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Rent controls proposed in London – how did landlords react?

Posted on 2019-09-09

The topic of rent controls has been a thorny, divisive issue for a while now, with strong supporters and detractors in equal measure.

One of the biggest advocates for rent controls has been Sadiq Khan, Mayor of London, who recently outlined his blueprint for private renting in the capital – including proposals to cap and restrict the rents landlords can charge tenants in London.  Here, we look at what was announced, how the industry reacted and what rent controls could mean for landlords.

‘It is high time for private renting in London to be transformed’  Khan revealed he wants to create a London Private Rent Commission, with tenants included on the board. This would ensure measures are introduced to reduce rents and keep them at lower levels. The mayor currently lacks the powers to do this – it’s something that falls to central Government – but Khan has set out what he would need to implement rent controls, as well as a blueprint for the transformation of the capital’s rental sector.

Khan, who will be seeking a second term as mayor next year, with Conservative candidate Shaun Bailey likely to be his biggest challenger, said: “It is high time for private renting in London to be transformed. Londoners need fundamental change that is long overdue. Unlike other mayors around the world, I have no powers over the private rented sector. That’s why this landmark report sets out a detailed blueprint of what the government must do to overhaul tenancy laws, and what powers City Hall needs from them to bring rents down.”

The report, authored by deputy mayor of London, James Murray, and Karen Buck – Labour MP for Westminster North and the major driving force behind the recently introduced Homes (Fitness for Human Habitation) Act 2018 – borrowed heavily on proposals outlined by think-tank the New Economics Foundation.

The report reveals that Khan is seeking devolved powers to:

  • Create a universal register of landlords to access valuable data as well as enforce standards.
  • Create a London Private Rent Commission to design and implement an effective system of rent control.
  • Implement simple rent control measures such as caps on rent rises while the commission is being formed.

As part of this, landlords would be obliged to report rent levels to an open-access database, with a system of monitoring, enforcement and tribunals to check they are compliant.  A recent survey carried out by YouGov and City Hall suggests that public support for rent controls is there, with over two-thirds of Londoners favouring caps on the amount landlords can charge, replicating similar rent control systems in places like New York and Berlin.

However, critics say rent controls could have a negative impact on the quality and supply of privately rented accommodation. Shaun Bailey, expected to be Khan’s main opponent in the May 2020 mayoral elections, was unsurprisingly unimpressed with the mayor’s proposals.  “Rent controls don’t work,” he said. “Implementing them would take a bad London housing and rental market situation and make it worse. It would drive landlords out of the market and lower the standards of the flats left on offer.” 

The Government also said rent controls could drive responsible landlords out and ‘ultimately push rents up’, with the Ministry of Housing, Communities and Local Government claiming rent controls could reduce investment in high-quality housing, too.

How did the industry react?

The major landlord trade bodies were not at all happy, with the National Landlords Association (NLA) offering up a particularly strong rebuttal. “The Mayor’s strategy is at best contradictory and at worst deluded,” Richard Lambert, CEO of the NLA, commented. “Either he hasn’t researched how landlords’ businesses work, or he didn’t understand what he found.  Or perhaps he did, and he just doesn’t care.”

“There’s nothing beyond a few warm words about “incentivising continued investment” to explain how he expects landlords to sustain their businesses in the face of an arbitrary political decision to reduce rents,” he added.“Capping and reducing rents in the way suggested in this manifesto would destroy any prospect landlords have of covering their costs or making a profit. If Sadiq Khan is serious about this, he needs to tell us why rent control won’t reduce the number of private rental homes available to Londoners, as it did before, and as it has done everywhere else it has been introduced.”

Lambert insisted that the Mayor’s blueprint “won’t solve London’s housing crisis, it will simply add to it. It’s just as well he doesn’t have the power to implement it,” Lambert concluded.  The Residential Landlords Association (RLA) also criticised Khan’s plans. “Rent controls are meaningless if Londoners can’t find a home to live in. Rent controls will lead to a drop in investment and increasing supply should be the Mayor’s priority,” David Smith, RLA’s Policy Director, said. 

 “Localised rent controls would also have a huge impact in the surrounding areas. With demand continuing to outstrip supply, residents would have to move out of the city and rents would be pushed up further as demand increases in the commuter belt.”  Smith added that research from the Centre for Cities has found that rent controls divide renters into the privileged and outsides, with those already renting when the controls are introduced doing well but those hoping to move into the city or for more space losing out, damaging social mobility.

The RLA also pointed out that rent rises in London are already well below inflation, growing at just 0.9% in the year to June compared to CPI at 2%.

Furthermore, the British Property Federation (BPF) said it fundamentally opposes rent controls, saying it would make no sense to have a different tenancy model in London compared to the rest of England. The BPF argues that rent controls will worsen the supply-demand imbalance in London’s housing market and the affordability crisis, reducing investment into building new rental homes as a time when demand is rising.

The organisation also pointed to recent research by Stanford University which examined the impact of rent controls in San Francisco between 1995 to 2012, showing that they cut rental housing supply by 15%, in turn causing a 5.1% city-wide rent increase.

 

What would rent controls mean for landlords?

While the return of rental controls to the Private Rented Sector is highly unlikely while the current Government is in place, the prospect of their introduction at a future date can’t be completely ruled out. 

Supporters say they would help to prevent tenants from paying unaffordable rents and stop middle and low-income households from being squeezed out of cities, while also potentially increasing tenant demand as renting becomes a more desirable (and affordable) option.

However, critics argue rent controls would discourage landlords from investing in the sector at a time when it’s needed more than most, removing any incentive for existing or new landlords by reducing returns and impacting profits. It would also be another hit to landlords, who have faced stamp duty hikes, tax changes, tougher lending criteria and increasing regulation – from the ban on tenant fees to new energy efficiency rules – in recent years.

For now, landlords can rest easy when it comes to rent controls, but with the current volatility and unpredictability of the political arena nothing can be fully guaranteed at present.

We previously outlined the pros and cons for the housing market of rent controls, while you can see the Mayor’s blueprint in full here.

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