Is a rent cap the answer to the UK's renting troubles?
Labour leader Ed Miliband has announced plans to reform the private rented sector if Labour come to power. But would his policies help or hinder the rental market?
The rental sector is certainly a hot topic. There’s growing discontent among tenants who claim they are forced to live in poor quality homes with little security. They say rents and house prices are so high that saving a deposit to buy a home is impossible.
To win renters’ votes, Ed Miliband has pledged to overhaul the rental sector if Labour wins the next General Election. The plans could affect tens of thousands of buy-to-let investors and landlords.
So what does he have in mind and would it work?
The Miliband plan
The Labour Party’s plans have three main elements:
Firstly, new three-year tenancy agreements would be introduced. These would start with a six-month probationary period allowing a landlord to evict a tenant if they breach the tenancy contract.
During the next two-and-a-half years tenants would be able, as they are now, to terminate contracts with one month's notice.
Landlords, however, would only be able to terminate contracts with two months’ notice, and only under certain circumstances. These include if a tenant is in rent arrears or guilty of anti-social behaviour, or if the landlord wanted to sell the property or needed it for his or her family. The idea is to prevent landlords from evicting tenants in order to get a higher rent from new tenants.
Secondly, Labour would introduce a new formula to prevent excessive rental increases. It’s examining options for a new benchmark which could be linked to average rent rises, inflation or a combination of the two.
The final part of Miliband’s plan is to ban letting agents from charging tenants fees to sign a tenancy agreement. Landlords would bear all letting agent costs instead. Letting agent fees to tenants are already banned in Scotland.
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Reaction to the plans
In reaction to the announcement Tory chairman and former housing minister Grant Shapps accused Miliband of planning to introduce "Venezuelan-style rent controls".
Venezuela in South America has bought in rent controls. But it’s not a plan that’s worked very well – the controls are largely seen as having led to the spread of slum dwellings and are blamed for deterring landlords from renting out or decorating their properties.
However, similar rent control policies in Germany and Ireland have proved more successful. In the UK, rent controls were introduced as a temporary measure during the First World War and were only finally abolished by Margaret Thatcher in the 1980s.
Elsewhere the Residential Landlords Association (RLA) simply says Labour has got things wrong.
The RLA pointed out that the most recent English Housing Survey showed that the average length of tenancies under the current tenancy model is 3.8 years with just 9% of agreements ended by the landlord.
It also says that figures from the Office for National Statistics (ONS) show that rents in the private rented sector have been increasing by much less than inflation; over the past year they increased by just 1% in England.
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Would the proposals work?
As a former landlord, I really doubt that Labour’s proposals would work for a number of reasons.
Firstly, landlords with mortgages have to abide by the rules of their mortgage agreement and most buy-to-let lenders state that an AST can’t be more than 12 months long. This is because lenders want to be sure they can evict tenants quickly in the event the property is repossessed.
Unless mortgage lenders are forced to come on board with the plans, most landlords simply won’t be in a position to offer three-year tenancies.
Secondly, landlords quite rightly complain about the eviction process. If a tenant fails to pay the rent or breaches the tenancy contract in another way it can take the landlord six months or more and thousands of pounds to evict them. So there would be a pretty justified backlash from landlords if longer tenancy agreements looked likely to make this even harder.
Meanwhile critics claim that rent controls deter landlords from maintaining and decorating properties – and they’re right. Not all landlords are rich and if the rent does little more than cover the mortgage, repairs and improvements to property are not likely to be carried out.
Finally, there appears to be no provision for dealing with a sudden increase in interest rates. A rate hike could leave many landlords unable to raise rents to cover their costs.
One thing’s for sure though: something has to be done about the rental market. But what?
Compare mortgages with lovemoney.com
More on property:
Why Eric Pickles’ tenants charter will never work
Mortgage Market Review: why finding a mortgage is set to get harder
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Comments
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It's very simple. we need realistic interest rates, which will lead to realistic house prices, and hence realistic rents. Rents are enormous for what you get, and being assured a 6 month tenancy is a joke. Property owners use people as short term cash cows, forgetting they are dealing with human beings that need a home. Anyone with kids must be a nightmare keeping them at the same school. The rental market stinks. The whole thing needs reform. The tenant who is the 'customer' gets treated like a lower form of animal life while the agents fawn around the landlords. The deposits are too high, and getting the deposit back has difficulties. Oh, and I nearly forget, the maintenance of rented properties is poor and has lead to dangerous situations.
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One other thing: I notice that we have some Baby Boomers here, including one who has chosen to use the usual tactics of manipulation coupled with a reliance of the post-boomers lack of knowledge of the past. Let's go over what really happened. Rent controls were first introduced in WWI. They were modified several times under various Labour governments, particularly during the 70's, and tended to force people into one of three options: 1. Buy one of the cheap* and plentiful new homes of the time. 2. Move into what was Labour's most likely preferred solution of the then plentiful council housing. 3. Or for the seriously financially inept as well as ineligible new immigrants they could rent a slum because no one in their right mind rents their main home if they can buy one for not much more. Rent controls were abandoned when Mrs Thatcher came to power in 1979. Their removal led to rental rates shooting up and as a result, many people were made homeless during the recession of the early 1980's, being unable to afford either their mortgage or to rent. * Prices were so low that unlike now most people, even those on low incomes, were able to buy in their early 20's.
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I was going to post a long-winded response but I'm instead going to take a leaf from LoveMoney's book and try to keep it concise. First off the BTL'ers here are showing their usual standard of (un)professionalism. The aforementioned "cap" is actually a [B]term[/B] cap, that is to say it's limited to the 3-year term. You can raise rents as high as you like both before and after that. Secondly Ed Sillyman [B]hasn't said[/B] what the cap will be based on and so I'm guessing we will have to elect him first to find out (hopefully not). Now Grant "Status Quo" Shapps strange analogy with Venezuela aside, if we look at countries which aren't hostile to private wealth such as Germany then we can see that regulated as opposed to controlled rents can work [B]provided the country is geared that way.[/B] Sadly Ed hasn't detailed any such drastic plans and so this just seems to me to be yet more empty promises and electioneering from a man who's flat out of ideas.
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10 May 2014