Alan Ward is chairman of the Residential Landlords’ Association.
When French Prime Minister Manuel Valls signalled a new direction for his government at the end of the summer, one of his most striking moves was to dismantle plans for nationwide rent controls. The plans, which would have seen rents capped in 28 French housing ‘stress zones’, had paralysed investment in the country’s rental market, according to the president of the French Building Federation. New regulations will now just be introduced in Paris – and even there only on an ‘experimental’ basis.
But while the French have – largely – seen sense, it seems we on this side of the Channel could be about to fall into the trap they have narrowly avoided. Should Labour gain power, they have pledged to introduce a new set of rent controls. These ‘ceilings’, as they prefer to call them, would, we are told, curb ‘excessive’ rent rises.
Labour’s measures would threaten a crisis of confidence in the private rented sector just like that which Valls saw looming in France. They risk discouraging investment in new homes for rent at the very time they are needed most. As our analysis shows, nearly 60 per cent of the new housing stock created between 1986 and 2012 has been in the private rented sector. Undermining further investment risks turning a housing crisis into a full-blown disaster.
So why has the idea of rent control surfaced again, when even the last Labour government ruled it out for its impact on supply? You could be forgiven for believing it’s merely a populist stunt. Talk of spiraling rents – even when the figures show they are actually increasing by less than inflation – plays well with the narrative of a ‘cost of living crisis’.
Yet there’s a bit more to it than that. Campaigners persist with calling for rent control, pointing to Europe, in particular Germany, where they claim such regulations work well. And it’s true that the German rented sector is a thriving one. But, as the Institute of Economic Affairs has stressed, it’s unwise to base policy here on the German experience. There are ‘huge structural differences between Germany and the UK’, the IEA’s recent paper says, not least that there is significantly more development of new homes in Germany, making rent levels much lower in general.
There they’ve hit on one of the key issues: we should be looking to provide more new homes, not adding to the regulatory burden on those we’ve already got. We know from history the impact that rent controls can have. Most analysts recognise that the regulations in force here until 1989 were at least partly responsible for the collapse of the sector during the 20th Century.
Since then we’ve seen significant growth, to the point where the sector now houses some 18 per cent of English households, compared with under 10 per cent in 1999. But unlike in Germany, where renting has for years been a more mainstream choice, it’s not yet a fully mature sector and that has implications too. As MPs on the Communities and Local Government select committee warned in their report on the private rented sector last year, there are ‘dangers in interfering too much in a dynamic market that has changed significantly in recent years and has yet to settle down; it is more important to find ways to bring this market to maturity and encourage the sector to grow’.
How should we be encouraging the growth we need? Let’s start by doing more to encourage the private rented sector rather than continually doing it down. We know most renters appreciate the flexibility it offers: government figures show 84 per cent of tenants in the private rented sector are satisfied with their properties compared to 81 per cent in the social sector. We know too that demand is growing and that many private landlords, the vast majority of whom are part-time and rent out only one property, would like to do more if they could.
Secondly, let’s dispel some of the myths that allow rent controls to be seen as the only way forward and that portray all private landlords as somehow cashing in on tenants. Figures from the Office for National Statistics show that rents in the private sector have been increasing by much less than inflation (both CPI and RPI). Over the last year they increased by just 1 per cent across England and by only 1.4 per cent in London, where demand is high, .
So instead of more regulation, let’s concentrate on measures which would allow the private rented sector to continue to flourish and provide the new homes which are the best way of bearing down on the upward pressure on rents. A more flexible tax regime putting private landlords on a level footing with the social sector and owner-occupiers; a streamlined regulatory system which works for tenants and landlords alike; and new investment routes for those private landlords who want to expand their portfolios. These could all help produce some of these new homes. So, too, could a planning regime which encourages new schemes for rent and the conversion of existing stock into shared homes.
The French have seen the dangers in undue regulation. Unless we want a crisis of confidence akin to the one they were starting to suffer, we need to ensure rent controls remain consigned to the history books. The growth of the private rented sector over the past few years has been good news for our country. Let’s ensure it continues.