Showing posts with label Government intervention. Show all posts
Showing posts with label Government intervention. Show all posts
Regulation v Legislation
Legislation Vs Regulation
Legislation is a directive placed by a government or governing body on either an industry, a section of community or placed on people of a country which must be complied with in order to remain within the legal boundaries of that particular country, community or industry. In industry, legislation acts as an external driver which must be met by all players in order to be compliant. Legislation is passed as laws by a parliament of a country or some other legislative arm of a government. After legislation is passed, there will be regulators, usually government bodies, who will examine the laws passed and work out the details that need to be enforced so that they are followed. For instance a parliament may pass a legislation that enforces a uniform interconnection fee for telecommunication service providers in a country, and then a government department (regulator) of communications will detail the nitty-gritty of the legislation and enforce it. At times before a part of legislation becomes a law, it may be referred to as a bill. Some countries require legislation to be validated by the executive (usually President) before it could be enforced as law. Commonly a member of the governing body or legislature will propose legislation or by the executive, which then becomes open for debate by legislators. Amendments are usually made before it is finally passed. Government legislative priorities often determine whether a given bill is proposed and enforced as law.
A regulation refers to a specific requirement that can take on various forms, such as industry specific regulation or regulations that are much broader in scope. They are basically the way the legislation is enforced by regulators and they support the requirements of the legislation. In industry, they specify the particular formal (legal) requirements that need to be followed by organizations, workers and employers alike so as to create a level playing field within the competitive environment of the organizations as well as within a particular organization. This is so because regulations address product safety, consumer protection and other factors in public interest. The thing with regulations is that they could either be internally or externally developed so as a means of compliance, they may be developed through technical specifications or may be through some standards in the private sector.
Summary:
1. Legislation is a directive proposed by a legislative body while a regulation is a specific requirement within legislation.
2. Legislation is broader and more general while regulation is specific and details how legislation is enforced.
3. Legislation may be proposed by a head of state while regulations are simply enforcements by regulators and head of state doesn’t interfere.
4. Legislation is almost always internally generated within a country’s government while regulations may be internally or externally generated, especially pertaining to certain industry.
1. Legislation is a directive proposed by a legislative body while a regulation is a specific requirement within legislation.
2. Legislation is broader and more general while regulation is specific and details how legislation is enforced.
3. Legislation may be proposed by a head of state while regulations are simply enforcements by regulators and head of state doesn’t interfere.
4. Legislation is almost always internally generated within a country’s government while regulations may be internally or externally generated, especially pertaining to certain industry.
Housing market
Could you please explain how positive externality (external benefit) lead to market failure in property industry?
A positive externality occurs when a third party benefits from the production or consumption of a good. In many cases, building the right kind of housing can have benefits to the rest of society. Therefore, the social benefit of good quality housing can be greater than the private benefit that property developers gain.
The property industry (building new homes) can have several positive externalities:
- Good quality housing helps to reduce social problems, such as drug use, crime and vandalism. Poor quality, high density housing (e.g. 1960s tower blocks) were associated with various social problems, such as increased crime rates. This type of housing may be cheap to build, but investing in better quality housing with more features, such as gardens can create a better environment which helps to improve social welfare and strengthen local communities.
- Better public health. In extreme cases ‘slum’ housing with poor sanitation and damp surroundings can contribute to ill health. Building better housing without damp and with better sanitation can lead to improved public health which is a external benefit to society.
- Environmental standards. If houses are built with high levels of insulation, then they will help reduce the environmental costs of heating. This is an external benefit because society benefits from an improved environment related to the building of insulated housing.
- Building new houses helps to prevent a shortage of supply and resulting excess prices resulting from the squeezing of demand.
- Building new houses can also increase geographical mobility and provide benefits to local business and employers struggling to employ sufficient people.
Free market and market failure
If there are positive externalities in the housing market, then there may be social inefficiency. For example, in a free market, the property industry may not build better quality housing to replace slums. This is because those living in slums may be unable to afford to buy the more expensive new houses. Therefore, society experiences a socially inefficient level of housing stock. In many cases (though not exclusively), it was government intervention which knocked down slum housing in Britain (throughout the early Twentieth Century) and encouraged the building of new houses.
A more modern type of positive externality is related to the environmental benefits of having minimum standards of insulation to protect against noise pollution and air pollution. In a free market, there may be little incentive to increase the building cost of a new house to improve environmental standards. Therefore, new houses would tend to get built cheaply without taking into account the external benefits of better insulation. To overcome this market failure, the government have regulations
Market failure in housing
Market failure occurs when the free market leads to an inefficient allocation of resources. Arguably, the housing market leads to various types of market failure such as environmental costs of new houses, inequality from rising house prices, and social problems arising from lack of sufficient good quality housing.
