House prices that are soaring out of the reach of ordinary people. Rapacious landlords squeezing every last penny out of hard-up tenants. Irresponsible buy-to-let lenders throwing money at speculative investors that may trigger another crash. It is hard to think of any other sector of the economy that gets more flak that the private rental industry. Against that tidal wave of negative publicity, it is hardy surprising that the call for some form of rent controls is rising all the time.
The respected think tank Civitas has just released a big report calling for tighter regulation of the sector, including limits on what landlords can charge. A separate poll last week found almost 60pc of people support rent controls, and more and more politicians are jumping on that bandwagon.
But hold on. On closer inspection, the case for rent controls turns out to be about as solid as the dividing wall on a hastily converted block of flats in East London. In reality, within a property market that is already horribly distorted by political meddling, rentals may well be one of the few sectors that actually works relatively well. All the evidence suggests that rents are coming down in real terms, not rising, while the increasing numbers of tenants can mostly be explained by mass immigration and the explosion in higher education. There is no problem – and, even if there were, rent controls would be the worst possible solution.
That does not seem to stop people trying. The campaign group Generation Rent, which lobbies on behalf of tenants, has just released a poll showing that 59pc of people support rent controls, with less than 7pc opposing them, and the rest undecided. Among private sector tenants, the support was even higher, with 77pc backing controls. Civitas weighed in with a well researched and thoughtfully argued paper, which, while the full report was balanced, came up with the headline solution that there should be limits to rent rises, and more protection for longer tenancies.
Not surprisingly, politicians are starting to tap into that. Ed Miliband has already called for caps on rent increases and may well extend that to full-blown rent controls. The Hackey MP, and potential candidate for London Mayor, Diane Abbott has called for far more extensive regulation, with rents being determined by local authorities based on council tax bands – it is disingenuously billed a voluntary scheme, but landlords would face a punitive charge for not joining. Not very surprisingly the Green Party has come out in favour of controls, as have the Welsh Nationalists. With growing public support, don’t be surprised if more politicians come out for them. There are clearly votes in attacking landlords.
There are two problems with rent controls, however, and they are both pretty big ones.
Firstly, there is no problem to fix. Secondly, controls are a terrible solution. In reality, there is very little evidence that aspirant home owners are being squeezed out of the market, or that rents are unaffordable.
It is certainly true that the UK has seen a big increase in the private rental market in the past decade. If you go back to 1999, there were 2m privately rented homes, out of a total of 20m households, according to a recent analysis by the parliamentary select committee for communities and local government. Now there are 3.8m, out of 22m homes. The total has almost doubled in 15 years.
The assumption of the rent control lobby is that everyone who is renting would rather buy, but has been “squeezed out” of the market by greedy landlords. And yet there are some very good reasons why the demand for rentals may well have grown.
Firstly, we have large scale immigration, regularly running to hundreds of thousands a year. While many immigrants are planning to stay, many, and especially the Eastern Europeans, are here for a few years to make some money. A Polish scaffolder might well prefer to save for a house in Krakow rather than buy one in Luton, and is happy to rent while he is here.
Secondly, we have seen a huge increase in student numbers, and they also prefer to rent. Total student numbers have risen from 2m in 2000 to 2.5m now, and the number of foreign students is rising all the time. Does a Chinese undergraduate really want to buy a house in Warwick for a three-year course, or would she rather rent? Set against those two trends, a 1.8m rise in the number of rental properties seems quite modest. Keep in mind that the number of owner-occupiers has also risen over that period, from 14m to 14.3m, which also seems about right for a country with a modestly growing native population. It is hard to see that anyone is getting “squeezed out”.
