Should we have rent controls?

[Takver]

Full disclosure here first - I own a rental property with DH, we're small business owners & its part of our savings plan for retirement.

I totally agree that the Housing benefit bill is out of control. There doesn't seem a cats chance in hell that there is going to be mass building or buying of social housing (whether HAs or council houses). So most people who don't own their own house are going to be living in private rental properties.

This means that most housing benefit paid goes to private landlords. We're also in a high house price/high rent spiral where people can't afford to buy, so there's lots of upward pressure on rents.

Planning laws (which I largely support) mean that we already don't have anything resembling a free market in housing / house building. So might the least-worst situation be rent controls?

I'd envisage a fairly simple broad sweep control whereby a maximum rent is set for a local authority area of £X per month for a 2 bed property, £Y per month for 3 bed etc.

Then say a 'rent review' body where landlords could appeal (at their cost) to argue that there is some reason why their particular property should be exempted from the maximum, eg if it is a luxury flat. That body could then give the go-ahead for eg a rent of 10% over maximum for that property.

Come and flame me one and all :)

If the HB levels come down & you can't fill your rented property with tenants, won't you effectively be forced to charge less anyway?

Interesting question - in practice I don't think we've ever had tenants on HB, so it wouldn't have that effect directly on us, but theoretically yes.

In practicI'd be concerned that cutting HB and waiting for the effect to feed through would (a) be an inefficient way of achieving the aim desired; why not act directly? and (b) lead to a separate 'HB market' of low quality housing

Looking at the way the house sale market stops on a sixpence the minute there is any stress on demand, I don't think it would be a long wait in between HB cuts and expensive properties standing empty.

Inclined to agree with Cognito that taking the cash out of the system is probably quicker than putting in price controls that will be challenged at every level of the legal system and possibly take years to enforce.

What do you think would be the best way to take the cash out of the system without ending up with segregated housing and/or increased homelessness?

I certainly don't see cutting HB to one group (eg under 25s) as the way forward - and current restrictions on HB levels don't seem to have had any effect.

I think there'd also be other positive effects to restricting rent levels - if there were more affordable housing, people wouldn't need to be in the benefits system to top up wages.

We used to have rent controls and security for tenants in the UK... but the problem is that it resulted in a very limited rental market as basically there was nothing in it for landlords. That was less of a problem in the 1960s/1970s as there was masses of council housing. But now so much council housing has been sold off that reducing the supply of rental accommodation would cause massive problems.

Reducing HB makes sense in general terms. Lots of landlords used to set their rents at the HB level, even if it was higher than the local market, as they knew the council would have to pay. That meant vast quantities of money being funnelled straight from the taxpayer to the private landlord.

But there is a wider problem with not enough housing (which leads to high rents by the law of supply and demand). Partly we're not building enough houses at the moment, and also there are so many old people rattling around in big houses. Personally I think council tax on big properties should be increased, and old people helped to move to somewhere smaller. Politically though this is very difficult.

Sorry Takver, I see you have addressed some of those points already.

I think there's a middle ground, though, MooncupGoddess between the very one-sided state of affairs pre the Thatcher reforms, and where we are now.

Of course, the tenant protection brought in in the 60s was a reaction to Rachman & other unscrupulous landlords, so we've effectively had a flip-flop from one extreme to the other & back again.

Perhaps a combination HB restrictions and rent controls is needed? Perhaps allowing some kind of controls at local authority level, rather than setting things centrally?

I think HB restrictions become de facto rent controls. You'll always have landlords that don't want to accept HB tenants and would rather try to make a living from the smaller but more lucrative pool of private tenants. People like yourself, in fact. But if there are not enough private tenants to go around, they may not be able to be so fussy.

Having said that, I think there should be some controls on length of tenure and notice periods.

Interesting - but what about areas where there's a very large pool of non-HB tenants? Isn't that likely to lead to HB tenants getting pushed out (probably the case where our house is - we've never had any potential tenants who are claiming HB in fact, though we've only just got our 3rd set in 14 years, so its rather a small sample)

sorry Natasha, response to prev post.

Long term, I'm more and more persuaded that some sort of land value tax is in order which will stop developers sitting on massive land banks and will replace council tax for everyone else.

In the meantime, I think there are a few things which would help -

a) a register of landlords plus some code of conduct for letting agents to cut down on the lease admin costs;
b) two types of renting (like in most of the EU) where you either have a basic building which you rent cheaply but you're responsible for everything other than structural maintenance and the sort of thing we have now - often fully furnished and everything is the responsibility of the landlord
c) most importantly - sort out pensions! Make sure that pension fees don't outweigh the amount paid in in any one year so that saving into a pension fund really does become attractive and financially viable.