Types of Market Failure in the Housing Market
- In particular we have a situation where many young people are struggling to be able to afford to buy housing creating inequality. The ratio of house prices to income, is very high, meaning many young people are unable to buy.
- Housing could also be seen as a merit good. If housing is of a poor standard (e.g. overcrowding, insanitary conditions) it can contribute to social problems such as rioting, crime and vandalism.
- Positive externalities in the housing market. Good quality housing can have positive externalities, such as: improved public health, reduced crime, reduced heating bills and air pollution. See: positive externalities in the housing market
- Price Instability. Because supply of housing is inelastic any change in demand causes a big change in price. Many are now predicting house prices could fall, although at the moment, prices seem to just be stagnating.
- The housing market has a significant impact on the wider macro economy. Falling house prices could contribute towards a recession.
- Geographical immobility. Due to divergence between house prices in the north and south, it can be difficult for workers to find suitable accommodation in London. Therefore, this leads to a shortage of key skilled workers in areas of very expensive house prices.
- Environmental factors. Another issue in the housing market is that building new houses on green belt land can lead to a loss of precious green spaces. There are negative externalities to building houses. However, this market failure is a contrast to the lack of new houses built leading to higher prices.
Homelessness
Market failure sees homelessness sky rocket
By Dave Murphy
The government’s failure to act on the homelessness crisis means the situation has now gotten so bad that at a recent meeting of Dublin City Council it was revealed that there is an €18.5m black-hole in its emergency accommodation budget.
Rent controls now!
In June alone, 65 families were made homeless in Dublin. This is due to rising rents which continue to skyrocket while wages stagnate and rent allowance cut. Dublin City Council runs the Dublin area homeless services where people present themselves to when they are made homeless. Currently they have 3,307 people in temporary emergency private accommodation. This scandalously includes 1,122 children.
This private emergency accommodation is often hotels rooms which sees whole families crammed into one room with no cooking utilities or into B&Bs that they have to leave during the day with nowhere to go. Immediately, to stem the tide of homelessness and to stop the profiteering of landlords and speculators, the government must introduce rent controls and ban economic evictions!
Such has the demand for homeless services grown that there is a €18.5m gap in the homeless services budget. The government must act immediately to fill in this gap. As an immediate emergency act they should provide a blank cheque to the homeless services so that anyone who is in this situation can be accommodated.
Right to housing
Banning evictions and rent controls must be part of a plan that sees housing as a right not a privilege. Currently there are over 100,000 people on housing waiting lists. The government have turned a blind eye to this crisis and are intent to leave it to the market to solve. They introduced the Housing Bill which contained no new houses and is simply intended to move people from council waiting lists to the private rental sector. They have Construction 2020 which they have launched and re-launched to the media countless times. They should invest in a state-led programme of building the necessary homes to house people.
Rent controls
The economic and social case for rent and landlord regulation
The fundamental aim of controlling rents for a sizeable part of the rented property market is to improve affordability of rental apartments especially for vulnerable groups on lower incomes including large working families on low wages and the elderly who rely on pensions and state welfare assistance. Maximum prices are often justified on grounds of equity and fairness.
Just recently the left-wing Labour MP Jeremy Corbyn was campaigning for maximum rents in his constituency of Coventry arguing that the rapid rise of private sector rents and cuts in housing benefits were causing misery and huge inconvenience for many of his constituents. Lower rents in the city ought - in theory at least - to allow more people to live closer to work or to their extended families, and give them more flexibility about where they can live and find a job. Rent controls are often accompanied by laws offering tenants security of tenure, something that are important when people are trying to settle into a new area and build some roots.
Regulations are also need to protect tenants against landlords who are very reluctant to repair or improve the properties and who in some cases allow their properties to worsen into a dangerous, life-threatening state.
The next set of analysis slides takes us through what can happen when maximum rents are introduced.
