A general view of housing in Brixton on January 30, 2013. Photograph: Getty Images.
Show Hide image

We need rent controls to solve London's housing crisis

Too many essential workers are being priced out of the capital. Rent controls could address the uncertainty and unaffordability they face.

In an unusual break from the disagreement, dissent and bickering that pervades politics, consensus has broken out amongst policy makers in the capital: London is in the midst of a housing crisis.

The facts are stark. Private rents in London have risen nine per cent since December 2011. Property price growth has returned to pre-2008 levels and is on the brink of exceeding it.Higher rents make it difficult to save a deposit, and rapid house price growth pushes the size of that deposit further and further out of reach. Indeed, those two factors combined mean that the projected average age by which a young person will be able to buy their first home in London is now 52. Sixty six per cent of first home buyers are supported by the bank of Mum and Dad in order to afford a deposit.

London has reached the point where the cost of housing is affecting productivity growth. We are on the cusp of having to bus in cleaners, retails workers and hospitality staff from the Shires because those on low incomes cannot afford London rents. Londoners on average already spend more than half of their income on paying their rent or mortgage. Not only does that disincentivise the best and brightest teachers and nurses from living in London, it also significantly reduces the disposable income of those with the highest propensity to spend, threatening the future of the retail sector in particular and the economic recovery in general.

London clearly needs to build more homes. A report by London Councils found we have 283,000 too few homes in London now, and we will need a further 526,000 by 2021 to cope with a growing population. But building hundreds of thousands of homes will not happen in the very short- term; meanwhile, Londoners are struggling to pay their rent.  With the monthly rent for a one-bedroom flat in Wandsworth sitting well above £1,100, it has become patently obvious that London needs some form of rent control.

But let me be clear about what I mean when I talk about rent control. I don’t mean the old-school "first generation" rent control that was introduced in the UK during the Great War, which prevents any increase in rents, diminishes investment returns in real-terms over time, and discourages people from becoming landlords. I don’t mean the type of rent control that keeps rents so low that they are not enough to pay for the proper maintenance of a home in a liveable condition. I mean rent controls that nod to the market but allow for the realities of what it is to have a home to live in; the type that are espoused by those who could hardly be called left-wing ideologues, including Angela Merkel and Michael Bloomberg.

Currently in London, a family can move into a home at an expensive but affordable rent. The landlord cannot evict them (except for non-payment of rent) for six months. But after a year that landlord can raise the rent as high as he or she would like to; the rent could be doubled without any notice to the tenant family, putting it completely out of the range of affordability. The family is obliged, then, to move house, move their childrens’ school, probably move to a different part of London, and pay another round of letting fees, bonds and two-months-rent-in-advance. The other option is to seek the landlord’s permission to sublet one of their bedrooms to another family, adding one more to the 207,000 London households already living in overcrowded conditions.

There is an alternative. Take, for example, the German system of rent controls. Renters have indefinite tenancies; a tenant can only be evicted for non payment of rent (over a number of months), damage to the property, unauthorised subletting, or to allow the landlord or a member of his or her family to live in the home or to sell the home. It is in the interests of a landlord to retain their current tenant because the costs of letting agents are borne by the landlord.  The initial rent is set by the market, but cannot be more than 20 per cent higher than similar properties in the area. Rents can be raised according to inflation or due to an increase in the landlord’s costs, but by no more than 20 per cent in any three-year period.  Further, proper maintenance of the property by the landlord is incentivised; a tenant only pays 100 per cent of the rent if the home is in 100 per cent good condition. Perhaps a system like Germany’s is exactly what London needs to address the uncertainty and unaffordability faced by tenants in our private rented sector.

A common criticism of rent controls is that they discourage investment in the private rented sector. But British history since the deregulation of the rental market in the late 80s has shown that argument to be flawed; 89 per cent of landlords are individuals or couples, not builders or developers. In general, they buy pre-existing properties as an investment or nest egg.  They aren’t the part of the housing market that builds new homes in London, though they do compete against first homebuyers for existing properties. The fact that more rental accommodation has not been built in London, with its high rent prices, shows the inelasticity of housing supply in London which has more to do with cautious developers, the planning process, and a scarcity of developable land than it does with rent prices.  

