In the last few months, politicians in Westminster have decided to step into an area which affects pretty much everyone involved in residential lettings - property and the private rental sector.Anyone who rented property in the 1970s and 1980s knows the difficulties of tenancy agreements from that era which allowed the tenant the right to stay in the property for life. In some cases, tenancies could be transferred to their children, rents could not be increased and tenants could not be removed.
One of the suggestions by the Labour Party is rent controls. With more than 4.4 million people renting 3.4 million properties in England alone, it was clear that this could be a policy that was purely playing with the sentiments of these tenant voters.
In a damning report, the Institute of Economic Affairs says that Ed Miliband is going for completely the wrong solutions and accuses him of flawed thinking. Instead, the IEA says he should instead look at a radical liberalisation of the planning system to allow the private rented sector to grow.
Under the current legislation, tenants are already in a position to challenge rent increases that are unreasonable and they have the advantage of giving a months’ notice to the landlord (when the tenancy is a rolling agreement ie periodic tenancy) . But do rents need capping?
Well, let's look at our area. In Derby, there are 37,828 people renting 15,943 rental properties. The average rent of a Derby property in 2008 was £524 per month. If Derby landlords had raised the rents in line with inflation, (which sounds very fair to anyone), as inflation has been a total of 19% since 2008, the average rent in Derby should be today £524 + 19% = £623. At this moment in time, the average in Derby is £503.
However, restricting rent rises in the future could put more properties back on the market for sale as it would destroy the confidence in the housing market. In turn, this would reduce property prices. With less property available to rent, and a lack of interest from potential investors (due to the poor yields) this policy would end up creating a shortage of affordable housing.
Even with the vast increase in renting in Derby over the last ten years, 7.29% of property being rented in 2001 to 15.6% in 2011, the number of homeowners in Derby only dropped by 1.9% (there were 63,979 homeowners in 2001 in Derby, but it only dropped to 62,765 homeowner households by 2011 in Derby. It is clear that the changes to the law of tenancy agreement made in Housing Act 1988 resulted in benefits to both landlords and tenants. The law has made it easier to rent a property and at the same time, the Assured Shorthold Tenancy gives the tenants a right to quiet enjoyment of the property for a period of time. Yes, the total rent paid by Derby tenants is an awful lot of money, £96,231,948 a year in fact, but as rents are free to move up, but just as important down.
The IEA’s report also says that rent controls in Britain between 1915 and 1989 were associated with the collapse of the private rental sector, from close to nine-tenths of the housing stock at the start of the 20th century to close to one-tenth by the late 1980s.
Swedish economist Assar Lindbeck – a socialist – once said: “Rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”
Why fix what isn’t necessarily broken?
If you would like to discuss anything further then please pop in and see me, send me an email or call me directly on 07977 235545.
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