Landlords cheer as threat of rent controls lifts
David Cameron’s surprise victory in the general election could be good news for landlords because it lifts the threat of a Labour government introducing rent controls.
Supporters of rent regulation say that with housing benefit now costing taxpayers around £24bn a year and a growing number of families spending more than a third of their incomes on rent, the policy can stop landlords cashing in on a shortage of homes.
But capping prices at below market levels creates shortages of rentable property — especially in areas where demand is very high. This is because is can be more profitable for landlords to find other uses for the property.
In the 20th century, rent controls in Britain were associated with a collapse in the rental market from 90% of overall properties to just 10%. Reintroducing rent caps will mean fewer people who want to rent will be able to find a suitable property.
And for landlords who continue to let out their investment properties, the reduced return means many will be more willing to let those homes fall into disrepair — worsening landlord-tenant relations.
Under-supply of homes pushes rents higher
High rent levels are driven by the same phenomenon as high house prices — a chronic under-supply of new properties in areas where people want to live. In fact, if anything recent rent rises in London have been below price rises, which suggests landlords aren’t being greedy, but setting rents according to market conditions.
The Residential Landlords Association has also said that “the only way to reduce the cost of living for tenants is to boost the supply of homes to rent”.
Unfortunately, the UK’s extremely tight planning laws, including green belt restrictions which prevent the expansion of cities where people want to live, height restrictions on buildings and the extremely long development process severely, constrain new supply.
Academic estimates suggest that these planning restrictions have raised rental and housing costs by as much as 35-40% above what they would be in a more liberal regime. This, not rent controls, also explains why it is so much cheaper to rent in other countries such as Germany.
The Labour Party also wanted to introduce standard three-year tenancies to provide greater security for the 11 million people living in private rented accommodation.
Experts argue that longer term lets can work well for both the tenant and the landlord. They provide tenants with security and cut the administration costs of renewing their contract. Landlords have the benefit of fewer void periods and avoid the hassle of having to find a new tenant.
Assetgrove supports this view. Imagine a world with no voids, no late night telephone calls from tenants and no dealing with viewings or lettings.
With Assetgrove’s Guaranteed Rent Scheme we take care of everything, and we provide you with a fixed guaranteed rental income for up to 5 years. For more information, contact Assetgrove or visit our Rent Guarantee Scheme page.