Critical Evaluation:
Here are some of the key criticisms of rent controls as an intervention policy:
Here are some of the key criticisms of rent controls as an intervention policy:
1. Rent regulations can create larger shortages on rented property in the longer term
2. Landlords get a smaller return from upgrading and maintaining their houses - they spend less on their properties
3. There are negative externalities (external costs) from the deterioration in the quality of the rented housing stock
4. Rent caps increase the incentive to build luxury apartments only - developers can build luxury housing that doesn’t come under rent control
5. Caps encourages people the live alone which increases the shortage of properties
6. People spend more time searching for the dwindling supply of properties available - an opportunity cost of lost time
7. People in capped apartments have an incentive to stay - limiting supply for people moving into the city
8. Caps are often ineffective - in New York City, lots of people living in rent-regulated apartments have a second home in the suburbs
9. The maximum rent does not address the fundamental problem which is a lack of good quality supply of rented apartments
2. Landlords get a smaller return from upgrading and maintaining their houses - they spend less on their properties
3. There are negative externalities (external costs) from the deterioration in the quality of the rented housing stock
4. Rent caps increase the incentive to build luxury apartments only - developers can build luxury housing that doesn’t come under rent control
5. Caps encourages people the live alone which increases the shortage of properties
6. People spend more time searching for the dwindling supply of properties available - an opportunity cost of lost time
7. People in capped apartments have an incentive to stay - limiting supply for people moving into the city
8. Caps are often ineffective - in New York City, lots of people living in rent-regulated apartments have a second home in the suburbs
9. The maximum rent does not address the fundamental problem which is a lack of good quality supply of rented apartments
The general consensus would seem to be that rent controls / maximum rents generate problems of
(i) Allocative inefficiency
(ii) Equity issues especially when there are rich families in New York living for decades in rent-capped apartments
(iii) Unintended consequences - for example the possible stifling of new building for rent
The result is government failure all of which can make the shortage of affordable apartments worse in the long term. For example, the share of free-market rented properties in New York has grown over the years and must be set to continue.
Rent control
But two words are conspicuously absent from the long list of recommendations: rent control.
Conservatives reel in horror at the idea of rent control, which they blame for the dilapidation and collapse of the rental market in the 1960s. Landlords, unable to put up the rent, simply let their properties (and tenants) rot. A return to rent control will strangle supply, returning us to the bad old days, they warn. Yet the same people used the same economic theory to oppose minimum wage legislation – and were wrong then, too.
Let's examine this "strangling supply" argument. The rise of landlord buyers has not provoked a fabulous new supply of property. Instead, with so little new building going on, landlords compete head-on with first-time buyers for existing properties and, as they enjoy easier access to loans and better tax breaks, outbid young adults and families time and again. The only "strangling" is of first-time buyers.
Rent controls....
Most readers of this column either already know this from first-hand experience, or they soon will: renting a flat is outrageously expensive in the UK. UK rents are the highest in Europe, both in absolute terms and relative to income levels. On average, British tenants pay between 40-50 per cent more than their counterparts in France, Germany, Belgium and the Netherlands. It is only if you count Monaco as a country that the UK gets pushed into second place, and even then, a number of Inner London boroughs have actually overtaken some Monaco boroughs.
So it is not surprising that rent controls are back on the political agenda. The re-introduction of rent controls is now official Labour Party and Green Party policy, and presumably, other parties will follow in due course. It is easy to see why: rent controls are extremely popular with the general public, and especially with younger voters. Among those aged 18 to 35, only 4.4 per cent oppose rent controls.
The case for rent controls is intuitively clear. Rents are too high, so the state should cap them – problem solved. Plenty of organisations have long been banging the drum for rent controls, and the latest organisation to jump on this crowded bandwagon is the Communication Workers Union (CWU), with a paper written by Alex Hilton.
In describing the problem, this paper is spot on. Britain’s exorbitant rents are a huge social and economic problem. They undermine the living standards of renters, and at the lower end of the income distribution, they have become the main cause of poverty and hardship. They cost taxpayers billions, because they make millions of people dependent on Housing Benefit. They undermine labour mobility, because the problem is most pronounced in those parts of the country which have the best jobs and earnings prospects, thus locking people out of these areas. They inflate consumer prices across the board, because the same factors which raise private rents also raise commercial rents in sectors like retail, and this then gets passed on to consumers. The list goes on.
So yes, the problems identified by the CWU are very real indeed. But rent controls are not the solution. Like most prices, rents are really messengers of scarcity. A high price is a messenger who tells consumers: “There is very little of this good, and lots of people want it, so use it as sparingly as you possibly can”. This messenger also tells (current and potential) suppliers: “There is very little of this good, and lots of people want it, so if you can possibly spare some of it, do it.”
A price control, then, is a form of shooting the messenger – except, it is worse than that. It means forcing the messenger to tell a lie. A controlled price is a messenger who, at gunpoint, is made to tell consumers: “Everything is fine! This good is available in great abundance. So don’t hold back, don’t be shy, please help yourself to some more.” His message to (current and potential) suppliers is: “This good is available in great abundance, so even if you can spare some of it, don’t bother too much.”