The main problem with the HB limits that are being imposed at the moment is it's creating a shortfall right now, which means tenants have to fill the gap from other sources, that just creates more poverty but might not have an impact on rents for years.

I think the only answer is to build, build, build and then build a bit more, wont happen though.

Yes, land value tax is a good idea. How would one administer it though, given the volatility of house price change? And there would be massive outrage from everyone who thinks they have a God-given right to own an expensive house (which they bought for only £2000 in 1973...).

Totally agree re regulation of letting agents, many of whom are deeply unscrupulous. And maybe there could be benefits to the landlord of signing a long rental agreement - reduced tax on the profit, or something?

"And maybe there could be benefits to the landlord of signing a long rental agreement - reduced tax on the profit, or something?"

I like that idea, definitely incentives to do the right thing are good.

Takver As you are a landlord perhaps you could answer this question for me. As I understand it, HB is paid directly by the government (or Local Authority - not sure which) to the private landlord. As has been noted up-thread, there is little or no incentive for a landlord to price their rent at rates below the maximum HB level as the state will always pay top whack eventually.

But what if the HB money was given to the individual and they were made responsible for paying rent, just the same as the rest of us and whatever they can save, they keep? There would now be a clear cut reason for the individual to haggle or agree better terms / lower rents. There would also be an incentive to downsize or live in a cheaper area, thus freeing up valuable houses for the more needy. Am I missing something with this??? Any thoughts?

It's been done before in the UK and it was abolished for very good reasons

Hb is paid o the tenant who then pays the landlord, unless the tenant is in socia housing. Hb does not just pay any amount f money, there is a cap, which differs by geographical area

The rentals in my area for a one bed ex LA flat are approx £250 but the same sized flat, not modernised or luxurious, but rented as temporary accommodation through the council costs £500 per week. So the LL are making a killing out of the tax payer. This has to stop!

Mooncup
"Land" value tax - the big developers between them own with planning permission enough land to build 400,000 homes.
You did read that right.
There is no planning problem - they own the land, they have permission
BUT
If they built on all that land at once (and cured the housing shortage), house prices (and therefore their profit margins) would drop significantly.

Planning rules changes were all just pissing in the wind.
Its about the fact that property companies can "bank" land without paying tax on it.
Once they are taxed on the land they have permission for.
And Planning permission renewals are banned (use it or lose it)
THEN houses will start springing up. To the horror of the Tory shire voters who have NO IDEA how much permission there is out there.

The housing benefit bill is because house prices have gone up at many times the rate of wages.
Rents ditto
and there are FAR too many landlords out there evading tax - by not being registered
or avoiding it by having the domestic properties owned by offshore companies.
So the HB money is not circulating within the UK economy.

That's another loophole that needs closing : if a domestic property is owned by a limited company, it should pay business rates (Bob Geldof's bill would go from £1500 to around £23000 a year. tee hee)

Yes we should. They work effectively in many other cities. The arguments against rent controls are that they would drive out landlords and reduce the supply of rental properties but unless landlords are going to leave properties empty, they would be forced to sell them, meaning more properties for sale for first time buyers. Also, if the powers that be wanted to, they could do all sorts of things to discourage BTL and make being a landlord unattractive such as raising the taxes on rental income, stopping landlords from writing off tax against costs etc, bringing in regulations to enforce landlords to meet certain criteria for quality of property etc.

I don't think it will happen as too many mp's are landlords and many rich landlords vote Conservative so at the moment the powers that be don't want to upset the status quo but certainly in the future if the UK is going to be a mainly rental culture then laws need to change to make renting much more tenant friendly with longer contracts, better security of tenure, better quality of housing with more regulations and rules for landlords. I think the idea of bringing in large corporate landlords might be a good idea as they are more likely to run things as a business with proper repair men etc rather than the many amateur landlords who often don't fix things and see their tenants as merely cash cows with no rights whatsoever. At the moment landlords get the best of both worlds - high rents with all the rights on their side. Things needs to change.

Yes, we should definitely have rent controls. Those who argue that this would reduce the supply of rental property are lying - look across Europe where rental controls mean that reasonably priced rental accomodation is the norm. No shortage of properties to rent.

Yes, some landlord might sell up if not allowed to rip tenants off to the ame degree but their houeswould not disappear - they'd be bought by someone who would no longer need to rent - so net ratio of rental properties to tenants would stay the same.

It would save billions in housing benefit and make our economy much more competitive.