Rent controls would damage investment and hurt tenants

Written by RLA

ONS figures show very clearly that average rents across England have fallen in real terms over the last year as well as since 2005…

Labour are set to discuss the Private Rented Sector (PRS) on Wednesday 25th June…we predict rent controls could be an important aspect of their proposals.

Shadow Housing Minister Emma Reynolds outlined three major areas Labour would follow should they be elected in 2015, and urged the current coalition Government to consider her proposals. The meeting took place in the House of Commons Wednesday afternoon.

Reynolds emphasised the role of security in for tenants in the private rented sector as Labour’s ultimate objective. This was emphasised by the insistence that a standard tenancy be guaranteed for at least three years.

The flexibility of the PRS and the attraction it has for certain groups, students most notably, will not be tampered with but for other groups a standard three year contract was suggested. Reynolds, as Shadow Housing Minister should be aware that the average length of tenancy within the PRS is already 3+ years and that AST agreements can easily place ‘longer term’ tenancies.

Reynolds was very careful not to align Labour policy with ‘rent controls’. ‘Rent indexation’ was a term bounded about leading up to the debate but Reynolds refuted any link to 1970s rent controls that Conservative MPs voiced concerns over.

From the RLA’s point of view, the Office of National Statistics (ONS) provides reliable data surrounding the role of rent increases over a short and medium length of time. Please see below for an outline of this argument:

ONS figures show very clearly that average rents across England have fallen in real terms over the last year as well as since 2005.

% rent increase 12 months to March 2014 9 YEARS March 2005-2014
Across England 1% 9.5%
In London 1.4% 12.5%
England excluding London 0.7% 7.9%
RPI over the period 2.5% 33.8%
CPI over the period 1.7% 13.3%

Source: Index of Private Housing Rental Prices (ONS, Published 25th April 2014)

In comparison, figures published by DCLG show that in the eight year period between 2005/06 and 2012/13 local authority housing average weekly rents in England increased by 42.5% and housing association rents by 43.8%.Source: Index of Private Housing Rental Prices (ONS, Published 25th April 2014)

Rent controls, linked to inflation would clearly leave many, if not most, tenants paying higher rents than they do already. Also, the evidence is clear that such controls would critically damage much needed investment in the sector.

In February 2010, the Treasury, then under the Labour Government, published a consultation document entitled “Investment in the UK private rented sector.” This showed that between 1939 and 1991 the proportion of households in the UK in the private rented sector fell from over half to less than 9%. The report explained:

“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 a tenure shift to owner-occupation and lower maintenance standards in the stock that remained.”

The CLG Select Committee in its report into the PRS in July 2013 observed that rent controls: “would serve only to reduce investment in the sector at a time when it is most needed.”

The key to containing rent levels is to boost the supply of homes to rent, especially in London and the South East which has so often dominated debate around rent levels to the detriment of the rest of the country.

It has been argued that landlords are actively profiteering on the back of their tenants. This does not stand up to scrutiny. The most recent data on the profile of landlords in England, contained within DCLG’s ‘Private Landlords Survey 2010’, notes that:

  • 89% of landlords are private individuals, likely only to be renting one or two properties out rather than owning multiple properties.
  • 79% of all landlords earned less than a quarter of their income from letting properties.
  • 21% earned no income at all from their rental property.

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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.

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