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Fears that landlords will leave the market if rent controls are introduced

RLA
Written by RLA

Three out of five landlords would leave, or consider leaving, the private rented market if rent controls were introduced. New figures also reveal that the majority of landlords plan to freeze their rents in 2015.

Three out of five landlords would leave, or consider leaving, the private rented market if rent controls were introduced. New figures also reveal that the majority of landlords plan to freeze their rents in 2015.

The findings come as RLA Chairman, Alan Ward, will warn that proposals for rent controls will leave tenants worse off.

According to the results of a survey of over 1,000 members of the Residential Landlords Association, over 75% of landlords either froze or cut their rents in 2014.

In the current year, over 65% intend to do so again.

Speaking ahead of a debate on rent controls tomorrow, Alan Ward said:

“These results blow a hole through the myth that rent controls would be good for tenants.

“At a time when tenants need more choice over where they live, state-controlled rents would choke off supply, increase rents and reduce quality. It would be history repeating itself.”

Alan Ward will point to official figures showing that in the social rented sector, rent controls have seen rents massively outstrip inflation.

Data in the most recent English Housing Survey show that between 2008/09 and 2012/13 social sector rents increased by over 25%. In comparison, private sector rents increased over the same period by 6.5%. Inflation as measured by both CPI and RPI over this period was around 16%.

Mr Ward continued:

“The reality is that rent controls would leave many tenants paying more than they do at the moment.

“Rather than coming up with ideologically-driven ideas, proponents of rent controls need to address the root issues, namely the need to boost the supply of homes to rent.”

Further Information

  • Alan Ward will be speaking alongside Mark Littlewood, Director General of the Institute for Economic Affairs. Speaking in favour of rent controls will be Labour MP, David Lammy and Becky Ely, who created the Rent Control petition with 38 Degrees.

Over this period, inflation as measured by RPI was 16.2% and CPI was 16.7%.

“A key factor behind the decline in the PRS was the introduction of rent controls during the First World War, and these became more extensive over time. Artificially low rents reduced investment in the sector, contributing to…lower maintenance standards in the stock that remained.”

  • Research published in 2011 by the Organisation for Economic Co-Operation and Development (OECD) has shown that rent controls lead to greatly reduced quality and quantity of new homes. This is available at http://www.oecd.org/newsroom/46917384.pdf. Page 18 reads:

“An illustrative correlation shows that across countries, stricter rent control tends to be associated with lower quantity and quality of rental housing, as measured by the share of tenants who lack space and who have a leaking roof.”

 

About the author

RLA

RLA

The Residential Landlords Association (RLA) represents the interests of landlords in the private rented sector (PRS) across England and Wales. With over 23,000 subscribing members, and an additional 16,000 registered guests who engage regularly with the association, we are the leading voice of private landlords. Combined, they manage almost half a million properties.

20 Comments

  • I am a landlord and I with 65,000 others who have signed a petition asking for

    A RENT CAP IN LONDON

    Introduce a cap on rents, so no one has to pay more than £200 a week on rent.
    Why is this important?

    To reduce the housing benefit bill drastically
    So families don’t have to choose between food or rent
    So people can afford to live in the city with the most jobs in the UK
    So there is less incentive to become a buy to let landlord, thus allowing first time buyers more opportunities to buy properties

    Most young people who work in London know that they will have to move far out of London if they want to have a family as rents for family size properties are so high e.g. £350 a week for a three bedroom property.

    London should not only be affordable to the rich or to those who are lucky enough to own homes.

    I would suggest a rent cap which is much closer to Council housing rents. For example:

    Room in shared house: £75 a week
    Studio: £95 a week
    One bedroom property: £120 a week
    Two bedroom property: £145 a week
    Three bedroom property: £170 a week
    Four bedroom property: £195 a week

    • Your Mad. I don’t think you are a landlord. Rents must relate to the cost of the property a 6% yield is about the minimum that makes it worthwhile for a landlord to invest and run a property.

    • @Ned Newitt I don’t believe you are a landlord.

      Firstly, you say rents could be much closer to Council housing rents. Councils got their housing stock 60 to 70 years ago, when houses cost a couple of thousand pounds. Most prirvate landlords got our stock more recently and it is hard to charge the same rents. Even then the councils got £40billion from the Government to refurbish all their properties.

      Secondly, you seem to propose a flat rate. London has 32 Boroughs. Do you really think someone with a multi-million pound property in Notting Hill going to rent it for £200 a week?. Join the queue, because I will be first to rent it off him.

      The problem with London, is there a number of affordable places to rent and buy, but they have never been popular. Money should go into poorer areas and unfashionable to regenerate them. It is a lot cheaper to build new houses and it benefits everyone.

