Labour U-Turns On Rent Controls But Has History Really Learned Its Lesson?
Hello Readers,
Rent controls is certainly a topic that sends chills down the spine of every property investor I speak with and it’s a stick that’s been dangled by Labour politicians in particular for quite some time.
With Sadiq Khan’s calls for rent controls in London, the Scottish 3% cap on rental increases (and eviction ban),?Finland’s failed rent control experiment?and that of?Spain?which turned into a disastrous policy, rent controls have been billed as a ‘solution’ to rental prices, but to be honest they have proved to have disastrous unintended consequences.
So, let’s look to the UK and you may recall from a recent blog how?Medway rents have increased by around 11% over the past year?fuelled by things like the increased cost of borrowing, reduced supply and other cost of living pressures.
Just addressing rents before we look at rent controls, I certainly don’t think all landlords are of the mindset that they want to get the most money out of their tenants as possible.
Certainly it’s important to strike a balance, with landlords running a business but needing to bear in mind the affordability of existing tenants and cost to replace.
With regards to rents, there’s also the factor of mortgage affordability that needs to be taken into account and I know a few landlords who have fallen foul of this when they come up to remortgage. This is because lenders usually need the rental income to be 25–30% higher than your mortgage payment.
With interest rates sitting at say around 6% for a LTD company mortgage and the average Medway terraced house being ￡266k, you will see from the imperfect calculation below how the numbers just don’t stack up so easily at the higher rates:
Medway average rents sit at around ￡1,100 per month for a single let property and you will see how the issue can present (particular in cases where rents have not been increased for quite some time).
These are serious problems and where landlords are unable to put more cash in to lower their LTVs, they are left with no option but to sell up, take another rental property off the market and contribute to the chronic supply shortage.
Against this backdrop is an excellent article I recently read in The Telegraph entitles ‘Scotland and Ireland’s rent control were a disaster – we cannot let England go the same way.’ I know I’m preaching to the choir at this point, so let’s look at the good news before we look at history!
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Ok, so the good news is that Labour’s shadow housing minister Lisa Nandy has confirmed that the party now opposes rent controls, commenting how:
“As the mortgage crisis deepens – for homeowners and renters alike – it is perhaps inevitable that the debate has turned again to short term fixes.”
“And when housebuilding is falling off a cliff and buy-to-let landlords are leaving the market, rent controls that cut rents for some, will almost certainly leave others homeless.”
This certainly makes me think that finally something sensible has come from the dusty walls of parliament. Regardless of this, we’re all far too familiar with u-turns, so perhaps if and when solutions are in place to address the housing shortage things will change. Or, given that the market is driven by supply and demand, will they need to?
This is certainly good news for landlords and I thought I’d wrap up with an interesting quote from a?thesis I came across on pre-war housing?which comments:
“There was a need for new houses in 1919 for various reasons. The majority of the existing housing stock, especially in the big cities, was old and many of the properties were in a poor state of repair not only because of their age but as a result of rent control which had limited the supply of income available to landlords to carry our repairs.”
“Offer states that just prior to 1914 the cost of new houses rose as a result of higher building and interest costs. These increases would also effect the cost of repairs to existing properties and make the owning of rent-controlled investment properties unattractive.”
And goes on to explain how:
“The housing shortage [in 1919] was brought about by the collapse of the housing market, the age and state of repair of the existing stock available for letting and distortions brought about by rent control during the war.”
Has history learned its lesson and will England learn from other failed rent control legislation? It looks like we have… for now.
I’d be interested to hear your thoughts on this and how the current mortgage situation has affected you as a landlord.
Hasan