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Labour’s rent control policy will not solve our housing problems

1 May 2014

Labour’s decision to impose rent controls will do little to solve our housing problems. Rent controls are at best misguided and at worst could be counterproductive, longer term. Misguided because rents have not actually been rising that fast in recent years. ONS figures show that rents rose by only 1 per cent in England in the year to March (1.4 per cent in London), a real terms fall. Indeed, since the beginning of 2011 they have only 4 per cent.

Misguided also because this doesn’t deal with the root problem; a lack of supply in the housing market. Put simply we need to build many more houses, for rent and home-ownership, than we are building currently, around double to match the growing demand.

There are many different forms of rent control and this appears most similar to the German model. But Germany does not have a problem with housing supply, as we do here. It also begs the question whether there is scope for landlords to game the system; if they are not allowed to increase rents as much during the 3-year tenancy period, could they not simply put initial rents up to compensate?


Unless we boost supply in the rental market we will see future shortages. Figures from the DCLG English Housing Survey show that the private rented sector is growing fast, from around 12 per cent of homes (2.4 million) in 2005 to around 17 per cent (3.8 million) homes today. There are no signs this growing demand is abating so we need to increase future supply to meet it.

But more supply means more investment in the sector, from both Buy to Let and institutional landlords. Housing Associations also have a role to play. We need to create an environment that encourages investors to put more money in. Unfortunately rent controls do just the opposite and could damage future investment. Not only do rent controls reduce future returns for landlords – lower returns imply lower investment – but they send entirely the wrong signal to future investors creating more uncertainty, not less, with some asking ‘what next?’ And as Simon Walker, Director General of the Institute of Directors, says :

‘Basic economics tells us that if you artificially hold down the price of something, you get less of it in the market. This is as true for housing as it is for anything else. At a time when we appreciate there is a housing shortage, this policy is particularly short-sighted.’

I couldn’t agree more. This is just another example, alongside the energy price freeze, of policies that don’t attend to the root problems.

Chris Walker is Head of Housing, Planning and Urban Policy at Policy Exchange

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  • Nick Assafiri

    The comments will be embarrassing for Mr Miliband and came as he was making a flagship speech announcing the policy.

  • cartimandua

    We need town centre properties done up and we need foreign buyers subjected to higher prices and higher taxes. The Channel Islands do this with a local and an open market.
    London is driving price rises and London is driven by foreign buyers.

  • Chris Kimberley

    would never happen anyway, 75% of our MPs are buy to let landlords

    • saffrin

      All of whom used Parliamentary expenses, not only to buy but also develop.
      My local (socialist) Labour MP being one of many. During the late MP’s expenses scandal, he was written up in the local paper for claiming over £17k of refurbishment costs for his latest constituency home’s kitchen and bathroom alone.
      Only half a mile from the home he still owns from his last Parliamentary expenses rent-to-buy development.

  • Mike Barnes

    We don’t have a free market in housing, every politician thinks they can interfere in it and do as they please.

    Lots of buy to let investors would (and probably should) have gone bankrupt in 2008, without government intervention. One of Britain’s biggest landlords, Fegus Wilson, admitted he almost lost his empire of 1000 properties in the 2008 crash because he was so heavily mortgaged. This is the guy now evicting everybody on housing benefit by the way.

    He over extended himself, and any kind of fall in prices would have finished him. But the Labour government leapt straight into action to help out the property owning classes.

    Bank bailouts, low interest rates and QE all round. A Help To Buy scheme, and thousands of Greeks, Italians and Arabs hiding their dodgy money in London property and now prices are even more ridiculous than they were in 2007. Thousands of buy to letters survived what should have been a nuclear wipeout. That’s not capitalism.

    It’s interesting that Labour kept this whole ridiculous property show on the road in 2008, and now are complaining about the very spivs they saved and enabled. What did they think they were doing?

  • CortUK

    And I almost missed that you are on of those conmen who peddle the myth that, because demand for rental property is high, we need to ENCOURAGE Buy To Let and investment in the rented sector.

    Demand is so high because the landlords have an easier time getting mortgages and push up prices so the average person can’t buy their own home.

    But hey, maybe you are just one of those many people worried about the value of your portfolio.

    • itdoesntaddup

      There are two main reasons why the stock of private rental dwellings is growing: CGT has a ratchet effect on BTL portfolios when prices rise, and potential owner occupiers are both priced out and fearful of the consequences of a return to normal interest rates and falling house prices. It is worth noting that house prices fell when whole BTL portfolios were placed on the market while Darling was running his special offer of low CGT rates – and CGT receipts reached an all time record.

  • CortUK

    Hard for the Conservatives to attack Labour for interfering in the rental market when they are interfering with the homebuyer market. Help To Buy is as dumb as rent controls.

    “real terms fall”.

    Meaningless economist con. So, because other things rose faster in cost, renting has become cheaper? Maybe on a central banker’s spread sheet. But how fast have wages risen?

    • itdoesntaddup

      Rents are not rising faster than inflation because renters’ incomes are not rising faster than inflation and they are already at the end of their tether in ability to pay. The other factor is that landlords are content to take their return in rising house prices, which allows them to remortgage and add more porperty to their portfolio pyramid. They were given a free run last year with money from Funding for Lending (until Carney stopped it) before the main Help to Buy scheme got started.

  • MichtyMe

    Rent controls would be of course a distortion of the market but planning and building control is also a distortion. If a free market is really wanted, then people would have the choice to do whatever they wish with their land and build what and where they like.

    • Weaver

      I wish. I could do with £74k off the price of housing around here.

      (That’s the difference between a plot with planning permission and nearby agricultural land)

  • you_kid

    Labour policies wilfully do not attend to the root problems.
    The democratic system in Britain is broken with the two main parties in a two party system neither representing the will nor the needs of the people. Neither does this Parliament hold true Conservatives nor does it house real socialists.

