Merryn's Blog

Labour's rent control plans are pointless

Ed Miliband's latest wheeze to help overstretched renters may be grabbing the headlines - but it won't change anything, says Merryn Somerset Webb.

Ed Miliband's proposals on rent controls sound pretty innocuous. Read them through and you might not find yourself much bothered. The idea is not to completely control rents (as with primary rent controls), but to make default tenancies three years long.

Landlords would be able to set the rent as they liked at the start of the tenancy, but after that, they could only rise in line with some sort of average (Miliband hasn't specified exactly what this would be).

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

After three years, the landlord (who can end the tenancy during the three-year period if he wants to sell or live in his house*) can again set the rent as he likes.

This system, as the IEA points out, is pointless as a policy in that it doesn't actually interfere with market rents: all landlords would simply charge a slightly higher price at the beginning to reflect their lack of ability to put their price up over a three-year period.

Advertisement
Advertisement - Article continues below

So, rents would be more predictable over certain periods which might be nice, although most tenants would say that once they are in, their rent is already pretty stable but in the end, they would be no more affordable.

On the one hand, the housing shortage is so severe it can no longer be ignored. But on the other, the anti-development groups alongside homeowners relying on rising prices are an electoral force no one can afford to ignore. That means politicians need policies that fulfil two criteria.

First, they "must attract a lot of media attention". And second, they "must be perfectly useless at improving affordability". This policy, rather like Help to Buy, "ticks both boxes."

However, while this all sounds perfectly harmless when you look at it like this, it might not be so simple. Real rent controls are a disaster I've looked at all the reasons why here (the main one being that they limit supply when the answer to housing shortages is more supply) and bringing them back into conversation sets, as Capital Economics point out, a "worrying precedent".

Right now, what the private rental market needs more than ever is private institutional investment. If the government gets a taste for intervening in rental markets, or even much more media attention on the matter, it is highly unlikely to get that institutional investment - something that would be "bad news" for the very renters Labour claims it so wants to help.

Advertisement
Advertisement - Article continues below

* One of the genuine problems in the UK rental market is short-term tenancies. However, this isn't always something one can blame on landlords, most of whom would love to have long and stable tenancy agreements.

Instead, short agreements are usually demanded by mortgage lenders who want to be sure that properties can be emptied quickly if they want to foreclose.

Advertisement

Recommended

Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/economy/uk-economy/600824/how-the-bbc-can-survive-the-end-of-the-tv-licence
UK Economy

How the BBC can survive the end of the TV licence

The TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020
Visit/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/investments/property/600826/living-on-a-houseboat-the-pros-and-cons-of-a-floating-home
Property

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020

Most Popular

Visit/investments/property/house-prices/600840/the-biggest-risk-facing-the-uk-housing-market-right-now
House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
Visit/currencies/600842/eur-usd-euro-slide-against-us-dollar
Currencies

The euro’s slide against the US dollar looks set to continue

The euro has been in a bear market against the US dollar for two years now. And on a broader scale since 2008. A decline like that is telling us somet…
19 Feb 2020
Visit/investments/stocks-and-shares/share-tips/600811/three-overlooked-stocks-to-buy-now
Share tips

Three overlooked stocks to buy now

Each week, a professional investor tells us where he’d put his money. This week: Joe Bauernfreund, portfolio manager at the AVI Global Trust, highligh…
17 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019