Rents are not an exception. The reason why rents, or rather, housing in general, is extremely expensive in the UK is simply that there is not enough of it. Relative to population size, the UK has the smallest housing stock in Western Europe. So of course housing is more expensive here than in places that have more of it.
Rent controls could not change that underlying reality. They would not add a single flat to the country’s housing stock. On the contrary: they would entice the ‘marginal landlord’ – the person for whom the decision to be a landlord is a borderline decision – to leave the market. Think of somebody who partitions off a part of their property, and converts it into a self-contained flat, but who would actually quite like to use that living space for themselves and/or their family – that person would no longer have the same incentives to do so. On the demand side, rent controls would also entice the ‘marginal tenant’ to either enter the market if they are not already participating, or to demand more of the product than they currently do. To cut a long story short, with rent controls, more people would chase fewer flats.
This is exactly what has happened wherever rent controls have been tried. One of the most consistent findings in economic research is that rent controls cause more problems than they solve. It is a similarly consistent finding that housing supply is mainly driven by the severity of land use restrictions. The UK has been building fewer new homes than other countries for decades, because the UK imposes exceptionally severe restrictions on housebuilding. For example, it is virtually impossible to build anything near London, Oxford, Cambridge, Bristol or Bath, because these cities are surrounded by greenbelts, where development is only permitted in exceptional circumstances (though it should be noted that ‘Greenbelt’ is a misnomer because a lot of greenbelt land is not remotely green). Add to that height restrictions and obstacles to densifying urban areas, and it is no wonder that levels of housebuilding are so low in the UK. This is the reason why the UK has such high housing costs, and easing those restrictions is the only way the problem can be solved. Silencing the messenger, or rather, forcing them to say that the problem does not exist, is not a solution.
Read more
So it is not surprising that rent controls are back on the political agenda. The re-introduction of rent controls is now official Labour Party and Green Party policy, and presumably, other parties will follow in due course. It is easy to see why: rent controls are extremely popular with the general public, and especially with younger voters. Among those aged 18 to 35, only 4.4 per cent oppose rent controls.
The case for rent controls is intuitively clear. Rents are too high, so the state should cap them – problem solved. Plenty of organisations have long been banging the drum for rent controls, and the latest organisation to jump on this crowded bandwagon is the Communication Workers Union (CWU), with a paper written by Alex Hilton.
In describing the problem, this paper is spot on. Britain’s exorbitant rents are a huge social and economic problem. They undermine the living standards of renters, and at the lower end of the income distribution, they have become the main cause of poverty and hardship. They cost taxpayers billions, because they make millions of people dependent on Housing Benefit. They undermine labour mobility, because the problem is most pronounced in those parts of the country which have the best jobs and earnings prospects, thus locking people out of these areas. They inflate consumer prices across the board, because the same factors which raise private rents also raise commercial rents in sectors like retail, and this then gets passed on to consumers. The list goes on.
So yes, the problems identified by the CWU are very real indeed. But rent controls are not the solution. Like most prices, rents are really messengers of scarcity. A high price is a messenger who tells consumers: “There is very little of this good, and lots of people want it, so use it as sparingly as you possibly can”. This messenger also tells (current and potential) suppliers: “There is very little of this good, and lots of people want it, so if you can possibly spare some of it, do it.”
A price control, then, is a form of shooting the messenger – except, it is worse than that. It means forcing the messenger to tell a lie. A controlled price is a messenger who, at gunpoint, is made to tell consumers: “Everything is fine! This good is available in great abundance. So don’t hold back, don’t be shy, please help yourself to some more.” His message to (current and potential) suppliers is: “This good is available in great abundance, so even if you can spare some of it, don’t bother too much.”
Rents are not an exception. The reason why rents, or rather, housing in general, is extremely expensive in the UK is simply that there is not enough of it. Relative to population size, the UK has the smallest housing stock in Western Europe. So of course housing is more expensive here than in places that have more of it.
Rent controls could not change that underlying reality. They would not add a single flat to the country’s housing stock. On the contrary: they would entice the ‘marginal landlord’ – the person for whom the decision to be a landlord is a borderline decision – to leave the market. Think of somebody who partitions off a part of their property, and converts it into a self-contained flat, but who would actually quite like to use that living space for themselves and/or their family – that person would no longer have the same incentives to do so. On the demand side, rent controls would also entice the ‘marginal tenant’ to either enter the market if they are not already participating, or to demand more of the product than they currently do. To cut a long story short, with rent controls, more people would chase fewer flats.
