Labour Must Listen. Rent Control Is The Wrong Decision For Londoners.
Short Read: We need proven methods to make private sector rents genuinely affordable, not just ill-informed bellwether folly sound bites from the Mayor of London.
On the 23rd January 2019 this year Mayor of London, Sadiq Khan, asked Karen Buck MP to work with his Deputy Mayor for Housing James Murray to develop proposals for a new deal to help London’s private renters. The aim is quite rightly to help make private sector rents genuinely affordable to more Londoners, and to protect new supply and investment.
So why, despite the perverse effects of rent control being one of the most widely understood, least contentious areas of economics, with the Mayor knowing full well he has no powers to implement rent control himself, does his Deputy still think the time for rent control in London is now?
The rise up the political agenda appears to have gained traction following the results of a YouGov poll conducted in December 2018, which found 68% of Londoners are in favour of capping the amount private landlords could charge tenants.
Yet there is an abundance of research into how bad rent control policies are in practice. Blair Jenkins reviewed over sixty research studies on various forms of rent control and concluded that rent control creates more problems than it solves. Paul Krugman agrees, citing that nine in ten economists believe placing “a ceiling on rents reduces the quality and quantity of housing”.
The plentiful supply of rent control policy failures is not just limited to the United States. Berlin in Germany, where planning laws are much more liberal than London, has seen its “rent brake” policy cause a stark rise in rents. In Sweden, specifically Stockholm, the rent control model has seen the rise in those on the waiting for rent controlled flats exceed to over half a million. A two-tier system involving bribes and a thriving black market in sub-letting is not your typical Swedish way of doing things, but is prevalent as a result of implementing counter intuitive rent control.
Stanford University has recently undertaken one of the most comprehensive studies on the winners and losers of rent control in San Francisco. The result — rents driven higher than they would have been otherwise. New York has in the past seen rent control laws destroy parts of its city due to tightly-controlled rents failing to cover basic maintenance and operating costs. Such lessons were learnt in California, where recent proposals to expand rent controls were resoundingly defeated last November. The proposal for rent control in the capital will have the same disastrous effects.
New construction is typically exempt from rent control, which in turn leads to developers seeking even higher rents in the first instance. Aggravated relationships occur between tenants and landlords as market actors seek innovative ways in which to force tenants out. Less rental housing comes to market as developers inevitably focus on building just for-sale.
It has been announced today that the Government will miss house-building targets without more funding for affordable homes, according to Savills. Unless it increases grant funding, or looks at other supply-side mechanisms, the slowing of the private market caused by Brexit uncertainty is set to compound what is already a crisis of epic proportions. At present the government funding available to cover the cost of the build has fallen from 50% under the last Labour government to just 12% under the Conservatives.
Government Subsidy Lower Than Under Labour
One person who has been rather generous on subsidizing low-income rental housing is President Trump. The United States is increasing the amount of supply-side funding available by 12.5% each and every year until 2021. Low-Income Housing Tax Credits, a form of conditional tax incentives, have seen over three million new homes built for rent since the 1986 tax reform act, provided homes to roughly six and a half million low-income households, and in a typical year supports nearly 96,000 jobs. Through the tax credit system obsolete buildings are also refurbished as the fiscal tool is also able to preserve old and maintain existing stock.
American Counterparts Increasing Low-Income Housing Subsidy
Leading academics such as Professor Paul Cheshire from the LSE are saying that our failing planning system is ‘turning houses into gold’. Decades of planning policy, such as the greenbelt, has been designed to constrain the supply of new homes. He argues utilising even modest amounts of greenbelt can unlock much needed supply. The London Chamber of Commerce and Industry similarly made a call to review inefficient ‘brownspace’, which makes up to 22% of London’s greenbelt.
Antiquated and Archaic Greenbelt Policies Constrain Supply
The call to action is this Sadiq:
1) Avoid the poison chalice of rent controls
2) Revisit the antiquated greenbelt policy that constrains supply and makes investment cycles volatile
3) Subsidise like the US to provide genuinely affordable rental homes available for low-to-middle income Londoners