Rent Control Blind Alley

It is common on talkboards and blogs discussing the Housing Benefit cuts to come across people keen on bringing back rent control for private tenancies – often expressing themselves very emphatically. This is a complete blind alley.

Rent control was first introduced in the UK in 1915 following the Glasgow Rent Strikes. It was wartime so the Government wasn’t minded to play nice while landlords were profiteering in areas around munitions factories. Additionally there was a real risk of Communist agitators spreading the strikes and crippling the war effort, perhaps even sparking full revolution. Marx had always reckoned Britain would be the first country to move to a dictatorship of the proletariat.

Rent control proved easier to introduce than to get rid of. Between the end of WW1 and 1988 a series of Rent Acts tweaked the system but the essentials remained the same: a Government quango set what rent could be charged and tenants had security of tenure. This had a number of consequences: the private rented sector dwindled; private landlords had no incentive to upgrade properties and ruthless landlords could make huge fortunes.

The private rented sector dwindled: while readers may think “So what – why should private capitalists make money letting housing?” this prevented a mature private housing market developing in the UK, unlike in other European countries.

Private landlords had no incentive to upgrade properties: during the twentieth century inside toilets, central heating, double glazing, damp proofing and improved insulation became standard in most housing. Private landlords had no incentive to even do the basic maintenance if they could get away with it, let alone upgrade their properties. The entire sector stayed in a WW1 condition.

Ruthless landlords could make huge fortunes:

Rent controls present huge benefits to ruthless, exploitative criminal landlords. In the 1940s and 50s Rachman bought up cheap properties in West London – principally Notting Hill – with sitting tenants. When some of these became vacant he let to socially marginalised black and Irish tenants on high rents. The new tenants were unable to enforce their legal rights due to racism, lack of access to the law and lack of alternative housing. They overcrowded – simply to afford the higher rents – and between a mix of racism, antisocial behaviour and bad maintenance the original sitting tenants soon left. Rachman grew hugely rich driving out sitting tenants and charging above market rents to socially vulnerable tenants.

Hoogstraten simplified the process. In the 1980s he bought cheap properties with sitting tenants – most by now elderly women – in Brighton and London. He paid criminals to terrorise the tenants out of their homes. He then sold the now vacant properties at their full market price.

So in the long term rent controls do more harm than good – but what about temporary or even localised controls to resolve some current problems? The problem is rent controls require security of tenure to have any effect and this reduces the value of a property by about two thirds. Most private rented properties have more debt secured against them than their value with a sitting tenant so rent controls would prompt a wave of bankruptcies and repossessions. Entertaining as it would be to watch the buy-to-let class going systematically bust it wouldn’t improve the housing environment.

The solutions to unacceptably high private sector rents are much more conventional and dull.

1) Rents are high because UK property prices are too high. Governments need to responsibly manage house prices, particularly increasing interest rates to dampen down housing booms. The Labour government failed to do this about 2002-03 and the previous Conservative government failed to do it in 1985-86. Hopefully future governments will have learnt the painful lesson and it won’t happen a third time.

2) More social housing to provide real competition to the private rented sector. I remember back in the 1990s in Liverpool social housing was relatively easily accessible; the private rented sector had to charge lower rents than the social sector to attract tenants.

3) An economic policy which spreads work out from the South East / M4 corridor. It’s easier to move the work north than the housing south.

2 Responses to Rent Control Blind Alley

  1. Thanks for your kind words about Ipswich Unemployed Action.

    I always thought there were 3 types of housing – generally speaking. They are Social Housing, Affordable Housing and Luxury Housing.

    Social Housing speaks for itself. “Affordable Housing” is a misnomer – it doesn’t imply cheap or affordable housing, but is housing of a lesser standard than Luxury Housing – where “Affordable Housing” is more affordable than Luxury Housing – it isn’t that affordable at all.

    This is the problem with our system. To compare this to other financial issues… for example, there is no cap on interest rates that can be charged. Obviously, most legit lenders base their rate on the BoE rate with an offset i.e. 3% higher…. however, in theory there is nothing stopping someone charging 2000% interest. A “Loan Shark” although associated with violence and intimidation is only illegal as such term means someone without a Consumer Credit license.

    The problem is… us Brits love being expensive. This is a false economy and the past Governments should have acted a long time ago. There is some sort of accolade for the prices of property etc. in this country. The more house property prices inflate the better for the economy… or so its considered. If the poor can’t afford it then its their problem – which then creates pressures of Social Housing.

    If property prices/rent was lower, wages would be lower, prices of goods will generally be lower, etc. When the property prices inflate beyond realistic measures this pushes everything up. In turn, this sticks more reliance on our Welfare state.

    I have no doubt that in the next few years under the ConDems that the economy will see some growth.. perhaps before another recession. To an extent the economy isn’t completely reliant on rates of employment, although there are links, unemployment will remain high… if employers focused on employing more than they otherwise would, it would have a negative effect. The only exception is if new businesses from abroad or startups come into play.

    Housing is always (in my eyes) going to be a more significant problem than the minimum wage. One of the main problems many don’t realise is when the economy isn’t so strong it is generally better for all of us with exceptions to employment (of some obvious importance although the likely trend is some people will have jobs, while others don’t).

    In Ipswich, we have rather recently got our own Uni (and a new dedicated sixth form centre) which is going to help the economy. Yes, up goes the prices of Affordable Housing etc. even in a recession! Most places have remained empty due to people can’t afford them. Unemployment, however, has almost non-stop continued to grow…

  2. inks2010 says:

    Hi Work Programme and thanks for being the first person to leave a comment on this blog.

    You’re right that housing in the UK is too expensive – at least in most areas. The Government’s stated aim of pushing up social housing rents seems the wrong approach to me. A long term aim of reducing and controlling house price inflation would make more sense.

    I disagree with you about the Coalition’s policies creating economic growth, cutting government spending during a downturn is a classic recipe for recession.

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