Labour’s rent control plans are pointless

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).

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.

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.

From the point of view of the Labour Party, says the IEA, this is perfect. Right now politicians face a “formidable challenge”.

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.

* 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.