This is exactly what has happened wherever rent controls have been tried. One of the most consistent findings in economic research is that rent controls cause more problems than they solve. It is a similarly consistent finding that housing supply is mainly driven by the severity of land use restrictions. The UK has been building fewer new homes than other countries for decades, because the UK imposes exceptionally severe restrictions on housebuilding. For example, it is virtually impossible to build anything near London, Oxford, Cambridge, Bristol or Bath, because these cities are surrounded by greenbelts, where development is only permitted in exceptional circumstances (though it should be noted that ‘Greenbelt’ is a misnomer because a lot of greenbelt land is not remotely green). Add to that height restrictions and obstacles to densifying urban areas, and it is no wonder that levels of housebuilding are so low in the UK. This is the reason why the UK has such high housing costs, and easing those restrictions is the only way the problem can be solved. Silencing the messenger, or rather, forcing them to say that the problem does not exist, is not a solution.
Read more
Rent controls - The economist explains
Rent regulation can take various forms, including rent control (the placing of a cap on the rent that can be charged) and rent stabilisation (setting limits on how much rent can be raised over time). Supporters argue that introducing controls helps ensure that households on low and middle incomes are not squeezed out of cities in which housing costs are soaring. In many booming cities, growth has pushed up rents, and over time the composition of many neighbourhoods has changed in favour of those who can afford higher prices. Supporters of rent control often point to Germany, where it is illegal to charge rent more than 20% above the level charged for a comparable property. (Around 50% of people rent their housing in Germany; almost 90% of all Berliners do, many in pleasingly spacious, well-looked-after apartments.) In the ten years to 2014, the proportion of British households headed by someone aged between 25 and 34 which rented privately rose from 22% to 44%. In Seattle, rents for one-bedroom apartments increased by nearly 11% between 2010 and 2013. A case could be made that rent controls provide long-term security for renters, and tilt the balance of power away from landlords towards tenants. That, some reckon, makes for a fairer housing market, in which households with lower incomes cannot easily be pushed aside by landlords keen to "gentrify" the neighbourhood.
But economists, on both the left and the right, tend to disagree. As Paul Krugman wrote in the New York Times in 2000, rent control is “among the best-understood issues in all of economics, and—among economists, anyway—one of the least controversial”. Economists reckon a restrictive price ceiling reduces the supply of property to the market. When prices are capped, people have less incentive to fix up and rent out their basement flat, or to build rental property. Slower supply growth exacerbates the price crunch. And those landlords who do rent out their properties might not bother to maintain them, because when supply and turnover in the market are limited by rent caps, landlords have little incentive to compete to attract tenants. Rent controls also mean that landlords may also become choosier, and tenants may stay in properties longer than makes sense. And some evidence shows that those living in rent-controlled flats in New York tend to have higher median incomes than those who rent market-rate apartments. That may be because wealthier households may be in a better position to track down and secure rent-stabilised properties. The example of Germany is also an imperfect one: many cities there have seen declining populations and low (or falling) house prices over the past two decades, although the latter is now changing in several cities.
In places where demand for urban housing is rising (as in London, New York and Seattle), a more effective policy is simply to build more housing. The number of houses being built each year in Britain peaked in 1968 at 352,540 dwellings. Since 2008 there has been a particularly bad slump, while a restrictive “green belt” around the edges of London restricts growth. Meanwhile many developers sit on the land, watching its value grow. According to McKinsey, some 45% of land which is due to be developed in London remains idle. House-building rates are even lower in Germany, says Kath Scanlon of the London School of Economics. Restrictive zoning laws in places such as San Francisco (which also has rent control) could also be loosened, though locals might not like it. But in order to keep housing affordable, politicians will have to take on the NIMBYs, not just the landlords
Is there a case for rent controls?
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”.
Are rent caps the answer?
Renters are understandably angry about the unaffordable cost of renting. In the capital, average rent for a two bedroom flat is now a whopping £1,495 a month. Other parts of the country are also experiencing record highs.
Shelter is deeply concerned by how unstable and unaffordable private renting has become. The record high costs of private renting have led to renewed calls for some form of rent control. But we’re not convinced that comprehensive rent caps are the best answer.
Is rent capping the answer?
There are two different ways of using the law to control private rent levels:
1) The old-style rent cap involved setting overall maximum rent levels, giving tenants indefinite contracts, and limiting the rent increases that could be charged to tenants once they were in a contract. It was originally introduced in the UK in 1915 as an emergency wartime measure to deal with housing shortages caused by the absence of any building workforce. However, few comparable countries have such an intensive set of controls today.
2) Germany, France and Spain use what is sometimes called second generation rent control to calm rents without directly setting prices: rents are determined by the market at the outset; renters have longer term contracts and, as long as renters are in these contracts, their rent can only be increased by an inflationary index, such as RPI or CPI.
