Sadiq Khan, Mayor of London, has published a report demanding he gain the ability to impose rent controls on the London rental market.
The report also asked for powers to:
- Scrap section 21 (which 90% of landlords oppose)
- Scrap break clauses
- Increase the notice periods landlords must serve to four months
- Improving access to tenant-landlord dispute resolution
It was written by the New Economics Foundation, a left-of-centre policy thinktank.
Will Rent Control in London Happen?
The Mayor does not currently have the power to do these things. The report is simply making the case for being given them. The Mayor would have to be given these powers by central Government. This could happen, but it would take some time for new rules to be given to the Mayor and then for the Mayor to actually use them.
The Conservative party is against these measures, which suggests that a Conservative government would be unlikely to give Sadiq Khan the powers he is asking for.
The Mayor’s main arguments for new rental powers are:
- 26% of Londoners are renting — a huge rise since the ‘90s
- Rents have increased three times faster than wages in London
- Most other Mayors of large cities have these powers already
In addition, Londoners pay around 40% of income on rent on average; far above the national average for expenditure on housing. The average UK homeowner pays just 17% of income on housing by contrast.
What Are Rent Controls?
Rent controls are any measure and restrictions on a landlord’s ability to set the rental price of their property (aside from market pressures).
Many rent control schemes exist, from New York to Berlin and Sweden. There are two main types of rent control regulation and both can be in place at the same time.
Firstly, there are rules that regulate rent increases between tenancies. For example, if a landlord seeks to renew an existing tenancy or find new tenants for their property, the amount they can increase the rent can be limited by a variety of measures. Increases may be linked to market rates, to the property’s sale value or simply capped to a percentage.
The second type of rent control measures stop landlords from increasing rents during a tenancy. Again, there are many models for doing this, from a total ban on in-tenancy raises to a cap based on inflation. Rules regulating in-tenancy rent increases already exist in the UK.
What Rent Controls Exist Already in the UK?
Scotland introduced indefinite tenure in 2017. This means that tenancies last longer, so in-tenancy rent controls have become very important.
In these new indefinite tenancies, rent can only be increased once per year. Increases can be referred to local Rent Officers who decide if they are in line with market rates. If the Rent Officer disagrees, then the rent increase is struck down. The Officer can even decide the previous rent was too high and lower the tenant’s rent.
In England and Wales, in-tenancy rent increases are only allowed after a tenancy’s fixed term has ended, or upon the triggering of a rent review clause. These clauses must be agreed by the tenant before the tenancy begins.
But there are no real between-tenancy rent controls in England and Wales. And a landlord can evict the tenant much more easily. That means that if they want to increase the rent, they can evict the tenant and then set the new rent to whatever they think the market will accept.
Criticism of Rent Controls
The most common criticism of rent controls is that by capping the amount of money landlords can make, they decrease investment in Private Rented Sector.
The Conservative candidate for London 2020 has argued that rent controls will drive landlords out of the market and lower the standards of remaining property — presumably as there is less money to maintain the properties.
This criticism is unlikely to persuade fans of rent controls however, as a lack of investment into the PRS is probably something they are comfortable with. Why invest in the rented sector when we can invest in new homes to buy?
We will be polling our users to find out their views on the plans once more details come to light. We’re eager to make sure we know the views of landlords and tenants so we can represent them to policymakers.
It is hard to make solid criticisms of Sadiq Khan’s plans until they actually exist in detail. As we have seen, there are many types of rent control. Some exist already in the UK and there is a tendency for people to assume that the strictest forms of rent control are being discussed as opposed to more moderate measures.
Nevertheless, many landlords will worry that they will not be able to increase their rents as they planned, to the detriment of their mortgage payments, pensions and businesses margins. These landlords are likely to be against any additional rent control measures.
It seems unlikely that a Conservative government will grant mayors these powers, as regulation of markets is against their core beliefs. But there is some reason to suspect it could happen.
This is a time where powers are increasingly being devolved to local authorities. The Conservatives under Theresa May have also made several concessions to tenants in recent years, including banning tenant fees and pledging to scrap Section 21 evictions.
In light of this, it’s not so far fetched that rent control powers could be given to English Metro Mayors in the next few years. But everything depends on whether Boris Johnson’s new government decides to continue with May’s pro-tenant reforms, or strike out in a new direction.