Simon Gordon: Rent Controls are not, and never have been, the answer

Simon Gordon is a consultant to the Residential Landlords Association.

The calls for rent controls in the private rented sector are growing louder in response to what are seen as excessively high rents, especially in London.

The reality is that despite the myth their critics perpetuate that landlords are seeking to profiteer from the accommodation they rent, they have in fact been increasing rents far less than inflation, unlike the subsidised social housing sector.

Figures contained within the 2011/12 English Housing Survey show that between 2008/09 and 2011/12 average weekly rents in the private rented sector increased from £153 to £164, an increase of 7.2%. This equates to annual increases of 1.8% over the four years.

Over the same period, social rents saw an average 16.9% increase, from £71 to £83 equal to 4.2% a year. Inflation measured using the Retail Price Index, which includes housing costs, over the same four year period stood at 12.5%.

Whichever way you look at it, rents across the private sector have, on average, been falling in real terms. This is despite a shortage of properties in many areas and an increase in demand caused by the lack of social housing and the difficulties people face getting a first property because of higher deposits being required.

In response many argue that what matters are not the proportions by which rents go up but their actual levels, which are higher in the private sector compared to social housing. The private rented sector would have less trouble cutting rents if it were to enjoy the same subsidies that social rented houses do. The reality is that the private and social rented markets serve two distinct purposes. Without subsidy, rents in the private market need to be sufficient to ensure that landlords can reinvest in new or existing properties.

Rent controls would diminish the funds available for reinvestment and lead to a mass exodus from the sector. As Grant Shapps MP as Housing Minister clearly explained:

“Rent controls, historically, resulted in the size of the private rented sector shrinking from 55% of households in 1939 to just 8% in the late 1980s. Rent controls also meant that many landlords could not afford to improve or maintain their homes.”

Even Vince Cable, not known for his right wing credentials, has previously told the Andrew Marr programme that rent control: “creates more problems, it reduces supply.”

Rather than seeking to interfere in the market, as some suggest, Ministers need to take action to help the private rented sector to grow by supporting the army of individuals and couples making up almost 90% of the country’s landlords since it is only through growth that tenants then get genuine choices over the housing options they have, increasing competition between landlords both on price and quality.

Landlord bodies have come up with a comprehensive package of measures that would achieve this, chief among which would be securing a taxation system that properly recognises that renting a property is a business and so encourages reinvestment. With every £1 invested in the sector creating a £3.50 return for the economy, supporting private rented housing growth would achieve the objectives of boosting supply, increasing tenant choice, raising standards and keeping rents reasonable.