We think that the second option would dramatically improve private renting in England- and we’ll explain why later on. Although we wouldn’t call it rent control as this often adds to the confusion.
Rent caps (again)?
The only UK political party that openly supports the introduction of rent controls in the private rented sector is the Green party, but recent polling suggests Westminster is out of step with the general public. According to a recent survey fewer than 10% of Britons oppose rent control, while almost 60% support the policy.
Critics warn that capping rents would drive professional landlords out of the rental market and push down standards. Meanwhile politicians are frightened to get on the wrong side of private landlords, who now control the vast swathes of the nation’s housing. Despite this, the government badly misread landlords over direct payment of housing benefit, so trying to cosy up to them now at the expense of the wishes of the electorate may prove costly at the ballot box.
Young people in their 20s have no collective memory of the risks associated with rent controls; they just want to see something done to address their generation’s housing crisis.
Solving the housing crisis?
At the weekend London’s new mayor, Sadiq Khan, outlined his plans for the capital, saying: “The key thing for me is to tackle the housing crisis.” This was welcomed by those of us who have been campaigning on this issue. Less so what followed, with Khan adding: “I am bringing together an alliance of people from local authorities, housing associations, developers.” He can do much better than that. There have been enough summits and meetings. It is time for action and (if needs be) the shaming of the government by the mayor of London about the crisis that the government has itself contributed to.
The housing situation in the UK is so bleak that the key reason increasing numbers of people are becoming homeless is that they are unable to pay extortionate private sector rents. In February 2016, the Financial Times described the help-to-buy scheme as “help to cry”, naming it “one of the most perversely named government policies ever”. Squatting is on the rise again despite being outlawed in 2012: when people’s only choice is criminalised, the legitimacy of the law itself is discredited.
Rent caps?
Hayley Miller was initially shocked when she received a letter to say the rent on her London flat was to increase by £1,000 a month. But this soon turned to resignation when she accepted that the unaffordable hike would mean she had to move to another flat – her eighth move in eight years.
“The contract was coming up for renewal and we were told the rent was increasing to £2,800 a month [from £1,800],” says the 34-year-old, who shares a two-bedroom flat in Camden with a couple. “It’s really sad as I loved it, and the landlord let us get two cats only a few months ago. I’ve only been there around a year, and the last rise was only about £70, so this was a total shock.”
There are pitfalls to hardline caps, according to commentators. “Rent caps are the most onerous of regulations,” says Bibby. “Concerns include landlords withdrawing from the market, and this could trigger evictions.” Property analyst Kate Faulkner says rent controls may actually penalise some tenants. “The biggest problem is they haven’t been proven to work anywhere,” she says. “It risks landlords selling up, and doesn’t tackle the main problem – a lack of stock.” She says landlords often have an interest in keeping good tenants and rents fixed. “Contractually, landlords may be more likely to put rents up in line with whatever the cap allows – penalising the very people they are designed to protect.”
Germany is often held up as the model of stabilisation, with many people living in the same property for life. Kath Scanlon, a researcher at the London School of Economics, authored a 2011 report entitled Towards a sustainable private rented sector, and said it would be difficult to replicate the system in the UK
Vauxhall standard
Luxembourg has started criminal proceedings in response to the Volkswagen diesel emissions scandal, saying on Monday that regulators had been cheated by car manufacturers.
Following an investigation into the scandal, the European Union country's infrastructure minister said it was lodging a complaint with prosecutors without naming any of the parties under suspicion.
Merit goods
Motorists are shunning diesel cars, as they turn to buying vehicles that are much more eco-friendly, industry figures suggest.
The Society of Motor Manufacturers and Traders (SMMT) said that 78,778 diesel cars were sold in January, a drop of 4.3% on the same month last year.
Over the same period sales of electric cars and other alternatively-fuelled vehicles (AFVs) jumped by 19.9%.
For the first time, AFVs now account for more than 4% of the market.
The figures show that 7,270 AFVs - including hybrids - were sold in January, gaining a 4.2% market share.
Sales of diesel cars have been falling for several months, following publicity about pollution and health issues. And revelations that Volkswagen - and possible other manufacturers - used engine software to distort emissions data during tests have not helped diesel's reputation.
Demerit goods
The Campaign for Real Ale (Camra) is stepping up its push to keep the price of a pint down for millions of UK pub-goers, calling on the Treasury to reduce beer duty by 1p a pint in next month’s budget.
With inflation expected to rise in the next year, Camra said the cut would help to cap the price of beer, helping consumers’ cash to go further while boosting the pubs and brewing sector.
