Accompanying the boom in BTL have been murmurings about a need for rent control, either in the form of a cap on rent or new regulation for, say, limiting rent increases in line with inflation. The National Housing Federation (NHF) is the latest group to weigh in on this, calling the Government ‘incomprehensibly stupid’ for refusing to even consider rent control. At Rentify we value fairness and transparency highly and are not close-minded to new ideas for the private rented sector, so long as they will be constructive. But in this instance, all suggestions fall way short of that goal: both forms of rent control are founded on an incorrect analysis of the problems and will fail to help landlords and tenants.
Rent control involving the government setting a maximum amount of rent should be dismissed immediately. While obviously making properties more affordable for those on a low income in the short-term, it ultimately fails to tackle the root problem of supply, the shortage of available properties. Worse, it will actively slow down the supply of new housing by reducing the immediate incentive to build. This will only lead to greater problems in the future. Furthermore, while building and repairs become more expensive with inflation, landlords’ income will not grow, leading to a decline in the quality of existing housing. Landlords will have neither the funds nor the incentives to provide the level of service that the vast majority would like to be able to provide. And all this is to say nothing of the decreased social mobility that would occur when low-income groups are encouraged to remain in the same areas for long periods of time.
So what about focusing on regulating rent increases in line with inflation instead? The success of this in Germany has led some commentators to see it as a viable option for the UK. But the latest figures show that rental income is growing below the rate of inflation anyway. Also, the long-term security which regulated rent increases brings is nullified by the fact that many UK mortgage lenders will still not allow long-term tenancies. It seems the calls for this reform are based on the view that landlords are profiteering when the data simply does not support this. There are already stringent rules in place for the increasing of rent by landlords and tenants can appeal against any raises through an independent rent assessment committee. It’s hard to see what is to be gained from further regulation.
Essentially, most calls for rent control come from those who incorrectly view landlords as excessively greedy. The real problem is the lack of supply of housing and while this continues it is actually landlords who are doing a lot of the leg-work in helping the property market to recover. 90% of UK landlords have only one or two properties and rent controls would make many of them abandon their investment, leading to a fall in house prices. While the government currently seems to be of the same mind, it is important that the calls for rent control are not allowed to grow too loud.