Lettings sector criticises rent control plans for London

Plans by the Mayor of London to reform the lettings sector in the capital have been largely welcomed but his determination to introduce rent controls have been heavily criticised by the private rented sector.

The Mayor Sadiq Khan want new powers to bring rents down and said that a fundamental overhaul of the private rented sector is needed, including controls and tenancy reforms.

In his landmark report he says that renters should have open-ended tenancies with reforms overseen by a new London Private Rent Commission, with renters on its board, to implement and enforce measures to reduce rents and keep them at lower levels.

Despite having no statutory powers over the private rented sector, the Mayor has called for an end to letting agents charges to tenants and has already set up a new public database to ‘name and shame’ rogue landlords and letting agents.

With the average private rent for a one-bed home in London now more than the average for a three bed in every other region of England, the Mayor believes the case for City Hall being given powers to bring rents down has become overwhelming. Far more Londoners are also now renting, with 26% renting privately in 2018, compared to only 11 per cent in 1990.

The Mayor is calling for powers to establish a universal register of landlords and rents, which the new London Private Rent Commission would use to design an effective system of rent control, including its own role in implementing, monitoring, and enforcing the new approach.

It would also set out how existing rents should be gradually reduced and their subsequent levels limited within and between tenancies and recommend incentives to encourage investment in new and existing rental housing supply.

The Mayor is also calling for interim powers to limit rent increases within and between tenancies whilst the full system of rent control is being implemented.

‘It is high time for private renting in London to be transformed. Londoners need fundamental change that is long overdue. Unlike other Mayors around the world, I have no powers over the private rented sector. That’s why this landmark report sets out a detailed blueprint of what the Government must do to overhaul tenancy laws, and what powers City Hall needs from them to bring rents down,’ said Khan.

‘We have made important progress over the last three years by working closely with councils and renters from naming and shaming rogue landlords and banning letting agents fees for tenants, to being part of the successful campaign to scrap section 21,’ he pointed out.

‘But now we need the Government to play their part by making tenancy laws fit for purpose, and by enabling us to bring in the rent control Londoners so urgently need,’ he added.

Polling carried out by City Hall and YouGov last year revealed strong support for rent controls in the capital, with over two-thirds of Londoners surveyed in favour of the Government capping the amount that landlords can charge people renting their property.

David Smith, policy director of the Residential Landlords Association (RLA), said that rent controls are meaningless if Londoners can’t find a home to live in and warned that such a move would lead to a drop in investment and increasing supply should be the Mayor’s priority.

‘Localised rent controls would also have a huge impact in the surrounding areas. With demand continuing to outstrip supply, residents would have to move out of the city and rents would be pushed up further as demand increases in the commuter belt,’ he explained.

He pointed out that research from the Centre for Cities has found that rent controls divide renters into the privileged and outsides, with those already renting when the controls are introduced doing well but those hoping to move into the city or for more space losing out, damaging social mobility.

‘London rent rises are already well below inflation increasing at just 0.9% in the year to June compared to CPI at 2%. We do welcome a number of the Mayor’s proposals for improving London’s rental sector including establishing a dedicated housing court and reforming the Section 8 process for landlords to regain possession of their property in legitimate circumstances,’ he added.

However, the plans were described as ‘laughable’ by Tom Gatzen, founder of ideal flatmate. ‘During his time in power, his severe failure to deliver on the number of new homes promised has contributed massively towards an over reliance on the London rental sector. This demand has pushed rental prices up further and the capital’s tenants are the ones that have paid the price,’ he said.

‘We’ve already seen the detrimental impact an ill thought out tenant first policy can have on the market in the wake of the tenant fee ban, with many letting agents and landlords increasing rents to recoup lost income,’ he added.

While there is a need to address the issues surrounding the London rental market, Mark von Grundherr, director of London agents Benham and Reeves, believes that an attempt to remedy problems through a freeze on rents isn’t far short of ‘idiotic’

‘It demonstrates a real lack of understanding when it comes to the rental sector and wider property market. To further deter landlords from the rental space by restricting the income available, having already hit them where it hurts via a ban on tenant fees, stamp duty hikes, and tax changes, will only see a reduction in stock and further inflame the issues that we are currently seeing,’ he pointed out.

‘Landlords are the lifeblood of the rental market, they need to be encouraged to remain in the sector, not to exit it. Had the number of homes promised actually been delivered we would have seen a natural adjustment to rental prices in the capital through a reduction in demand,’ he added.

The British Property Federation (BPF) said that it fundamentally opposes rent controls and it would make no sense to have a different tenancy models in London compared to the rest of England.

It says that rent controls will exacerbate the London housing market’s supply-demand imbalance and affordability crisis, by reducing investment into building new rental homes as a time when demand is increasing.

It points out that a recent analysis of rent controls’ impact on supply by Stanford University which looked at rent controls in San Francisco between 1995 to 2012, highlighted that it reduced rental housing supply by 15%, causing a 5.1% city wide rent increase.

The BPF believes that it will have a particularly negative impact on the growing Build to Rent sector at a time when institutions, such as pension funds, have just started to invest in the UK residential market again, previously having left the market when rent controls were in place across the UK back in the 1970s and 80s.

London has 52% of the sector’s supply with 74,580 homes, and the sector now comprises 20% of all new homes being built in the capital. The sector supports a landlord register but would rather see that introduced nationally rather than just in London, which would make it easier to enforce. The BPF, however, supports the Mayor’s good intentions in further driving up standards across the private rented sector.

‘Any proposals to introduce rent controls must consider the damaging effect these could have on investment into the Build to Rent sector. If investment into new rental housing is deterred, this would take London further away from resolving the underlying housing issue of our time which is a lack of supply,’ said Ian Fletcher, BPF director of real estate policy.

‘Build to Rent homes are new, high quality and professionally managed, driving up standards and providing consumers with more choice. When consumers have choice, they benefit with respect to cost and quality as competition intensifies. The Build to Rent sector is also committed to offering three-year tenancies, and to provide a transparent means of setting rents during that period at the start of the tenancy. Knowing how rents will be set, however, shouldn’t be confused with old style rent controls, which will damage investment in the sector,’ he added.