IEA report condemns Labour rent controls

Today's report from the Institute of Economic Affairs concludes that Labour's recent mumbling proposals to introduce tenancy rent controls would in fact result in higher rents.

Edward Milliband listen up and stop trying to score idiotic vote begging points.

The IEA report, entitled The Flaws in Rent Ceilings, considers that the implementation of Labour's proposals would result in higher initial rents, a misallocation of housing and a reduction in the supply of homes to rent – without improving affordability.

The study questions whether existing tenancy law results in high levels of insecurity of tenure in the private rented sector. 

The report recounts the disastrous impact on the private rented sector during the period between 1915 and 1989 when rent controls were last in use, and the sectors subsequent recovery since their abolishment.

The report makes clear the solution will not be found by over governance of existing supply, but by meeting demand by relaxing planning and building more property. The IEA are calling for any new government to introduce policies to stimulate investment in the rental sector and encourage investors to provide quality affordable rental property.

The report list the problems with tenancy rent controls as:

• Landlords increasing rents to compensate against future uncertainty over increased security of tenure.
• New tenants could face high start rents as landlords insure against within-tenancy risks and compensate for future losses.
• Security of tenure is not a major consideration for the majority of those groups dominating the private rental market, namely young people, students and more mobile households. Over 35% of private renters remained in residencies for less than a year in 2013. Because rents will be initially higher, fixed term tenancies would allow less mobile households to enjoy low rents at the expense of the more mobile – harming labour mobility.
• Landlords will make the highest profit at the beginning of a tenancy and will seek out tenants that are likely to be more mobile. This increased selectivity would make it increasingly difficult for households seeking longer tenancies to find accommodation, further fuelling the UK’s housing crisis.
• The existence of tenancy rent controls is likely to result in maintenance being carried out between tenancies rather than during them, compromising quality for some tenants.
• While previous forms of rent controls were ultimately unsustainable due to their shortcomings, rent regulations such as these would prove extremely difficult to reverse. Statutory bodies that support the policy would have a vested interest in its maintenance and tenant lobby groups would gain the upper hand over small landlords, young people and mobile households.

Commenting on the research, Mark Littlewood, Director General at the Institute of Economic Affairs said:

“It is absurd that households across the UK have to pay such a large proportion of their monthly income on rent. But imposing rent controls on the market will do nothing to improve affordability, and will simply result in a number of perverse incentives that will harm those very individuals which such a policy sets out to protect.”

“The government needs to wake up to the fact that only through increasing the supply of rented accommodation can we really address the problems of high rents and poor tenancy security. If we are serious about helping the most vulnerable in society, we need to radically liberalise planning laws so we can build more houses."


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