Beer drinkers are already being hit in the pocket, with Heineken and Carlsberg last month becoming the latest brewers to raise prices, following MolsonCoors – maker of the UK’s most popular beer, Carling – and ABInBev. The weak pound has also driven up the cost of imported raw materials such as hops, which could threaten Britain’s craft beer industry.
Transport revolution needed!
Theresa May’s attempt to rebalance the UK economy risks being derailed without a transport revolution to modernise links to the north of England’s airports, business leaders have warned.
An independent commission found that the north of England had capacity for an extra 60 million air passengers but was being held back by outdated road and rail links.
John Cridland, the chair of Transport for the North, who led the study, said: “These inadequate ground transport links, coupled with not enough direct services to key international destinations, mean that passengers from the north often have to travel from southern gateways. They also act as a disincentive for both business and leisure travellers to visit the region.”
Industrial strategy
If
America had a parliamentary system, Donald Trump … would already be
facing a vote of no confidence. But we don’t; somehow we’re going to
have to survive four years of this.” Thus wrote the Nobel prize-winning
economist Paul Krugman in the New York Times recently.
Unfortunately, although we in the UK do have a parliamentary system –
indeed, the “mother” of them – the signs are that the majority of our
parliamentarians are prepared to go along with the prime minister’s plan
to invoke article 50 of the Lisbon treaty.
It was Edmund Burke who, in his celebrated address to the electors of Bristol, said that MPs should regard themselves as representatives of their constituencies, not delegates. As far as one can gather, although Conservative Brexiters such as John Redwood and Iain Duncan Smith make all the noise, the majority of MPs think Brexit is a crazy idea, with the potential to do enormous harm – and last a lot longer than four years of Trump.
The supreme court has now given our sovereign parliament the chance to derail Brexit, and has done so for good constitutional and legal reasons. But the odds are not good.
The Liberal Democrats are playing a blinder in their opposition. Unfortunately, they are a tiny minority. And my old friend Ken Clarke constitutes an even tinier minority, being reportedly the only Tory intending to vote against article 50, although a lot more of his fellow Tories are said to agree with him privately.
As for the Labour party, it is running scared of Ukip, especially in the north, but at least more than one Labour MP is prepared to stand up and be counted, in the belief that the national interest should be put above prejudice against immigrants in determining the country’s future.
Now, we have heard a lot recently about “post-truth” – that is, lies – but the Trump team’s “alternative facts” have certainly captured the public’s imagination. There is of course nothing new in all this: Thucydides and Herodotus were on to the story in ancient Greece, and George Orwell more recently. But the phrase calls to mind the way that Boris Johnson and his Brexit bus were touring the country not so long ago and undoubtedly persuaded some of the electorate to vote Leave as they proclaimed a false prospectus of, well, “alternative facts”.
David Davis, who goes by the Beachcomber-like title of secretary of state for exiting the European Union, managed after the supreme court had pronounced to stretch the meaning of language by proclaiming “this judgment does not change the fact [my italics] that the UK will be leaving the European Union”.
Well, if he, Mrs May and their band of Brexiters have their way, Brexit may well become a fact: but so far it is merely a prospect – and a distant one, destined to take many gruesome years.
Although some prominent Brexiters go on about regaining sovereignty and escaping the European court of justice, it seems to be widely accepted that the Leavers would not have won if they had not made such a fuss about immigration. They want us to sacrifice the future prosperity of this country, with implications for the government’s tax take that will almost certainly exacerbate the social problems associated with austerity, in order to regain control of immigration. Yet, as commentators have pointed out, immigration from non-EU countries, over which the government already has sovereign control, exceeds immigration from the EU. This is a shambles.
As Clarke points out in his brilliant memoirs: “The creation of the European single market was probably the biggest single boost to economic modernisation, investment, trade and jobs in the UK that the Thatcher revolution produced.”
Another, connected, achievement was the way that government persuaded Nissan and other Japanese companies to make the UK the base for their European operations – entirely because we were members of the EU.
Thus in 1980, several years before the single market came into operation, Sir Keith Joseph, secretary of state for industry – and not previously known for his belief in an industrial strategy – wrote a memorandum marked “secret” to Margaret Thatcher in which he stated: “If we were outside the [European] Community, it is very unlikely that Nissan would have given the United Kingdom serious consideration as a base for this substantial investment.”
His memorandum has finally been released to the public as part of the Thatcher papers. The timing is coincidental with last week’s announcement of the May government’s plans for an industrial strategy: a departure from the previously fashionable Tory approach of “leaving things to the market”.
