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Rent Control for a Living Rent

Posted on June 6, 2012 by | 6 Comments

Guest post by Jon B

Rents in the private rented housing market are becoming extortionate, with many tenants falling into ‘rent poverty’. The Government’s response is making the situation worse. What is needed is a way of bringing rents under control, without punishing tenants – what is needed is rent control.

Due to the recession, people can’t afford to buy a home any more, and social housing is in what seems to be terminal decline. So, for many, there is no alternative but the Private Rented Sector, and landlords are taking full advantage of this situation by increasing the rents.

The Conservative Government argued it could reduce rents and the welfare bill by capping the Local Housing Allowance, reducing the amount of money paid out to those private tenants on benefits. However, instead of rents coming down, LHA cuts have begun to displace tenants and have increased homelessness rates.

It is not just those on benefits who are suffering from these high rents – people who receive no benefits are also paying very large proportions of their income on rent, with one study showing that rent is costing nearly half of the average British family’s monthly earnings (1).

Huge numbers of people in the UK are suffering from ‘rent poverty’ – and it is clear that what is needed is a fairer way of controlling rents, that does not punish tenants.

 

What is rent control?

Rent control amongst ‘free-market’ economists is a taboo subject. Any interference in the housing market is said to cause distortions that result in a decline in investment in the sector. This opinion is largely based on some of the rent control programmes of the past, and on free market dogma. (2)

When many rent controls were introduced early last century, they were effectively ‘rent freezes’ that led to a fall in real rents and to a rent level that was far below the market level. These controls protected tenants from high rents, and from any rent increases. It also meant the sector was seen as an undesirable investment. It tended to reduce private housing supply, and often led to landlords to neglecting their properties by cutting corners on repairs and maintenance.

These forms of ‘first generation’ rent control were generally implemented due to the demands of strong private tenants movements, and the need for governments to make concessions during and in between world wars to stave off civil unrest. Rent controls lasted in many countries for decades, for example in the UK where they persisted until the 80’s. (3)

While rent controls in many countries were abolished, the places which continued with controls evolved ‘softer’ forms than those described above, sometimes called ‘second generation’ rent control. There is a large amount of variation in these controls, and so it is difficult to generalise, however they usually allow some limited rent increases based on certain criteria. For example: to keep rents in line with inflation, following upgrades, or due to increased maintenance costs. Some allow rents to rise unrestricted in between, but not during, tenancies. Such rent regulations are usually administered by local authorities, through rent boards or similar institutions, with recourse to appeal for both tenant and landlord.

Some economists are now arguing that well managed rent controls can be beneficial to the private rented sector, leading to steady investment, greater protections for tenants against unjust and unaffordable rents, increasing security of tenure. Even increased levels of community activism has been noted, due to more stable communities.

Rent controls are also essential for any credible security of tenure. You might have various rules for protecting a tenants right to stay in a property, however this would not stop ‘economic eviction’ by rents being increased beyond the means of the tenant. Rent controls would prevent this situation.

Examples of ‘second generation’ rent control can be found in many countries worldwide, most notably Germany, where the PRS accounts for 60% of housing stock, security of tenure is very strong, and unlimited tenancy durations are commonplace. (4)

 

For a living rent

For the increasing number of households living in ‘rent poverty’, paying large proportions of their income in rent, forced into overcrowded flats and suffering from financial hardship, something urgently needs to be done. The government’s response to high rents has been to cap the LHA, but this has actually made the situation worse with families being displaced, and people made homeless.

The criticisms of rent control are based largely on ‘first generation’ rent control, and free-market dogma, and controls are successful in many countries around the world, leading to affordable rents, and greater security of tenure. There is really no reason why they couldn’t be part of the solution for the UK’s current rent crisis.

Decent, affordable housing is a human right, but the PRS is unable to meet this obligation, and so intervention is required. The tenants movement of the past fought for, and won, significant reforms. To protect peoples right to affordable housing we need to follow in their footsteps, and demand rent control.

 

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(1) http://www.independent.co.uk/money/mortgages/families-now-spend-half-their-income-on-rent-2372563.html

(2) There is a great deal of academic literature on this topic, involving economic modelling and comparative analysis. For some neutral discussion of rent control:

  • Richard Arnott, ‘Tenancy Rent Control’, Swedish Economic Policy Review 2003, 10, 89-121
  • Hans Lind, ‘Rent regulation: A conceptual and comparative analysis’, European Journal of Housing Policy, 1 (1), 2001, 41-57 11.

(3) Before the 1980’s, rent controls and the decline of the PRS in the UK actually went hand-in-hand with the tenants movements demands for social housing in the UK. This led to the construction of large numbers of council homes that have lower rents and greater security of tenure than the PRS. Due to the ‘right to buy’, demolitions and stock transfer policies this sector is now declining and being replaced by the PRS.

(4) Kath Scanlon and Ben Kochan (eds.) Towards a sustainable private rented sector: Lessons from other countries. LSE London 2011

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Comments

6 Responses to “Rent Control for a Living Rent”

  1. MollyNo Gravatar
    June 6th, 2012 @ 1:19 pm

    But… if rent controls were implemented, average rents would probably fall, and then fewer people would buy to let, and housing prices in general would fall, meaning that people could afford to buy houses and flats instead of renting them — DISASTER!

  2. RobNo Gravatar
    June 6th, 2012 @ 5:11 pm

    Why can’t councils offer to buy land at a reasonable price, eg 5 to 10 times agricultural value without planning (ie 25 to £50000 an acre instead of nearer £500000) grant themselves planning and build quality houses on them at an affordable price to buy and to rent.They could refuse planning to those who are clearly trying to make a killing. Would of course bring down the price of houses to buy and rent but that is only a disaster to those of us who own multiple houses, ie speculators and the already wealthy.

  3. AcanthiumNo Gravatar
    June 7th, 2012 @ 5:13 pm

    Any kind of rent control is poor economics and poor morality. It reduces the return on rented property. This means fewer rentable units, and lower quality. A few lucky people get cheaper places, but more are left without options. Unlucky landlords can’t get their units back – even if they want them for their own children. Imposing rent control laws is also unjust. These laws essentially steal wealth from landlords to give it to tenants. Many landlords are retired people whose income depends on the tenant. Others are working people with just one buy-to-let. Many tenants are rich professionals who just haven’t settled down yet. Some are poor, but why should the burden of housing them fall solely on the landlord? If society wants them housed, then society as a whole should pay. I’m sure supporters of rent control mean well, but it is a terrible idea that shouldn’t be revived.

  4. jon bNo Gravatar
    June 10th, 2012 @ 5:40 pm

    Acanthium: As described above, in germany 60% of households are in the PRS, and they have rent controls. Landlords quite obviously get a return on their investment, and it is by all accounts a thriving market (with no short term speculation, like the housing bubble, which contributed to the financial crisis).

    Rob: I agree that we also need public investment in more housing, though it wasnt the scope of the article to go into that.

  5. milgramNo Gravatar
    June 12th, 2012 @ 7:05 pm

    “Imposing rent control laws is also unjust. These laws essentially steal wealth from landlords to give it to tenants.”
    You say that like it would be a bad thing and like that’s not what already happens in reverse.

    Also, “only one buy to let,” poor things that’s terrible :|

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