To encourage investment in new homes (rather than locking up investment equity in pre-existing houses), there could be concessions to rent controls on new developments. Maybe rent controls should not apply to any new property built after 1 January 2014. Or maybe they should not apply to the first tenant of any new development; that will have the added benefit of encouraging longer term leases by property developers.

We need to start getting serious about how to address the housing crisis in London, because it’s not just those on minimum wage or housing benefit that are struggling to afford to live here. Teachers, civil servants, retailers and service workers essential to the running of our city are all threatened by the crisis. Though not a silver bullet that will singlehandedly solve the crisis, we should think about how rent controls – done sensibly – can be part of a comprehensive plan to ensure that all Londoners can afford a home in our city.

David Lammy is Labour MP for Tottenham

Photo: Getty
Show Hide image

Something is missing from the Brexit debate

Inside Westminster, few seem to have noticed or care about the biggest question mark in the Brexit talks. 

What do we know about the government’s Brexit strategy that we didn’t before? Not much, to be honest.

Theresa May has now said explicitly what her red lines on European law and free movement of labour said implicitly: that Britain is leaving the single market. She hasn’t ruled out continuing payments from Britain to Brussels, but she has said that they won’t be “vast”. (Much of the detail of Britain’s final arrangement is going to depend on what exactly “vast” means.)  We know that security co-operation will, as expected, continue after Brexit.

What is new? It’s Theresa May’s threat to the EU27 that Britain will walk away from a bad deal and exit without one that dominates the British newspapers.

“It's May Way or the Highway” quips City AM“No deal is better than a bad deal” is the Telegraph’s splash, “Give us a deal… or we walk” is the Mirror’s. The Guardian opts for “May’s Brexit threat to Europe”,  and “May to EU: give us fair deal or you’ll be crushed” is the Times’ splash.

The Mail decides to turn the jingoism up to 11 with “Steel of the new Iron Lady” and a cartoon of Theresa May on the white cliffs of Dover stamping on an EU flag. No, really.  The FT goes for the more sedate approach: “May eases Brexit fears but warns UK will walk away from 'bad deal’” is their splash.

There’s a lot to unpack here. The government is coming under fire for David Davis’ remark that even if Parliament rejects the Brexit deal, we will leave anyway. But as far as the Article 50 process is concerned, that is how it works. You either take the deal that emerges from the Article 50 process or have a disorderly exit. There is no process within exiting the European Union for a do-over.  

The government’s threat to Brussels makes sense from a negotiating perspective. It helps the United Kingdom get a better deal if the EU is convinced that the government is willing to suffer damage if the deal isn’t to its liking. But the risk is that the damage is seen as so asymmetric – and while the direct risk for the EU27 is bad, the knock-on effects for the UK are worse – that the threat looks like a bad bluff. Although European leaders have welcomed the greater clarity, Michel Barnier, the lead negotiator, has reiterated that their order of priority is to settle the terms of divorce first, agree a transition and move to a wider deal after that, rather than the trade deal with a phased transition that May favours.

That the frontpage of the Irish edition of the Daily Mail says “May is wrong, any deal is better than no deal” should give you an idea of how far the “do what I want or I shoot myself” approach is going to take the UK with the EU27. Even a centre-right newspaper in Britain's closest ally isn't buying that Britain will really walk away from a bad deal. 

Speaking of the Irish papers, there’s a big element to yesterday’s speech that has eluded the British ones: May’s de facto abandonment of the customs union and what that means for the border between the North and the South. “May’s speech indicates Border customs controls likely to return” is the Irish Times’ splash, “Brexit open border plan “an illusion”” is the Irish Independent’s, while “Fears for jobs as ‘hard Brexit’ looms” is the Irish Examiner’s.

There is widespread agreement in Westminster, on both sides of the Irish border and in the European Union that no-one wants a return to the borders of the past. The appetite to find a solution is high on all sides. But as one diplomat reflected to me recently, just because everyone wants to find a solution, doesn’t mean there is one to be found. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.