rent controls UK property investment

Could rent controls become a reality for UK landlords?

London Mayor Sadiq Khan has once again called for rent controls to be introduced in London. But opinions are extremely divided on the effectiveness of such a measure.

Private renters spend an estimated 23% of their income on rent in the UK. This rises to around 40% in London, with tenants expected to fork out a higher proportion of their salaries on accommodation than anywhere else in the country.

Recent reports also indicate that rents are rising at their fastest rate in five years. This somewhat mirrors the situation with house prices, which have continued to increase to a record high despite the pandemic.

To combat this, Sadiq Khan, the London mayor, has renewed his call for the government to bring in rent controls in the capital. He believes that such a measure will help to counteract the “spiralling” cost of living.

Rent controls to support tenants

Mr Khan said: “Every single Londoner deserves a secure, safe and comfortable home. Nearly a fifth of London’s private rented accommodation doesn’t meet basic standards and it is clear that more needs to be done to support tenants.

“I want to see tougher penalties for rogue operators and this action can only come from the government. Poor housing conditions and exploitative rents have an awful impact on both the physical and mental health of tenants and these actions need to have consequences.

“With the cost of living spiralling, Londoners also need the government to give us the power to bring in rent controls which may’s election gave us a clear mandate for.”

The Mayor has previously said that bringing in rent controls in London could provide a “blueprint” for other cities where unaffordable housing is an issue. He has also suggested prioritising affordable housing for certain keyworkers.

In Scotland, local authorities have the power to bring in ‘Rent Pressure Zones’, meaning rent rises in these areas can be capped if they cause problems for tenants. Here, the Mayor believes rent controls have been successful.

The problem with rent controls

Assar Lindbeck, an economist, famously criticised rent controls in Sweden in the 1960s. He said: “In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”

While it may seem like a suitable solution to help tenants in the private rented sector to afford their accommodation, it is certainly not black and white. Many argue that landlords’ costs have risen, too, and some of this must be passed onto the tenant to keep standards high in the sector.

Timothy Douglas, Propertymark’s head of policy and campaigns, says: “Rent controls are not the antidote for rising rent levels and will backfire, drive down standards and reduce the number of properties available to rent. Ultimately, this will mean even less choice and increased costs for tenants in the long term.

“Politicians are failing to recognise the increased legislative requirements that landlords face, along with the array of tax changes that have placed additional financial burdens on landlords.”

Added to this, says Douglas, is the difficulties faced by buy-to-let landlords throughout the pandemic.

He adds: “If our elected representatives are serious about supporting renters, then more must be done to increase supply and build housing across all tenures as well as supporting those agents and landlords who provide much-needed homes for their residents.”

More landlords are needed

As Douglas points out, the sector is in need of more rental properties to house the growing number of tenants seeking homes in the UK.

Availability of rental homes has been dwindling, according to multiple reports. Some landlords have seen the past couple of years as a good time to cash in on the huge capital gains they have made on their properties. Others have decided to exit the market due to some of the latest rules and tax changes imposed by the government.

Meanwhile, the number of renting households has been on the rise for many years. There are also more adults living alone in rental accommodation, and the age of the average first-time buyer is also rising. A lot of people are also relocating due to the pandemic, and many opt to “try before you by” by renting in an area they are considering.

Ensuring new landlords continue to invest in the UK property market is paramount to meeting this demand. The sector remains one of the most attractive asset classes, particularly with the heightened demand from tenants coupled with future house price rises.

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