove ‘problem’ tenants?
Labour has said it would introduce rent controls that would mean three-year tenancies and rent increases capped at the rate of inflation, to protect tenants from rogue landlords and make renting more affordable.
The plan has support from tenant groups but is criticised by others saying that landlords would exit the market.
Interestingly, Get Living London operates part of the capital’s East Village development and offers three-year tenancies with annual CPI-linked increases. It claims that over 1,000 of its properties are let. However, its ability to spread the risk of ‘problem’ tenants over its 1,439 homes is an advantage over landlords with far fewer properties.
Supporters of rent controls often cite Germany as successfully implementing rent controls. But it has little housing inflation and, outside of a few big cities, is depopulating. This means it doesn’t have the same housing pressures as the UK. The German market should not therefore be compared lightly or without further comment.
Finding a way through these issues without damaging the private rented sector is crucial.
Lies, damned lies, and statistics
Landlords usually keep rent increases low so their properties remain occupied. The Office for National Statistics has shown rents for existing tenants only rise around 1-2 per cent per year. However, compare these figures with those from some big agency chains which publish rental increases of up to 8 per cent and claims that rents are soaring – but these figures only cover newly let properties from those firms.
We must always be careful with statistics as they can be ‘shaped’ to suit an argument (as Shelter’s recent blog on rent rises emphasises).
The investment angle
Until recently, there’s been little institutional investment in the private rented sector because of low returns. However, the viability of institutional residential investment has recently improved due to rental growth, low interest rates and UK government subsidies such as the Build to Rent scheme and implementation of planning restrictions targeted at the sector.
However, 78 per cent of landlords only own one property and some are ‘reluctant’ landlords who can’t sell a property. They aren’t always sophisticated investors and are often motivated by properties being a retirement pot, for example.
How would these different investors react to rent controls?
Consider this possible scenario. Measures are introduced that deter some landlords – be they light-touch rent controls, mandatory longer tenancies or, potentially in the case of Scotland, an end to no-fault possession.
Some landlords exit the market. Meanwhile, exacerbated by the continuing low rates of new builds for all tenure types, supply is even further restricted.
There is then more upward pressure on rents, which encourages calls for more draconian rent controls, possibly causing a greater exodus of landlords.
We saw a similar scenario following the 1977 Rent Act, when the supply of private rented housing dropped to around 9 per cent and finding rented accommodation became difficult.
Of course, in those days, getting a rented council house was easier than is now.
The assured shorthold tenancy has successfully delivered a private rented sector that is more than twice the size it was in the mid-1980s. It’s usually regarded as a six-month tenancy but can be for any length.
Landlords and tenants should consider longer tenancies – maybe by initially using a six-month term but then something longer if this works for both parties.
Shelter has proposed a stable rental contract using the current legal framework. It includes allowing:
- five-year tenancies during which tenants can’t be evicted without ‘good reason’
- landlords to increase rents annually without exceeding the consumer price index during the five years
- landlords having the right to end the tenancy if they sell the property.
Interestingly, Kate Faulkner produced an independent report last year that said private landlords are not responsible where affordable housing supply has failed. And that if the risk/reward ratio for landlords doesn’t work, then they will exit and harm supply.
Interference with the present rental structure may affect viability for landlords but there remains a need to protect tenants from a minority of bad landlords. The answer to these issues will need a delicate balance that does not harm supply and there should be caution over sweeping reforms, be they well intentioned or for political gain.