  • Rent control from the government sounds very much and it is a communist form of control – are we going into a communist dictatorship? How is the government goin to come up with the rent levels? I assume they will again take the money from the owners in their council estates who are now being overcharged exuberant amount of service charges to pay for the councils building new apartments in the existing estates which are then given for free to people on social benefits!

  • £75 a week for a room fully furnished with all bills included, in London? Are you mad? Bills alone would take a huge chunk of that money plus I am not going to invest my hard earned cash to buy a house to rent it to poor people and be a charity case! And make no money? What’s the point? ??

  • Any kind of rent control would be difficult to implement. But we must think of the long-run and global consequences of an unlimited rent and property price rise. It’s possible to live without a car, but not without a house. If housing becomes expensive, people would only take jobs if payed enough to keep their living standards. That would rise companies’ costs and they would eventually decide relocate elsewhere or cut staff. Who wants that?
    We should look at the recent history of Spain and its property bubble in the last decade. It’s quite different from the UK, of course, but still an example of how an uncontrolled housing market can damage a country’s economy.
    Economic unfairness brings economic unbalance and that, eventually, brings disasters.

  • Three out of five landlords would leave, or consider it – well that sounds a bit misleading IMO. Every housing owner meets different circumstances.. It’s a fact that housing rents are pretty high troughout London and of course that property owners are “used” to good income rates.. Who wouldn’t? The same way all tenants could, would and A LOT are used to or would support rent control if “the government” promises lower and more secure housing.. Although I am more willing to believe that it would actually turn the other way around..

    Plus,
    If rent control “leads” to “lower maintenance standards in the stock that remained” that would only happen, because of lousy management /landlrods/.. All rental property inventory needs maintenance and such problems should be solved with inventory companies. London has to offer a number of reputable companies out there.. Landlords and tenants should work together in order to maintain the property and that would never result in

    Joan,
    I fully agree with you. I did not know much about the spanish property bubble..
    It’s a fact that both landlords and tenants, like ALL human beings /if you’re out of this planet that does not count/ need to fall under some sort of control, otherwise abuseabuse will most certainly follow..

    I myself am planning my first buy to let real estate inventory investment and rent control surely does sound worrying from that point of view, but my overall opinion is that there Should be at least some sort of rent control. For my last 3 years as an inventory clerk I have seen cases of abuse from both sides….

  • As a landlord, the whole question does not take into consideration the costs involved in having a property to rent. The impression given by the comments here and by other activists is that the whole of the rent charged is profit. How do they think people got to be landlords? I for one started by buying a property with a BTL mortgage that needed repairing, at a considerable cost, then remortgaging to raise some equity from the improved property to by another with a BTL mortgage and so on. Each of the properties still has an interest only BTL mortgage at 85%. with the down turn in property prices I would be lucky to break even if I sold. The rent paid covers the mortgage, the insurance and just about the repair costs. Over the last three years I have paid out around 15-20,000 per year to repair properties and cover the rent owing when tenants have left. I sometimes wonder why I bother? I’m not making money, I owe loads and I get hassle constantly. ONE DAY?? property prices will rise, tenants will pay their rents ,look after the houses and might even be grateful they have somewhere to live that i most cases is mainly funded by the government from my taxes.

  • As a Landlord, I have mixed feelings about rent controls. There will be some tenants who win and tenants will loose.

    The winner of rent-control would be those who live in fashionable hot-spots where demand is high. Landlords will be limited to rent increases. The losers would be those on low wages who often lives in unfashionable areas where rents don’t go up so quickly, they would be face with yearly rent increases.

    We already have a form of rent-control. It is called LHA. In previous years George Osborne froze the LHA rate, so rents never went up. Now they are limited to maximum increases of 1%.

    Another point, is that some landlords have tenants, who have not had rent increases in 3 to 8 years!. Those landlords will panic and be forced to charge market rent. (Check the ONS survey!).

  • I will definitely have to leave the rental market if a rent cap is introduced. I recently fixed my BTL mortgage for 5 years to provide some stability for myself and my tenants, who I would like to stay long-term. But the numbers suggested do not even begin to cover my repayments and maintenance so I would have to evict and sell. Simples! Some tenants want to live in desirable areas and can afford it – why should they be prevented by a whole stock of rental property disappearing? Central London is not attainable for everyone (I can’t afford to live there!) and they shd stop fooling themselves. This will push the upper end of the rental market underground.

