Tag Archives: rent controls

Putting the brakes on rent rises: will London adopt rent controls?

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Earlier this year, Mayor of London Sadiq Khan revealed that he plans to include the introduction of rent controls on private rented residential properties in the capital as one of his manifesto promises in the 2020 mayoral election:

“The housing crisis is now having such an effect on a generation of Londoners that the arguments in favour of rent stabilisation and control are becoming overwhelming.”

Research published in 2018, found that for the third consecutive year London was the most expensive city in Europe for renting accommodation. The Mayor is concerned about rent increases, particularly by unscrupulous buy-to-let landlords. He now seems set to call on the government to grant him new powers on rent stabilisation.

The case against controls

Opponents of rent restrictions believe that landlords finding their rental income reduced would be unable to maintain properties, leading to poorer housing standards. Some might choose to sell their properties rather than put up with controls on their income, adding to London’s already acute shortage of accommodation to rent.

There is also concern that rent controls could strangle London’s fledgling build to rent (BTR) market. Across the UK, the number of BTR homes has soared – a 30% increase was reported in 2018 – and growth has been particularly strong in London. But some fear that rent controls could scare investors away from BTR, resulting in a fall in properties available to rent.

German lessons

Concern about rising rents is by no means confined to London, and if the capital does adopt rent controls, it will be following an international trend towards putting the brakes on rent rises in the private sector.

Germany introduced legislation in 2015 specifying that landlords taking on new tenants could only raise rents by up to 10% above the local average for similar properties. One of the first cities to use the new powers was Berlin, where rapidly rising population numbers have been putting greater strains on the city’s housing market. Hamburg and Munich were among the more than 300 cities that followed Berlin’s example.

Overall, the impact of Germany’s rent controls has not been as positive as intended. A study by the German Institute for Economic Research found that, while the rent controls had worked in areas affected by the most dramatic rent rises, such as parts of Berlin, in other areas it had not had the same effect. In contrast to the UK, more than 50% of Germans rent their homes, but rent controls have benefitted only a tiny proportion of that number.

The reasons for the failure of rent controls in Germany were set out by The Economist, which reported that landlords have used loopholes to circumvent the controls for newly renovated properties and accommodation being rented out for the first time. In addition, there are no sanctions against landlords who flout the rules. But the article also pointed out the law’s “fatal flaw”:

Landlords are not obliged to disclose a property’s previous rental price; rather, the renters must ask for it before agreeing a new price and signing a contract. In practice, this means that many renters wary of jeopardising their chances of striking a deal end up keeping mum. And a landlord can then add a few euros to the price above that permitted by the brake.

Across the water

In Ireland, rent controls were introduced at the start of 2017, limiting annual rent rises to 2%, but so far the measures have not proved successful. In the first quarter of 2019, rent prices in Dublin rose by 7%.

The reasons mirror the situation in Germany, with a large number of exemptions to the controls,  landlords charging much higher rents for new rental properties, and no sanctions for offending landlords.

The Scottish approach

In 2016, the Scottish Parliament passed regulations intended to strengthen the rights of people renting private accommodation. Among the provisions was a measure enabling local authorities to apply to Scottish ministers for permission to cap rent increases in designated areas. If local councils can prove that rents are rising too much in these “rent pressure zones” (RPZs), a maximum limit will be set on how much rents are allowed to increase for existing tenants each year in that area.

As of yet, no RPZs have been designated in Scotland. Some opponents of the measure have pointed to the difficulties local authorities face in making RPZs work, while others have branded them a failure, and called for them to replaced by nationwide rent controls.

Final thoughts

It remains to be seen whether Sadiq Khan does include rent controls in his election manifesto. If he does, and if he goes on to be re-elected, he will then have to persuade the UK government to grant him the necessary powers. After that, the question is whether London can make a success of rent controls where others have stumbled.

You may also find the following blog posts on the private rental sector of interest:

Rent pressure zones

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In December 2017 the Scottish Government passed legislation (Private Housing (Tenancies) (Scotland) Act 2016) which introduced a raft of measures relating to the private rented sector in Scotland, hoping to tackle issues such as supply, security and tenant rights. One of the headline policies from this piece of legislation was the introduction of Rent Pressure Zones (RPZ’s). The scheme allows local authorities to apply for areas to be designated as Rent Pressure Zones, limiting the ability of private sector landlords in the area to raise rents above a set level. The idea is to use rent control to ensure the market within a particular area remains stable; demand for social housing should not be put under increasing pressure as a result of tenants being priced out of the private rented sector by rising rents.

