Any landlord who follows London politics will not have escaped the fact that the private rented sector has been propelled centre stage as never before. The preliminary polls for the London Mayoral Election show that the main candidates are neck & neck as they slug it out for every last vote.
In the red corner is the old street fighter, more cagey than cage fighter, – Ken Livingstone. In the Blue corner, it’s the big bruiser - bumbling Boris Johnson. A couple of funny characters, but landlords take note - this is serious!
Red Ken is not just talking about tweaking Tory policies and adding the odd new art gallery (ala New Labour). No Ken is hell bent on his own London based socialist revolution. A major part of this is his proposal to bring back rent controls.
Rent control proposals
Firstly Ken rightly ascertains that London rents are high relative to rents in other parts of the country. But there are several reasons for that. London is a global city and therefore demand for accommodation is a global one (you only have to count the number of different languages on show on any bus trip). It is also by far the most prosperous part of the UK and therefore people are prepared to pay more to get a slice of the action. Finally, thanks to restrictive planning policies and dare I say it the last governments push towards an affordable housing tax on developers supply levels remain severely restricted.
According to Ken’s analysis Londoners pay an average of 50% of their income on rent. Now if Ken is elected he wants to single handedly reduce this to a third.
How? Well good question.
At the moment Ken’s 'big idea' is seemingly to set up a London wide letting agents. I will refer to this from now on as ‘Kenlets’, but I'm guessing it probably wouldn't be called this, even though I think it sounds a pretty catchy brand.
Now I'm presuming that ‘Kenlets’ will not charge landlords as much to let their property as some of the upmarket letting agents. This would allow landlords to reduce their rents fractionally, but nothing like the amount that Ken is aiming for. So how will he achieve his proposal of a living rent?
Well currently he doesn’t exactly say how. He does however let slip in this interview with the Guardian that he’s happy to enforce a rent cap: which are not two words that landlords particularly enjoy to hear together 'rent and cap'.
In the article Ken comments that “You need legal powers to do that that the mayor doesn't have. This is the first stage in creating what we used to have, which is proper rent controls. We will work with good landlords who want to co-operate with us to have a proper, reasonable rent that Londoners can afford.”
Which sounds to me like he is pretty keen on the idea of implementing rent controls.
Proposal flawed on two levels
I can see a couple of flaws and some of you out there might see a few more.
The central proposition is that Ken will somehow be able to drive down high rents which actually exist because of the market imbalance resulting from high demand and restricted supply.
This smacks of some kind of Louis XIV proportioned arrogance. His proposed rental controls will as they have done in the pasthave a negative effect over the supply and quality of the private rental sector.
Firstly many landlords would be driven out of the letting business, resulting as any fool knows with less property to rent, resulting in tighter tenancy laws to give tenants greater security of tenure and prevent more landlords selling up.
Secondly it would result in a shrinking private sector and underinvestment by the remaining landlords who have no incentive to invest in a property where they are unable to raise the rent to market levels.
“Ken, surely you are old enough to remember this from the last time? It was tried and failed!.”
Lessons of history
So far this decade we have had a banking crisis brought about by government greed and incompetent de-regulation.
Now we have a national politician looking to regulate the private rented sector out of existence. Do we learn nothing from history?
What starts in London often spreads to the UK. So landlords need to be on their guard from politicians surfing a wave of negative opinion over perceived financial market failure to justify greater regulation of the private rental sector.
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