British Property Federation: Rent controls will fuel London housing market challenges

23 Jul 2019

Policy area: Residential

  • It makes no sense to have different tenancy model in London vs rest of England
  • Any disincentive to renovation would be a retrograde step for tenants and quality in the sector

19 July 2019, London: On behalf of the build-to-rent sector – new, high-quality and professionally-managed homes built for renters – the British Property Federation (BPF) responds to the Mayor of London Sadiq Khan’s call for the powers to introduce rent controls in London through a London Private Rent Commission and a universal register of landlords.

While the London Private Rent Commission should bring welcome objectivity and analysis rather than the risk of politicisation, the BPF fundamentally opposes rent controls.

Rent controls will exacerbate the London housing market’s supply-demand imbalance and affordability crisis, by reducing investment into building new rental homes.

The Mayor himself acknowledges that rent controls will damage investment and hence some counterweight proposals. The proposals note that exemptions for a ‘defined period’ or tax incentives could be given to investors in the build-to-rent sector – but for investor appetite to continue building these much-needed new homes for London, clarity is important and further detail will be required as soon as possible.

When fewer new homes are being built, yet the number of people who want or need rental homes continues to increase, rents rise and undermine the ambition for implementing the rent controls in the first place. 

A recent analysis of rent controls’ impact on supply – in the 2017 Stanford University paper The Effects of Rent Expansion on Tenants, Landlords and Inequality – which looked at rent controls in San Francisco between 1995 to 2012, highlighted that ‘landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase’.

These proposals today come at a time when institutions, such as pension funds, have just started to invest in the UK residential market again, previously having left the market when rent controls were in place across the UK back in the 1970s and 80s.

Their investment is long-term and sustainable and is focused on driving growth in the build-to-rent sector, which is playing a significant role in adding to much-needed housing supply in London.

The build-to-rent sector is a relatively new housing sector in the UK, with over 140,000 new rental homes either completed, under construction or planned across the country. London, however, boasts 52% of the sector’s supply with 74,580 homes, and the sector now comprises 20% of all new homes being built in the capital. 

The build-to-rent sector is committed to protecting consumers – in April 2017, the sector gave the Government its pledge to provide longer-term tenancies for additional security to those customers who want or require it.

The sector also supports a landlord register but would rather see that introduced nationally rather than just in London, which would make it easier to enforce. The BPF, however, supports the Mayor’s good intentions in further driving up standards across the private rented sector.

Ian Fletcher, Director of Real Estate Policy, British Property Federation comments:

“Any proposals to introduce rent controls must consider the damaging effect these could have on investment into the build-to-rent sector. If investment into new rental housing is deterred, this would take London further away from resolving the underlying housing issue of our time – a lack of supply.

“Build-to-rent homes are new, high quality and professionally managed, driving up standards and providing consumers with more choice. When consumers have choice, they benefit with respect to cost and quality as competition intensifies. The build-to-rent sector is also committed to offering three-year tenancies, and to provide a transparent means of setting rents during that period at the start of the tenancy. Knowing how rents will be set, however, shouldn’t be confused with old-style rent controls, which will damage investment in the sector.”

The Mayor has also announced today his proposal for a ‘London Model’, to introduce tenancy reform for London.

Fletcher continues:

“It would make no sense to have different tenancy arrangements in London versus the rest of England. Where there is perhaps common accord, however, is that any tenancy reform cannot happen until there is fundamental reform of our courts. It can take four to eight months for landlords to gain possession of their property at present via the courts, and for tenants who abuse the system, that can be rent-free. The tenancy reforms being suggested would lead to far more use of the courts and make an already difficult situation intolerable.

“More generally, there is much that is good in the London Model, but the idea of tenant compensation is not backed up by the facts, with no evidence that landlords abuse possession grounds in Scotland, and any disincentive to renovation would be a retrograde step for tenants and quality in the sector.”