  • The political parties forget that there are costs associated with buying and letting a property, where ever it is. They also forget that London and South East has its own particular housing market, completely different to north of the M25 – yes there is life outside London!
    In my area of West Yorks, rents have been virtually frozen for the past umpteen years whilst running costs have increased. New rafts of legislation do little to invite new investment. It is only the responsible landlords that pay heed to the legislation anyway and the “rogues” who carry on as usual without fear of the legal consequences. Case in point – “The Romanians are Coming” TV programme identifed a Mr Lazar in London renting out space(not even a room) at £30 per week each to Romanians seeking work. He had 22 residents! You tell me if he is bothered about the legal repercussions. These type of “landlords” should be put out of business permanently, but the legal process never seems to punish these. Try evicting a problem tenant and then you hit the whole force of a legal system slanted towards helping the tenants. The whole of the Housing Acts need overhauling to make it simpler, cheaper and fairer to all.

  • In anticipation of a 3 year rent freeze I have just increased the rental by 10 %.
    I have to protect my income and take into account any future fluctuations.
    Furthermore the element of risk involved with a poor tenant has to be taken into account.
    Once again Millebands proposals have backfired, when he announced energy price freezes, the effect has been that prices have not plunged by as much as they would have done had he not made his gaff.
    God help us if this nutcase gets in at #10

  • I have not raised my tenants rent for over 5 years – and have been considering a modest raise. To have a three year freeze would make me consider selling up. Surely if I then developed some new rental property I could let out at a realistic rent?
    We may find this freeze would cause an untenable number of tenants to be evicted – what would Labour do then ? This is hypothetical as they are unlikely to ‘get in’.
    I have other property – but only raise the rent when my tenants change. I let top spec property at a rate that is lower than the ‘competition’ but have no mortgage on any of the properties. If I had a BTL mortgage I would certainly have to readjust the rental amount – and the thought of a freeze would fill me with trepidation. Bad Idea Miliband – get real.

  • In my area there are properties in every price band, it is the tenants choice to where they live in the town, or depending on their budget. If there was rent controls all same size properties would cost the same no matter what the condition. This would affect all Landlords, but the poor quality wrong part of town would gain, and these are the ones we have been trying to get rid off.
    Being a middle size professional Landlord who has a high standard, i increase the Rent each year by 1 to 3%, this is on principal. Maintenance has gone up a larger percentage. All this means to me is we do not make a profit on the year but break even. I am bucking the trend as we add to our stock each year but at least one residence.
    All a rent cap will mean to us is the properties will get basic maintenance, and our programme of renewing bathrooms and kitchens will go on hold until the economy is better.
    Landlords are doing fine setting their own rents, place it too high they do not get the Tenants.
    Enforce the already enforceable laws on the slum landlords. We have two slum landlords that i know of in our town and several not upto standard Agencies, and at the moment they are making money hand over fist, as the council keeps sending them more tenants.

    • Same near me, our properties are all well maintained, new carpets, new kitchens redecorated , others in the area look like something out of ‘rising damp’

      If this 3 year tenancy is introduced, the houses will go on the market , tenancies will not be renewed, cost wise its hard enough looking 12 months into the future, trying to second guess the economy, interest rates et al over three years is nigh on impossible.

      My other issue really is the lop sided approach to the lease itself, we have to gaurentee the tenancy for three years, yet the tenants can walk after 6 months .

      Doesn’t he realise as well all the tenancy contracts are going to have to be re written, this isn’t going to be cheap.

  • We tend to review our rents only when tenants move on and a new tenancy starts. Even then the new rent is usually only 2% more in line with other properties.
    My main concern would be to give tenants a 3 years lease if they ask for it. This will not encourage some to stay on, they will just do a bunk when it suits them should they want to leave sooner. Also if someone decides to not pay their rent a simple Section 21 cannot be served within this time and you would need to go down the far more long winded route with a Section 8 to get them out and taking them to court. I have always favoured 12 month leases which are renewed each year, if required or otherwise run periodically.

    • and when they do a bunk you have got to spend an unreasonable amount of time chasing after them , as their is no legal obligation to occupy a property you rent , its going to take possibly a year or more before you can finally get the courts to agree the contracts breached and in the mean time your losing rent as you couldn’t re-let in case they returned.

  • It looks like the lunatics are trying to take over the asylum, landlords are lucky if they gross a 6% yield, how many other industries would survive on this level of mark up
    on cost .
    You can’t compare the costs of social housing with that of privately let properties, they are two completely different business models, the former is state owned, state funded, repairs costs covered by the tax payer, state subsidised rents including any loss of rent pay no corperation / income tax on the rent reciepts.

    Your average private landlord doesn’t take a wage out of the business has to pay all repair costs ,legal costs, has to absord any rental loss,(rarely worth persuing arrears through the courts) interest on any mortgage, insurance , corperation/ income tax, plus capital gains when they sell up.

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