What’s happened in Ireland?

In the Republic of Ireland, legislation similar to that of Scotland was enacted in 2016. This included measures to introduce RPZ’s to 21 administrative electoral areas, including Dublin and Cork. In these areas, similarly to the Scottish model, landlords can impose a maximum rent increase on existing tenants, but issues with enforcement have proved challenging.  One of the major challenges local housing charity workers are reporting is the termination of contracts of existing tenants, so that landlords can bring in new tenants who they would then be able to charge more, because they are exempt from the terms of the RPZ’s.

Local authorities making a good case is vital

As was mentioned earlier, the responsibility of applying to have an area designated as a rent pressure zone falls on local authorities. One of the consistent challenges raised by academics, researchers, and those working elsewhere within the sector is the lack of data, or at least the lack of detailed, robust, quality data on which applications to designate an area and RPZ can be based. It has been suggested that in order to better support local authorities to make good applications, (which are likely to be accepted) the quality and accessibility of data available to local authorities must be addressed.

Supporting local authorities to increase supply of affordable housing is also important in high rent areas to allow all areas of the housing market to function effectively. Driving quality and affordability in one sector, it is hoped will drive up quality and standards in others to give people access to affordable quality homes in areas in which they actually want to live.

But will rent controls work?

Research conducted by academics on behalf of Shelter sought to review the use of rent controls across Europe. It shows a number of different models and how they have been adapted to reflect changes in the market. The term ‘rent regulation’ is commonly applied across Europe to refer to measures which seek to limit ‘in-tenancy’ rent increases, whilst leaving the rents for new tenancies free to find their place within the market. The research highlights the differing fortunes of those who have tried to impose rent controls, through RPZs and other means. Some have found it has had the desired impact, ensuring rent rates remain manageable for people living in an area. However, in addition to the Republic of Ireland, others have found challenges with implementation and enforcement.

Final thoughts

It will take time for this policy to bed in in Scotland, and for local authorities, government and the PRS to fully understand the impact it will have. It may mean that additional legislation may need to be introduced as a regulation method, or that landlords on the whole recognise the wider benefits to them and their sector which increased security can bring. However, the way that this element of the legislation was brought in (many think as a knee- jerk reaction to rising rents in Aberdeen which have now collapsed with the fall in oil prices) has meant that it has not been especially well thought out and the practicalities of its implementation on the ground have not been fully considered. Its long-term impact on the PRS, and on rent in areas more generally will be seen in the coming years. The rest of the UK will be watching intently to see how the Scottish project works. Ultimately, it could be replicated, particularly in large urban centres in England, including London, Manchester and Birmingham.

If you are interested in this topic, you may also be interested in the following blog posts:

The private rented sector: meeting demand and improving data

A mixed reception for Labour’s housing green paper

Released with nowhere to go: housing solutions for prisoners

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Rent controls: lessons from Berlin?

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Image: James Carson

In March 2016, a study by the Centre for Economics and Business Research highlighted the growing problem of rising rents in the UK. The Cost of Renting found that the average private rent in England is growing at an annual rate of 2.5%, and forecast that rents were set to rise by 28% on average by 2026. The findings support recent studies suggesting that the UK is now the most expensive place in Europe to rent.

In contrast to the UK, renting in Germany is less expensive. For historical as well as economic reasons, only 43% of Germans are home owners (compared to over 70% in the UK). The rest rent their homes, making rent rises a highly sensitive political issue in Germany.

In recent years, Germany has been experiencing a housing shortage. Last year, the Cologne Institute for Economic Research reported that in 2014 the number of new flats and houses built in the biggest cities was 50% fewer than needed to cope with rising population numbers. As a result, rents in Germany have been rising more steeply.

Introducing rent caps

Last year, concerns about keeping homes affordable for tenants on average incomes prompted the German government to introduce legislation on rent control. The new law means that private landlords taking on new tenants can only raise rents by up to 10% above the local average for similar properties.

