Among one of the many solutions offered to resolve the current housing problem in the UK is introducing rent controls to the private rented sector (PRS). This was most recently cited by London Mayor Sadiq Khan but there is also a campaign group in Edinburgh seeking local government control of future rent rises.
The issue has arisen because in some cities tenants believe they are facing unprecedented rent rises resulting in affordability issues. This is pushing individuals out of these areas due to a lack of supply in the private rented sector.
Interestingly both London and Scotland have experienced cumulative average rent increases over the 11 years from 2007-2018 of 18 per cent at a time when inflation for this period was 36.3 per cent indicating rents rising at just under half the rate of inflation.
Controlling rents would almost certainly deplete housing stock in the PRS. Landlords will sell up as their investment will become unaffordable.
Yet the view persists that controlling rents in the private sector will resolve the affordability issue which is undoubtedly impacting on the most popular areas of the UK.
At its heart, the rent control argument fails to accept that the causes of increased rents are complex and that perceived landlord greed, although a politically potent view, is not actually a part of this. Demand for homes has increased tremendously in the UK as a result of a population increase of over five million since 2007 at a time when total dwellings have only risen by 1.654m over the same period.
Barriers to home ownership
Despite media reports that fewer people own their own homes the number of owner-occupied homes is only slightly below its all-time peak during the housing boom of 2007-08. Many more people are not able to get on the housing ladder because of more stringent lending criteria coupled with greater demand.
The increase in demand for the PRS relates to a rapidly rising population coupled with a static or even declining social housing sector (in England the number of properties available in the social housing sector actually fell by 0.6 per cent in the year to 1st April 2018) which has failed to keep up with the growing numbers requiring homes and hence the PRS has filled this gap.
The result is that there are many people who feel they are missing out on home ownership and paying the private rented sector for longer periods than they did in the recent past. We have a PRS which is adapting to meet this changing need in the housing market. The majority of landlords own one or two properties and the market they now encounter is vastly different to the one which has existed over the last 20 to 30 years.
Rent controls will not work
Rent control belongs to a different era and does not address the key issues of the housing sector which are an under supply of social housing, a more difficult entry into home ownership, and a growing population which is increasing due to a combination of immigration and people living much longer.
While controlling rents may seem like an easy solution it is very much the opposite. Controlling rents would almost certainly deplete the existing housing stock in the PRS as landlords exited the market due to their investments becoming unaffordable. Equally lenders would restrict borrowing to landlords if income was limited by rent controls. This loss of stock would put more pressure on the remaining market which would lead to rising rents which, if artificially kept low, would, in turn, result in more pressure, more exits from the market, and the potential for more people not to have anywhere to live.
There is a need for a solution to the current housing problems. But it requires some creative thought and considerable collaboration between all involved in the housing market. Society undoubtedly needs more social housing, but not as a substitute for the PRS, but in addition. The population of the UK is expected to increase by another seven million over the next 22 years which is an increase of 318,181 people every year until 2041. Last year, in all categories of housing there were 165,160 new build starts so there is clearly going to be continued issues of supply and demand for decades to come. Instead of seeing the PRS as the enemy and seeking to control their activity campaigners, politicians and everyone involved in the housing sector should be working together to find solutions which ensure that everyone can have a home.