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

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Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: www.oldmutualwealth.co.uk/ products-and-investments/ pensions/pensions2015/