Even before the law was passed the state government of Berlin had announced that it would be the first city in Germany to introduce rent controls. In recent years, the German capital has been growing by around 50,000 people a year, putting greater strains on the city’s housing market. Rents in Berlin have risen on average by almost 53% in the past five years, and in some districts, by 79%.

The trend has raised concerns among Berliners that their city could be on the way to emulating London, where growing numbers of people are struggling with the cost of living in their private rented homes. The Cost of Renting report found that Londoners on average spend nearly a third of their disposable income on rent payments, and suggested that worsening rent affordability may push residents on lower incomes out of the capital. Rent control is one measure intended to prevent Berlin going the same way as London.

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Image: James Carson

The impact of rent controls

Within weeks of Berlin introducing its rent cap, there were signs that the move was having an immediate effect, with the average rents per square metre falling by 3.1%. But in February 2016, a survey of Berlin rents by CBRE found that the year-on-year rise across the city for 2015 was 5% (compared to the 2014 rise of 6.5%).

On the face of it, this looks like the new controls are not working. But the rent cap was always intended to slow down Berlin’s spiralling rents, rather than bring them to a halt, and on those terms the law has been effective. Moreover, while new rents for Berlin’s most expensive apartments rose by 5.7%, rent rises for the cheapest 10% of flats rose by just 2%.

And, as if to underline how serious Berlin is about tackling rising rents, in addition to the rent controls on private landlords, the Berlin state government has also introduced new rules for over 500,000 social and state-owned housing tenants, guaranteeing that rent rises will not price them out of their homes.

Lessons for the UK?

Since Berlin introduced rent controls, other German states, including Hamburg and Bavaria, have followed suit. This has prompted some commentators to wonder if the idea could help to tackle the UK’s housing crisis.

A recent report from Shelter highlighted the serious impact of rising rents in London:

“Those who find it difficult to pay their rent are likely to cut back on food for themselves or clothes for their children. Others get deep into debt to avoid going into rent arrears or to cover the high costs of frequently moving home. At worst, a growing number of London renters lose their home and become homeless.”

Although London has seen the steepest rises, other parts of the UK have also been affected. In April 2016, figures showed that rents on new tenancies in Greater London were, on average, 7.7% higher than a year ago. But in Scotland the increase was 7.3%, just ahead of the East Midlands with 6.8%.

Writing in the Financial Times, columnist Jonathan Eley acknowledged the differences between the UK and German housing markets, including the high numbers of renters in Germany and the larger number of properties owned by institutions (in contrast to the UK, where most private rented sector properties are owned by individual buy-to-let landlords). However, he concluded that the UK had something to learn from the introduction of rent controls in Germany:

“It is not perfect, but it does a much better job of balancing the interests of tenants and owners than the policies of successive UK governments, who have basically ramped up house prices without much thought for the long-term consequences.”

It’s still too early to say whether Germany’s attempt to tackle rising rents will have a long-lasting impact. But if the measures succeed in putting a brake on spiralling rents, there may be growing calls here to follow Berlin’s example.

Further reading
If you’ve enjoyed this blog post, you might also be interested in these previous posts:

Generation rent: are there lessons from Germany?
To regulate or not to regulate? Housing standards in the private rented sector
Support for the squeezed middle: could public subsidies tackle London’s housing crisis?

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To regulate or not to regulate? Housing standards in the private rented sector

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To Let housing signs

Image from Flickr user Locksley McPherson Jnr, licensed for reuse under a Creative Commons License

The Scottish Government published its ‘Consultation on a New Tenancy for the Private Sector’ on the 6 October 2014. The paper states that 333,231 homes are rented privately in Scotland and it puts forward proposals to modernise the sector including giving tenants greater security of tenure, including:

  • Landlords to offer tenancies of not less than 6 months.
  • A bar on repossession except in specific circumstances.
  • The introduction of a model tenancy agreement.

The consultation poses a series of questions relating to rent levels, in particular ‘what action, if any, should the Scottish Government take on rent levels in the private rented sector in Scotland?’ Clearly the focus of the consultation is on the affordable private rented sector, but the implications of legislative change are likely to be far broader and impact across the whole rental sector.

The consultation raises a number of big issues for a range of stakeholders including tenants, landlords, citizens’ advice bureaux, local authorities, and indeed for the broader social rented sector, because any changes may well have knock-on implications far beyond the private sector tenant/landlord relationship.

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