October 29, 2010

Why doesn't anyone talk about rent control?

A short post that's too long for a tweet but has been on my mind every day for the last week. In all this discussion about housing benefit caps, limiting social tenancies, slashing the social housing budget: why doesn't anyone talk about rent control in the private sector? Call me naive, but until we undertook a research study a few years ago for a Canadian client, which looked at tenure and mangement models alongside design approaches in international affordable housing, I had no idea that the UK is virtually the only country in Europe that doesn't retain some form of rent control in the private sector.

So when we talk about the ever-spiralling increase in house prices here, and wonder why our market seems so spectacularly maladjusted to what our population and earnings require, isn't there a huge elephant in the room here? Rent control has two effects:
- Buy-to-let is a less attractive financial option, as the profit that landlords can make is limited;
- Renting can be substantially cheaper than paying a mortgage, thus disincentivising house-buying as the default aspiration for middle- or lower-income households.
Both of these would stabilise house prices - the central issue - beyond supply and demand - in our housing crisis.

It's worth noting that European rent controls take many forms - either simply regulating annual rates of increase, or limiting private rents to a percentage step above social rents. It's not a one size fits all approach. Of course, no political party in contemporary UK would be brave enough to bring in a measure that goes so fundamentally against the free-market ideology - the last rent controls we had were abolished by Thatcher in 1988.

But until we have a serious discussion about how rents are set in the private sector (which is, let us not forget, the main provider of homes to housing benefit recipients), we can forget actually addressing the housing issue.

Some further reading: here and here.

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3 Comments:

Blogger Markasaurus said...

I moved to London from San Francisco, which has had rent control on private rental properties since the 1970s. It only applies to housing built at the time of the ordinance, so any new rental housing is not subject to it. This does cover most rental properties though, as the city is fully built out and it is very difficult to get permits to demolish a building- particularly if it is rent controlled.

It has certainly not stabilised house prices at all. San Francisco is one of the few places that is actually MORE expensive than London. It has given a measure of stability to lower-income people who could not afford double-digit percentage increases in rent (increases are tied to a very small year over year percentage) but the main disincentive to purchasing a home is the fact that the average person can not afford it- the median single family home price is $731,000 and the median condo is $635,000.

While I think some form of rent control is beneficial, it has a number of negative effects- one of which being owners set rents artificially high because they know they will not be able to substantially raise the rent for as long as the tenant lives in the property (which tends to be for a long time- once a person moves he or she is subject to market rates again).

October 29, 2010 at 10:51 AM  
Blogger Hana Loftus said...

Couldn't agree more Mark - any rent control has to be carefully tailored to the economy of the particular place, and what you describe is definitely a problem. It has to be considered in conjunction with tenure models (e.g. UK-style shorthold tenancies counteract some of the issue of sitting tenants) and there are different ways of linking rents to mortgage rates, social sector rentals, inflation, etc, rather than a 'reset' every time the tenant moves out. Plus the relationship to new development/redevelopment of sites is key. But read the first of the 'further reading' links I posted and see if you don't think there are some really interesting models out there!

October 29, 2010 at 11:02 AM  
Anonymous nickj said...

The politics of the last 30 or so years has been about the wonders of the 'market'. Tories and Labour alike have swallowed this in one gulp.

Thus any talk of rent control will be dismissed as interference with the operations of the free market.

The promotion of rent control therefore has to concentrate on the disparities between the actual housing market and the notional economic theories of perfect competition.

The govt won't take much notice of these arguments however, but they may find a rise in squatting, people resisting repossesion and that sort of thing rather more persuasive.

January 9, 2011 at 2:10 AM  

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