    We note the tinkering in the energy markets by not addressing the core issues of lack of competition, now the tinkering in housing by wilfully allowing extremely ominous asset price rises in the centre only to compensate for a sudden loss of collateral when Scotland absconds.

    This is a serious attack on the principles of a free society.

  • Blindsideflanker

    “Misguided also because this doesn’t deal with the root problem; a lack of supply in the housing market. Put simply we need to build many more houses”

    A typical myopic view of the metropolitan media.

    They choose to ignore the issue of demand. Like when you stuff several million additional people into a country that is already over populated, via mass immigration, you get a housing crisis.

    It is no wonder we don’t get anything done about the disastrous policy of mass immigration when the very people who have set themselves up to hold the political class to account, the MSM, find it impossible to construct a simple question to put to a Minister–: ‘Minister (or Shadow Minister) if you are so concerned about a housing crisis, why do you persist with a mass immigration driven population growth policy?’

    • Denis_Cooper

      Don’t you know that all immigrants bring their own houses with them when they come here, plus extra plots of land on which to erect those houses, just as all immigrants bring a supply of the elixir of youth so they will remain young workers forever?

      • Blindsideflanker

        That would be amusing if it wasn’t the policy our politicians following.

    • Weaver

      True, but immigration isn’t sufficient by itself to explain the rise in house prices. They’re only about 40% of the new household formation by year.

      Even if we could eliminate all immigration tomorrow (ha!) we’d still not be building enough new homes to cover the growth in household demand.

      • Blindsideflanker

        We would be 40% closer. If we are building some where in the order of 90k homes a year and need to build 200k , without immigration that would come down to 130K .

        • Weaver

          Yes, we’d be 40% closer. That’s worth doing.

          But I really don’t think the residual is (primarily) a credit issue. Historical house price data correlates much better with build/household formation ratios much better than they do with interest rates or UK growth rates. I seem to recall that the serious studies of supply elasticity put the UK housing market at about 0.4 compared to US values of about 2. Thats a seriously constrained supply side.

          Yes, far east demand is driven by a flight to security in an cheap money era, but it is a tiny section of the market by value (significant only in central london).

          • itdoesntaddup

            You will find the very best correlation is with the average size of mortgage granted. It’s the supply of finance that determines what estate agents claim a property is worth, and they usually manage to persuade some idiot to pay “full asking” unless finance is in short supply.

            • Weaver

              Umm…interesting claim. Got a link?

              • itdoesntaddup
                • Weaver


                  Are you sure about the arrow of causation here? Why can’t higher loans be caused by increasing value?

                • Weaver

                  Sorry, I don’t buy it.

                  There’s a very tight correlation of price rise rate with (initial) loan amount, but no significant correlation at all with interest rate, or lagged interest rate. If it was finance availability blowing a demand side bubble then the correlation should be there, not on total loan amount, which can be explained by loans following price rises rather than causing it.

                  But thanks for the link ; its nice to meet a numerate person here.

                • itdoesntaddup

                  Sorry too have missed your replies. It’s exactly my point that prices correlate with mortgage size, and therefore that is a variable to control to control prices. It has to be that way round, since buyers cannot pay a price they cannot finance. The link with interest rates went out as we moved from a Building Society rate (basically set at Bank Rate +2 on average) to trading up and down the bond maturity curve with fixed rates that insulate borrowers for a period: any link would be some complex convolution of rates across different fix periods, together with some assessment of borrowers’ interest rate trading skills. The first time I bought property there was a maximum loan of £15,000 for all mortgages. Any further borrowing had to be on a second charge basis, and was substantially more expensive and shorter term. Believe me, it halted prices in their tracks. In an era of very high inflation I only got the same price as I paid selling up over two years later. Likewise, the crash in London and the SE in the 1990s was caused by the withdrawal of double MIRAS relief, effectively making mortgages of over £30,000 very expensive and halving the size of mortgage a couple could get. Look at historic regional prices on Nationwide to see the impact.

                  Of course, in London we have a different phenomenon: rich cash buyers from overseas for whom controls on mortgage finance are largely irrelevant (except where offshore sham mortgages are used to transfer rental income abroad free of tax). That needs a different kind of solution: a much more highly taxed, restricted market, as operates in say Jersey or Singapore, with ownership made much more expensive than renting too. That would create a tier of much more affordable property for those with UK domicile.

                • Weaver

                  Many thanks for the link by the way; fantastic source!

          • itdoesntaddup

            I really don’t know that we have good enough information on household formation and destruction. An elderly single occupant dying releases a home that is likely to be occupied by more that one person. Many immigrants are students (until recently, almost 50% in fact), who occupy housing at very high density. Many other single immigrants choose to live at high density to maximise their income remittances to their families at home. A large segment of the rest of the immigrant population has large family sizes. The real level of pressure on housing from immigration is rather less than the crude numbers would imply, and at the least is deferred until the single move out of high density into household formation. Within the domestic population, couples breaking up often result in a return to the parental home or simply transfer to a different home as mistress/toyboy shack up with the other partner: it’s not quite the atomisation that is implied by the crude statistics (including welfare claims!).

    • itdoesntaddup

      The idea that prices are soaring because of some mythical housing shortage is quite false. There are 27.4 million dwellings at an average occupancy of 2.3, essentially the same as it was in 2001, and significantly lower than in any preceding period. Adding ~1% to the housing stock (300,000) is not going to do much to prices. We shuffle into the existing stock quite easily without people sleeping on the streets. Prices have risen because of financial speculation and the willingness of banks to lend to fund it.

      • Weaver

        I think I saw a supply elasticity estimate of 2.5 somewhere…

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