Sorry Ken, rent caps aren't the best answer to our housing crisis
Ken Livingstone correctly identifies many of the problems in the rental market. But a more workable solution than his proposed rent cap may be right under our noses, says Shelter's Robbie de Santos.
Ken Livingstone, writing on Comment is Free on 19 July, was right to highlight the issues with private renting. We agree with much of his analysis – renting is too often unaffordable, unstable and subject to poor conditions and bad management. But we’re not sure that comprehensive rent caps are the answer.
For too long private renting has been the Cinderella of housing policy, largely ignored while successive governments dreamt up ways of helping first time buyers get on the ladder or fiddle around with social housing provision. Talk of private renting was quiet for a while, but in the last few years politicians have been forced to acknowledge that renting from a private landlord is the new norm – and an often unsatisfactory norm at that.
So who rents now? Well over eight million adults do, and more than a million families with children. Almost a third of private renters are over 45, and the biggest recent increases come from the top and bottom ends of the middle income bracket. Many of the new generation of renters are not there through lifestyle choice – it is a necessity as many will not be able to buy a home or access social housing. Politicians would be wise to spend a bit more time improving their lot.
What’s wrong with renting? Mr Livingstone touched upon unaffordable rents, hefty rent increases, poor standards, rogue landlords, and rip-off letting agents. Government statistics tell us that private renting families with children are ten times more likely to have moved house in the last year than those with a mortgage. Renting in this country can mean short contracts and uncertainty over future rent levels, which are increasing rapidly in many parts of the country.
There are effectively two different ways of making renting more workable. The old-style rent cap involved setting overall maximum rent levels, giving tenants indefinite contracts, and limiting the rent increases that could be given to tenants once they were in a contract. That’s what we had in this country until 1988.
But Shelter’s research finds that few other comparable countries have such an intensive set of controls. In Germany, France and Spain, rents are determined by the market at the outset; tenants have longer term contracts (often indefinite in Germany, three years in France and five years in Spain) and, as long as tenants are in these contracts, their rent can only be increased by an inflationary index.
These countries don’t cap overall rents; they just allow people to have more certainty and predictability about their future renting costs for a longer period, allowing them to anticipate higher rents and to know that they won’t be priced out of their own home.
Capping overall rents goes against the grain of the market – whether this is good or not, some of the side-effects can be really quite undesirable. In markets with rent caps and where demand outstrips supply, a landlord may discriminate on tenant rather than price. This could see people with lower incomes losing out because landlords might see prospective tenants with higher incomes as more reliable. For example, in New York City, where some apartments are subject to rent control, the people who may benefit the most from controlled rents are precisely the people who may find themselves excluded from such apartments.
Rent levels are high because there are too many people who have to rent, and not enough homes available for them to rent, driving up the prices people have to pay. Rents can only be reduced by increasing overall supply of all types of homes, so that fewer tenants are competing over each available home. Building new homes, including for rent, has to be a priority – especially in high pressure markets like London.
But introducing tenancy types like those in France and Spain could improve life for private renters up and down the country. For example, a five year tenancy with inflation linked rent increases could help families break from the uncertainty of short contracts and unpredictable rent increases, giving them the stability to make their rented house a home and plan for the future.
Shelter recently commissioned global property consultants Jones Lang LaSalle to look at whether landlords would be able to work with longer term tenancies. They would. In fact, rental indexing would enhance landlords’ returns, by keeping rents in line with inflation, reducing void periods and cutting out letting agents’ fees. Not only could they be attractive to landlords, longer tenancies could also be offered today, developed from the current framework.
As appealing as rent caps may sound, a more workable solution may be right under our noses. Longer Assured Shorthold Tenancies, with inflation-linked rents, could give millions of renters the chance of a stable home that they can truly make their own.
Robbie De Santos is Policy Officer at Shelter.