In another paragraph of his memorandum, Joseph (or his private office, but with his approval) wrote: “Nissan would bring high-technology production methods and successful managerial techniques to this country and could help to demonstrate that high productivity can be achieved in the UK environment.”
This was prophetic, and quite a U-turn for Sir Keith, who had once been so anti-interventionist that he thought the department for which he was secretary of state ought to be abolished.
But we have reached the stage where the Japanese, among many others, are very concerned about Brexit, and Nissan is already having doubts about what was understood to be an earlier post-referendum commitment to keep investing in the UK.
The sad, indeed potentially tragic, thing is that, while it is welcome that the May government avows belief in an industrial strategy, any good from it will be threatened by Brexit.
Read more
It was Edmund Burke who, in his celebrated address to the electors of Bristol, said that MPs should regard themselves as representatives of their constituencies, not delegates. As far as one can gather, although Conservative Brexiters such as John Redwood and Iain Duncan Smith make all the noise, the majority of MPs think Brexit is a crazy idea, with the potential to do enormous harm – and last a lot longer than four years of Trump.
The supreme court has now given our sovereign parliament the chance to derail Brexit, and has done so for good constitutional and legal reasons. But the odds are not good.
The Liberal Democrats are playing a blinder in their opposition. Unfortunately, they are a tiny minority. And my old friend Ken Clarke constitutes an even tinier minority, being reportedly the only Tory intending to vote against article 50, although a lot more of his fellow Tories are said to agree with him privately.
As for the Labour party, it is running scared of Ukip, especially in the north, but at least more than one Labour MP is prepared to stand up and be counted, in the belief that the national interest should be put above prejudice against immigrants in determining the country’s future.
Now, we have heard a lot recently about “post-truth” – that is, lies – but the Trump team’s “alternative facts” have certainly captured the public’s imagination. There is of course nothing new in all this: Thucydides and Herodotus were on to the story in ancient Greece, and George Orwell more recently. But the phrase calls to mind the way that Boris Johnson and his Brexit bus were touring the country not so long ago and undoubtedly persuaded some of the electorate to vote Leave as they proclaimed a false prospectus of, well, “alternative facts”.
David Davis, who goes by the Beachcomber-like title of secretary of state for exiting the European Union, managed after the supreme court had pronounced to stretch the meaning of language by proclaiming “this judgment does not change the fact [my italics] that the UK will be leaving the European Union”.
Well, if he, Mrs May and their band of Brexiters have their way, Brexit may well become a fact: but so far it is merely a prospect – and a distant one, destined to take many gruesome years.
Although some prominent Brexiters go on about regaining sovereignty and escaping the European court of justice, it seems to be widely accepted that the Leavers would not have won if they had not made such a fuss about immigration. They want us to sacrifice the future prosperity of this country, with implications for the government’s tax take that will almost certainly exacerbate the social problems associated with austerity, in order to regain control of immigration. Yet, as commentators have pointed out, immigration from non-EU countries, over which the government already has sovereign control, exceeds immigration from the EU. This is a shambles.
As Clarke points out in his brilliant memoirs: “The creation of the European single market was probably the biggest single boost to economic modernisation, investment, trade and jobs in the UK that the Thatcher revolution produced.”
Another, connected, achievement was the way that government persuaded Nissan and other Japanese companies to make the UK the base for their European operations – entirely because we were members of the EU.
Thus in 1980, several years before the single market came into operation, Sir Keith Joseph, secretary of state for industry – and not previously known for his belief in an industrial strategy – wrote a memorandum marked “secret” to Margaret Thatcher in which he stated: “If we were outside the [European] Community, it is very unlikely that Nissan would have given the United Kingdom serious consideration as a base for this substantial investment.”
His memorandum has finally been released to the public as part of the Thatcher papers. The timing is coincidental with last week’s announcement of the May government’s plans for an industrial strategy: a departure from the previously fashionable Tory approach of “leaving things to the market”.
In another paragraph of his memorandum, Joseph (or his private office, but with his approval) wrote: “Nissan would bring high-technology production methods and successful managerial techniques to this country and could help to demonstrate that high productivity can be achieved in the UK environment.”
This was prophetic, and quite a U-turn for Sir Keith, who had once been so anti-interventionist that he thought the department for which he was secretary of state ought to be abolished.
But we have reached the stage where the Japanese, among many others, are very concerned about Brexit, and Nissan is already having doubts about what was understood to be an earlier post-referendum commitment to keep investing in the UK.
The sad, indeed potentially tragic, thing is that, while it is welcome that the May government avows belief in an industrial strategy, any good from it will be threatened by Brexit.
Read more
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