According to Swedish economist Assar Lindbeck, “next to bombing, rent control is the most effective way to destroy a city.” He might have been talking about London in 2015. Labour leader Ed Miliband’s proposed cap on rents isn’t just a silly attempt to garner tenant votes; it could actually be one of the worst policies to come out of any party in the lead-up to this year’s general election.
If Miliband has his way, landlords will sign three-year tenancy agreements with their tenants which preclude them from raising rent higher than inflation.
However, far from bolstering the private rental industry or protecting tenants, it is much more likely that rent controls would only limit the availability of homes on the market. Realistically, the prospect of capped income would only serve as a huge disincentive to would-be landlords, and may well put a number of them off the idea of buy-to-let, leading to a significant decrease in available housing.
“Of course, the answer… is to build more homes,” said Boris Johnson during an appearance on The Andrew Marr Show at the weekend. “It is not therefore to come up with a policy that would discourage the creation of more homes.” In Johnson’s scenario, the outcome of Miliband’s rent controls would be a widespread raising of rents at the end of the Labour term.
Conservative chancellor George Osborne has called the plans “economically illiterate”, stating: “I don’t know what’s more terrifying, whether [Miliband] believes they are going to work, or knows they are not going to work but says it anyway.”
By promoting three year tenancies and a limit on rental earnings, Miliband has positioned himself, and by extension his entire party, as anti-landlord and anti-free market. “This is all attacking the private landlord,” says Alan Ward, chairman of the Residential Landlords Association. “Private landlords will have their business threatened. A lot of landlords have bought properties as a long-term investment and often as an alternative to a pension. It casts into doubt the long-term viability of the private rented sector as an alternative pension.”
Lib Dem leader Nick Clegg is sceptical, describing rent caps as “superficially attractive” and predicting that they will ultimately drive landlords from the sector. The rent control scheme has even received harsh criticism from left-wing campaign group Generation Rent. The group’s objections relate specifically to loopholes in the policy which would leave many “vulnerable” tenants at the mercy of unscrupulous landlords who would have the power to evict families mid-tenancy, should the whim take them.
“These loopholes are pretty scary when you think they’re attached to a big financial incentive to use them – because that’s the only way they will be able to put up the rent in the first three years,” says Generation Rent director Alexander Hilton. “A lot of landlords would continue being decent human beings so they and their tenants would be unaffected by these proposals. But vulnerable tenants whose landlords are exploiting them could find the Labour proposals make very little difference.”
Miliband’s proposed changes to the rental sector aren’t just unrealistic; they are unsustainable and irresponsible. It’s not often that a proposal comes under sustained fire from both sides of the political divide, which perhaps tells you all you need to know.
George Spencer is CEO of Rentify