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Here's Why a UK Rent Cap Could Make You Even Poorer

Virtually nobody in Britain opposes a rent-cap, but could punishing landlords end up making the housing crisis even worse?

by Charlotte England
19 January 2015, 6:00am

Tenants barricade their house against bailiffs trying to evict them. Photo by Jake Lewis

Every year I've lived in London I've had to move house because the place was too much of a dump, or rent went up and I couldn't afford it, or both. Last time I moved, my flatmates ended up locked in a bitter dispute with the estate agent over a fiver charge on a lost lamp, part on principle and part because the extortionate rent they charged left us – a bunch of just-grads – so broke we desperately needed our fiver back.

This story is by no means unique, and with rents soaring, it's unsurprising that a recent poll shows that almost nobody in the UK is opposed to introducing a rent cap. The logic is pretty direct – rent is too high, so the government should take action to force it down. It sounds completely obvious, but would it work?

A rent cap could come in many different forms, but realistically the most likely is a proposal by housing organisation Generation Rent, backed by Diane Abbott, one of the few MPs to support capping rent. Under this scheme, the monthly cap would stand at half annual local council tax, but landlords would be allowed to charge over this, providing they're willing to pay a 50 percent surcharge on anything above the cap.

According to Abbott, "The funds raised through this could then be channelled towards building genuinely affordable housing and we can begin the process of alleviating the intense pressure the current property market is placing on Londoners." So, lower rent, more affordable housing and landlords would probably be a little bit less smug, too. In theory this is a triple win.

However, lots of people think it's a bad plan – and they're not all greedy landlords coming out in hives at the thought of their income being attacked. Among the detractors to the idea – and there are many – are homelessness and housing charity Shelter, who oppose the idea on the grounds that a rent cap could end up making things worse for struggling renters. Welcome to the world of unintended consequences.

Writing on the Shelter blog, Toby Lloyd, head of policy, says that he believes that implementing a rent cap in the current housing market could have pretty undesirable side effects. Most of these are connected to the idea that if property owners weren't allowed to charge extortionate rents, they wouldn't bother renting their places out in the first place. That could mean demand for places to rent massively outstripping supply – it would be even more of a sellers' market, with landlords in a stronger position and renters with little option to take the few properties on the market.

A petition demanding a rent cap has reached over 60,000 signatures, further demonstrating the policy's popularity. But the comments section is littered with doubters picking holes in the idea. Some are idiots, sure, but a lot aren't. Emma Reynolds – one of the more clued up nay-sayers in the comments on the petition – has an MSc in Housing from the London School of Economics and works in housing policy and development. She suggests that fewer landlords would mean less competition, meaning minimum standards might drop even lower and revenge evictions could increase as tenants become desperate enough to take anything they can get, and uppity tenants would be easy to replace with more desperate tenants.

Lloyd suggests that this would be most harmful to the people who need the most help – the poorest renters. That's because landlords, who already believe well off City workers to be more reliable than badly paid benefits claimants, could become increasingly discriminatory as there are more people looking for homes than there are houses. The poorest could be forced into a black market with no controls, and a landlord would have more incentive to turn a big flat into two tiny flats to get as much as possible out of their property.

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A banner outside last year's MIPIM property conference (Photo by Oscar Webb)

When the UK had a rent cap in the 1970s, many landlords went bust. Emma is worried that in the UK's current, oversubscribed housing market, a rent cap would cause the private rental sector to dry up almost completely, leading to "extreme deprivation" in some areas, as tenants find it difficult to rent property at all. Back in the 1970s, though, social housing could pick up the slack somewhat. With that now largely sold off and almost no new social housing having been built since the 80s, that couldn't happen. Housing scarcity could increase, making the housing crisis much worse than it already is. When you consider these scenarios, punishing private landlords seems little more than a populist vote winner. We may not like them, but private landlords provide a service – albeit a shitty one. If they were driven out of business, there would be a vacuum – so the argument goes.

Let's row back on the scepticism for a minute though. The situation described above probably isn't far off what many people have experienced already; revenge evictions and poor minimum standards are already a massive problem in London, even though we don't have a rent cap. Housing is already scarce. How many people do you know who live in a formerly functioning house that has been converted into more than one cramped "maisonette"?

But bad housing isn't inevitable. According to Alex Hilton, director of Generation Rent, housing standards are better in Germany – even in places where rent is controlled. Hilton believes that a rent cap could be implemented cleverly, alongside new regulations to protect tenants' rights. "[Poor conditions are] only a valid concern if it isn't addressed," he told me. "So yes, there was an era in this country, back in the olden days, when that happened but it doesn't happen in Germany. In Germany you have a right to stop paying your rent if the landlord doesn't maintain your property, so the landlord has to maintain your property. We want very, very strict minimum standards." In other words, rather than a panacea, a rental cap could work as part of a wider package of reform.

Almost by its nature, a rent cap merely addresses the symptoms of a screwed up housing market, not the cause. If the market worked, you wouldn't need these fixes. In the past decade the UK's private rental sector has doubled in size, to larger than it was before rent caps implemented widely in the 1960s and 1970s. Meanwhile, research suggests that 65 percent of renters would rather own their own home, and 10 percent would rather be in social housing. This leaves only 25 percent of private tenants renting because they want to, according to Hilton, the rest are "just captured consumers being exploited." In this situation, we don't need private rental properties that are a bit less eye-wateringly overpriced, we need house prices to drop and more social housing so that people have genuine alternatives to renting privately.

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A protester outside last year's MIPIM property conference in London (Photo by Oscar Webb)

Ultimately, a rent cap working, or house prices coming down, are both dependent on another factor – how much affordable, social and every-other-kind-of housing is being built. "Rents can only be reduced sustainably by increasing the overall supply of all types of homes," writes Lloyd on the Shelter blog, "so that more people can get a social home or buy their own with a mortgage, and fewer private renters have to compete over each available home."

In theory this is where that surcharge on rents that are higher than the cap comes in – that money being fed into the building of social housing. But would the benefits of that money be felt quickly and strongly enough, or at all? Reynolds thinks not. Not only would the money get swallowed up by bureaucracy she says, but " What housing associations need, and councils in fact, is the ability to invest a significant amount of capital in building new buildings and the only way they can do that is by being given a large amount of capital. A paltry little charge on the occasional landlord who chooses to charge a little bit over is not going to work." And that seems to make sense – how many landlords would have to charge significantly over the cap to build a significant number of social houses?

Hilton, argues persuasively that, sure, there may be flaws in capping rents, but the flaws in the current system are so huge that a different set of flaws might be preferable. Lloyd, meanwhile, posits a less drastic form of rent control, where tenants have long contracts and rent can only increase at the same rate as inflation.

What's clear is that something needs to change. "If you take this many people and you put them under this much pressure, then one day it breaks", Hilton said, pointing out that in 1915 tenants in Glasgow went on strike and just stopped paying rent entirely. The only real way out is for there to be enough homes for people to live in. The housing system is a desperate mess, which is what makes the idea of a rent cap so seductive. But for the same reason, policies that sound so simply attractive end up being fraught with problems. Unfortunately, there are no quick fixes for the UK's beleaguered renters.

Generation Rent are holding and event on 4th February, which will include a debate on rent caps.

@Charlottengland

More on the housing crisis:

"Revenge Evictions" Are Still Ruining Renters' Lives

The MIPIM Conference Won't Help Solve the Housing Crisis

Anarchists Have Nearly Defeated the "Poor Doors" On a Block of London Flats

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