As part of his re-elction bid, Sadiq Khan has hinted that he is considering introducing rent controls across London. Christine Whitehead explains what has actually been suggested, how it compares to private rented sectors elsewhere in Europe, and who may stand to gain from such changes.

In January 2019, Sadiq Khan announced that he had asked James Murray, Deputy Mayor for housing, and Karen Buck MP for Westminster North to develop a blueprint for an overhaul of the laws for private renters. This will set out a strategic approach to rent control and security of tenure which will be a key plank of his 2020 re-election bid.

The initiative is hardly new – the Mayor has been raising the issue since his first election bid in 2015/16 and the Greater London Authority is already putting in place a possible London model of tenure security. Importantly, although the term ‘rent control’ has been prominent in the debate, the reality of what is proposed appears to be rent stabilisation rather than traditional rent control, which fixed rents at a given time and gave no promise about future rises. Rent stabilisation, on the other hand, allows the initial rent to be set by the market, but then constrains maximum increases in rents within the tenancy to be in line with some more general index.

The current situation  

London is quite late in the day coming to this position, as compared to a number of other European countries notably Germany, Ireland, and Scotland. Indeed, the current government has already held a consultation on the possibility of longer tenancies across England.

So what is the position now? At the present time, England is probably the least regulated private rented sector in Europe: rents are entirely market determined (indirectly there is downward pressure because local housing allowance caps limit the amount of housing benefit that can be paid in higher rent areas, notably in London); and the normal landlord/tenant contract is a six month or one year Assured Shorthold Tenancy, which means that the tenant can be evicted at the end of that time. This compares to many other European countries where there are now indefinite tenancies, and with rents being set in line with a defined price index or with comparable rents. As a result, tenants have much greater security and certainty than tenants in England.

Yet it has been in some of the countries that have this more regulated environment that, in the face of rapidly increasing rents, the pressures for additional regulation have been felt first. In Germany there was a great deal of political tension, including street demonstrations, which in 2015 resulted in the identification of pressure zones where stronger rent controls were introduced. In France similar pressures led to increased controls in Paris and Lyon although these have now been ruled to be illegal (new legislation is pending). The Netherlands has also introduced tighter controls in the short term for rents below about 700 euros per month.

Perhaps most importantly for our national discussion, Ireland, which had been one of the least regulated markets until 2004, has introduced landlord registration and stabilisation based on comparable properties, and now a much stronger three-year policy of strict rent increase controls in pressure zones – notably the whole of Dublin. And this model has been followed by Scotland which has now introduced registration and indefinite tenancies as well as the potential for rent control in pressured zones.

London

So what is being suggested for London is not new – indeed it looks pretty mainstream. As far as can be understood so far, the package would include:

  • indefinite security of tenure, with a number of exceptions (such as if the landlord wishes to use the dwelling themselves; to undertake significant improvement investment; or to sell the property);
  • rent stabilisation within the tenancy however long; and
  • tenants having the right to give notice to leave the tenancy without cost.

What has surprised some commentators (many of whom tend to assume any form of rent control is bad), is that institutional investors in the private rented sector have generally welcomed the move. The two most immediate reasons are: because it helps to ensure a certain stream of income into the longer term – which is what most institutional investors are looking for; and because it reduces the very considerable costs to tenant turnover – as long as the tenant is a good one.

Many buy-to-let landlords also now say that they would be happy to give longer tenancies, as long as enforcement procedures can be improved, give greater certainly, and cost less. At the moment, however, others argue that the Assured Shorthold Tenancy reduces risks of being landed with a bad tenant into the longer term and that this is very important to them.

Whether this approach would appeal to tenants is less clear – it gives much greater certainty – but it might actually mean higher rent increases than currently, as the majority of landlords do not raise rents when the tenancy is renewed. Probably most importantly, tenants feel rents are simply far too high at the moment, so limiting increases will not be seen as enough. This is exactly the position that Germany found itself previously.

Of course, while we can all usefully have this discussion, the reality is that the Greater London Authority has no powers to introduce new rent and security regulations – that would require national legislation. This is a possibility with respect to extending security and perhaps increasing certainty about in-tenancy rent increases. But any stronger rent controls are certainly not on the cards unless there is a change in government.

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About the Author

Christine Whitehead is Professor Emeritus in Housing Economics at the LSE.

 

 

 

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image credit: Pixabay (Public Domain).

 

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