Labour plan to rebalance the housing market in favour of tenants has its flaws but deserves cautious support

While there is good reason to oppose rent controls, this policy falls well short of that



Ed Miliband has hit another popular nerve. Just as with his proposed gas and electricity price freeze, his plan to tilt slightly the balance of advantage away from landlords and in favour of tenants has been attacked by the Conservatives as a Marxist device for prosecuting class war.

The Tories were wrong about the energy price freeze, which may be a bad idea but is intended as a temporary measure while the electricity-generating market is reformed, but they are even more mistaken this time.

The Labour leader’s proposals to change the law on renting are modest. He wants to extend guaranteed tenancies from six months to three years, after six months’ probation. In those three years rent rises would be limited by a formula, as yet unspecified, related to inflation, earnings or average market rents. The guarantee would be suspended if the landlord wanted to sell the property or move in a family member. The other proposal is to ban letting agents from charging tenants, so that their charges fall entirely on landlords.

While there is good reason to oppose rent controls, this policy falls well short of that. The three-year period offers more security to tenants, and the limit on rent increases is likely to have only a slight damping effect, delaying the renegotiation of market rents. This would still be considerably less restrictive than rent controls in New York or Germany.

One of the reasons for supporting the policy might be that it would have so little effect that it could not do much harm. But we are a little more enthusiastic than that. In the absence of a house-building programme organised as if it were a wartime national mobilisation, the main question in the private sector is that of the balance between owner-occupation and renting.

Since 2005, that balance has shifted in favour of renting, and the number of owner-occupied homes has declined. This was caused by the liberalisation of rent controls, itself an understandable reaction to an earlier period when the supply of private rented property had been choked off. Now, however, the balance has tilted too far.

The present rules of the property market appear to favour families who are already property-rich over those who want to get into the market for the first time. We do not need to characterise buy-to-let landlords as wicked capitalists to recognise they tend to be people who already own their home and can use it as collateral to accumulate more property, making it harder for first-time buyers. For that reason, a modest tilt against buying-to-let should make it slightly easier, at the margins, for new owner-occupiers to get on the property ladder.

There are also good free-market reasons for protecting tenants from arbitrary charges by lettings agents, who have been known to exploit the unequal power of that relationship.

Mr Miliband’s policy is not going to transform the British housing market. The reason for that is not his lack of ambition but the difficulty of increasing the supply of housing fast enough to keep up with a growing economy, especially in London and the South-east. It offers the possibility of curbing the worst excesses of letting agents, giving more security to tenants and starting to rebalance the market in favour of owner-occupation. It should be cautiously welcomed.

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