Ignore the whining – you can build a good case to support Miliband’s rent control

The objective is to regulate a market that has become a nightmare for millions

A protester holds a placard that reads 'Rent Control Now!' during a demonstration dubbed 'The March for Homes' (AFP/Getty Images)

That the policy proposals put forward by party leaders during the election campaign are swiftly howled down as worthless, cynical and dangerous is understandable enough. Many of them are just that. For instance yesterday’s promise by the Prime Minister, David Cameron, that the Tories would guarantee no rise in income tax rates, National Insurance or VAT before 2020 – which means that the budget would be balanced entirely by cutting public services, thus favouring the rich at the expense of the poor – was indeed cynical and dangerous.

But not every election pledge deserves derision. One that I would rescue is Mr Miliband’s plan to reinstate a form of rent control. Actually “control” is too strong a word to describe what is being put forward. The objective is to regulate a market that has become a nightmare for the millions of families that can no longer afford to buy a home of their own but must instead turn to the rental market.

The difficulties arise because in a period of sharply rising rents, landlords naturally seek to reduce the length of tenancies to no more than 12 months in order that there should be little delay in adjusting rental levels upwards. The nightmare for the tenant is that he or she is never more than a few months away from what may turn out to be an unaffordable rent increase. So the family must be ready to move regardless of what that means for the parents’ employment and the children’s schooling. This is not a good social policy.

Moreover the general public seems to agree. In an opinion poll carried out by Survation last December, some 59 per cent of respondents said they were in favour of rent controls with only 7 per cent of people opposing. Some 34 per cent had no opinion. Rent controls were popular with the supporters of all political parties with 55 per cent of Conservative supporters backing such a measure and 58 per cent of UKIP supporters.

Of current Labour and Lib Dem supporters, 69 per cent and 70 per cent were of the same opinion. While rent controls were predictably popular with private sector tenants, receiving the backing of 77 per cent, there was a high level of endorsement from homeowners, 56 per cent of whom said they would back such a measure.

Then a few days ago, a YouGov poll found that 60 per cent of British people, including 42 per cent of Conservatives, supported introducing limits on the amount landlords can charge tenants. Conservatives, whose party have denounced rent controls, are divided on the issue – 42 per cent support while 44 per cent oppose.

Labour is proposing three new regulations. First, the law will be changed so that three-year tenancies become the norm instead of the six or 12-month short-term tenancies that most renters have now. But contracts could still be terminated early with proper notice. Second, rents would be reviewed every year during the three-year tenancy with an upper ceiling on any rent increase capped at the rate of inflation. And third, landlords would have to tell prospective tenants how much they charged the previous occupants.

The last clause is in line with the principle that markets work best when pricing is fully transparent – as it is, say, in the stock markets. However, numerous objections have been made to the first two clauses of the Labour policy.

Simon Walker, Director General of the Institute of Directors, says, “Basic economics tells us that if you artificially hold down the price of something, you get less of it in the market. This is as true for housing as it is for anything else.” Yes, that is so, but under Labour’s proposals, rents can be re-priced to the market every three years and in between these occasions, they will maintain their real value.

Another objection is that landlords would start tenancies with a higher rent to make up for the amount they wouldn’t be able to charge during the rest of the tenancy. My response is that they would undoubtedly be tempted to do this, but market conditions would dictate whether or not they would succeed.

It is also argued that “Freezing rents by statute will inevitably lead more landlords to allow their properties to decline into squalor”. Except that, as mentioned above, Labour isn’t proposing to freeze rents. They can still rise at the rate of inflation during three-year tenancies.

But of these questions, those asking whether Miliband’s measures would deter investment in housing, thus suppressing supply, are most serious. Another commentator put the matter thus: “The inflation-only cap on rent rises during a tenancy may see many buy-to-let landlords choose to leave the market – or be unable to get mortgages with the prospect of lower rental income as interest rates rise – reducing the number of homes available to rent still further and thereby pushing up rents overall.”

This assumes that the supply of housing can expand only if prices and rents continue to rise quickly. But with wages increases subdued if not flat-lining, this cannot be the answer. Nor is it. The chief restraint on housing supply is the rigid British planning system, which is essentially containment by “green belts”. Indeed it has been calculated that if a strip merely half a mile wide were shaved off the London green belt, 800,000 new homes could be built. That is how the problem arises.

I doubt whether Labour’s rent control proposals would restrict supply at all, though fly-by-night landlords might not like them.