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FREE landlord softwareRent controls on the agenda
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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Wonder why my crystal ball is going cloudy on certain elements of this.....Climate change????
The plight of "accidental" landlords who provide a not insignificant % of rental accommodation should also be an interesting one to follow.
The basic rule is that there is enough housing, enough roads, enough food etc. Just to many people.
And lots of people chasing to few properties equals a market place where rents / purchase prices of houses rise .
Mike L
Silly people. What amazes me, being a landlord of some 35 years standing, and a good one, is that some people seem to think that wages can go up, food prices go up, but rents somehow shouldn't?
Rent restrictions are the quickest way to accelerate further any accommodation shortages, just like the muddled Liberal intervention on capital gains tax.
Did you know for example that long term landlords like myself had our index relief STOLEN from us retrospectively so that tax allowances earned over many years were suddenly taken away retrospectively, and where retrospective taxing is suggested to be illegal? WHere if you applied that to pensions there would be uproad if people were asked to pay back tax because their tax allowances for years past had been changed now?
What is so riiculous is it rewards speculators, who with their tax allowanmces can make £10,000 tax free in a year, or £20,000 as a couple, for buying and reselling, yet the long term landlord is now punished for being long term, and actually contributing both in tax and accommodation for letting.
I have two families I would dearly love to upgrade to 3 bed. houses, who are currently living in 2 bed. flats. Everyone would gain, I would charge more rent, pay more tax and finally pay more CGT if I sold without ploughing it into a bigger rental property.
Can't do anything like that though, because having stolen that allowance, there is no incentive for long term property ownership, as even the capital employed is not even protected against the ravages of inflation, so you could buy a property for £200,000, and in ten years if inflation was 5% you could end up paying tax on any gain, that still meant your capital had not even kept pace with inflation!
Most people don't realise that residential property is not considered a business asset, and treated like 'unearned income' which is the craziest idea ever, as i'm counsellor, debt financial advisor, friend, and confidente to most of my tenants, and pleased to be so, but how on earth anyone can suggest it should be treated like 'unearned income'. They haven't got a clue!
Likewise, property then is treated as a personal asset even though I pay tax on it as a letting account, and HMRC benefits from full disclosure of all rents and profits, as it shouild.
So then I want to upgrade by selling a property I've held for 25 years, a 2 bed. flat worth £150,000, bought for £40,000, and straight away a 28% CGT tax liability, because OUR allowances were stolen.
That has to be taken off the proceeds, whether I buy another property for my tenants or not, so it actually PRECLUDES me upgrading them, stops them paying a higher rent for a much better property, and reduces HMRC's tax take, both in terms of rental and the 10% CGT they would have got with all my indexation relief that was stolen.
RESULT: I keep the property, the tenant lives in cramped conditions. I won't buy any more, as there is no guarantee capital will even keep pace with inflation.....So how does that help people going for accommodation?
This silly talk about 'affordable housing' is another muddled term, as in the main it is far more expensive than anything provided. Just because the rent may seem 'affordable', what it really means is its below market value, and is subsidised in one way or another, and then couched in sillly terms like NOT FOR PROFIT, as if not making a profit is some wonderful achievement?
Look at the car parks of these organisations though, and they are often full of brand new cars, so not surprising they don't make a profit, but clever people DO.
When you add all the subsidies together, the 'affordable homes' are only affordable to those presumed to be worthy of them, but then should not everyone in society have the same option?
I hade tenants via an 'affordable rent' scheme whereby my property was used by social housing for 'affordable' rents, where the tenants visited Florida 3 times a year. On another occasion, I had tenants who owned 3 restaurants and 3 plated taxicabs.....all deemed to be worthy of 'affordable rents'.
So rent caps. should be seen as what they are, MUDDLED THINKING
If you fixed this point then the other factors would change to rebalance the situation. the most likly result would be that there would be an increase in demand as people moved from high unemployment areas to London for a better balance of income against rent. If supply did not increase then you would have Communist era queues with its attendant black market and tax evasion.
As there would be no financial pressure to maintain and improve property, then the standard of rented homes would fall, Rent Cap Blight !!
The best solution would be to adjust the things that will change the balance in a less destructive way. Make improved supply a target for the planning system and cap the housing benifit availiable in high rent areas to people whon do not have strong links to that area. (Red Ken will love setting up a bureaucracy to issue points for this one.)
Surly its better to subsidise people to live a decent life in somewhere like Hastings than in Brixton?
It's said that only the poor and prosperous can afford to live in London, if you are in the middle god help you.
I have a tennant in this trap he lost his job and went on benifits, unfortunatly he foolishly got another job and is now in a mess. He (and I) would have been in a lot better position if he had stayed on benifits. I'm not evil, I let him have time to get things sorted out, helped him with the council and only chare £395 pcm which is at the lower end of the area market rent for a very nice flat.
Nobody jumped to my defence when my pension and savings were trashed by the crash! I was forced to do somthing to survive ie Landlords are human beings to !
When people come up with policies that "only hurt Landlords" remember that a lot of us have had a kicking to, we are only guilty of trying to work our way out of it.
There would not be enough income to maintain their properties or service their loans and they would probably not be able to refinance because lenders requirements would not be met.
If the Government wants to solve the housing problem then putting the private landlord out of business is not the way to do it.
It did not work last time and as a result the property available to rent dried up and exactly the same will happen if they try to introduce it again.