How new rent controls could work

Sep 29, 2017 9:51 AM

The biggest talking point of Jeremy Corbyn's speech to Labour Party conference this week was rent controls. Since 2014 Labour has been proposing to limit rises in rents during tenancies, but there was something different this time around.

This is what the Labour leader said on Wednesday:

We will control rents - when the younger generation’s housing costs are three times more than those of their grandparents, that is not sustainable. Rent controls exist in many cities across the world and I want our cities to have those powers too and tenants to have those protections.

The 2015 manifesto promised "a ceiling on excessive rent rises", which was lambasted by Conservative former Housing Minister Grant Shapps as "Venezuelan-style rent controls".

This year, the party decided to own the terminology, by setting out "controls on rent rises" in the election manifesto.

So "control rents" does sound like something new, particularly if they are to be powers at a city or local authority level. But beyond that, we don't really know what he has in mind. 

Our friends at Shelter like to differentiate the existing Labour policy as "rent stabilisation" from rent controls that set permitted levels. They rule out the latter because of distortions they have created in other parts of the world - New York and San Francisco are usually highlighted. Their balanced take on the blog was read by some as an attack on Corbyn, to the extent that we got this tweet:

If that means the Conservatives will adopt Shelter's rent stabilisation alternative, then great. However, they have since deleted the tweet, so maybe they're not quite ready yet. We'll be watching Theresa May's speech next week with interest.

Rent stabilisation is essential. Renters cannot enjoy a stable home unless they have some certainty about what they'll be paying in future years. And as we hear from our supporters, the worst landlords will use the threat of rent rises to intimidate tenants into keeping quiet about disrepair. We won't fix dangerous properties without basic limits on rent rises.

We disagree with Shelter on completely dismissing more ambitious rent control. As Corbyn alluded to, the Resolution Foundation found that people born in the interwar years paid 7% of their income towards housing compared with 23% paid by millennials. Even if we were able to build 300,000 new homes a year - the upper end of what experts consider necessary and feasible - this would reduce rents by about 22% after a decade. Today's renters cannot wait that long for a decent quality of life, which is why more immediate methods of reducing rents warrant examination.

Shelter's main objection is that the poorest won't benefit: landlords will flee the market and better-off renters will buy their properties. This is inaccurate: while rent controls on their own would not reduce the underlying shortage of homes, it will not increase it either. If we see a surge in home ownership there will be fewer rented properties, but also fewer renters.

With wealthier renters becoming home owners there will also be less spending power in the rental market, reducing effective demand and its upward pressure on prices. 

But rent control can only ever be a stopgap - for a healthy housing market, eliminating that shortage remains the long term goal. What we need is a way to link up the two.

Generation Rent proposes a flexible system. First, introduce a licensing system, and set a living rent - 30% of the lower quartile income, say.

Landlords who want to charge market rent will have to pay a higher fee to become licensed. They might also face higher taxation - a levy on their rental income above the living rent level, for example. The proceeds of this system would be invested in new homes to be let out at a social rent. This would help to address the shortage, and reduce the market rent until it reaches the level of the living rent. More conventional public investment in social housing would supplement this mechanism.

Landlords who are happy to charge the living rent would pay a minimal licence fee, and would be taxed as a normal business. It would of course be essential to enforce licensing properly to prevent subletting or neglect of living rent properties.

Two thirds of landlords have no mortgage, and therefore no interest payment to make, so could easily charge the living rent. Landlords with a mortgage who couldn't reduce their rent would still be able to rent to better-off tenants.

We set out one version of this proposal nearly three years ago, using council tax bands to set rents.  

And last year, our former colleague Alex Hilton developed this idea as part of a wide-ranging paper for the Communication and Workers Union, bringing in licensing and the cost of housing benefit in the private rented sector as a benchmark for raising investment.

Further work is needed to determine a suitable set of incentives to make charging the living rent the default option for landlords, and to raise enough investment to address the underlying shortage.

Any proposal to control rents must work for the people who are hurting most from the housing crisis and so must address the underlying cause of high rents. Our ideas are a starting point for anyone who wants to make rent control a reality - if you like them, sign the petition