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 :)

I don't think it's as simple as that Bread. In Europe far more people rent than in the UK. Here we tend to prefer to buy our own properties and see renting as dead money.

So that contributes to house prices being high since there is more competition for the same number of houses. That means rents need to follow for landlords to be interested in renting.

To implement rent controls then set a low price would just decimate the availability of rental properties which then in turn punishes the very people you are trying to help.

niceguy - I think part (though not all) of the reason for the lack of a rental culture is the fact that, as discussed above, regulations in the UK have flip-flopped between extremes. So we've either had very strong regulation for tenants (post Rachman) killing off the market then flipping to minimal regulation (Thatcher era to date) pushing people to buy as soon as possible.

I like the suggestion above of a two-tier system, unfurnished basic properties on a long lease where the tenant takes full responsibility for the interior (likely to appeal to families intending to rent in the long term), and furnished properties on something like the current shorthold tenancies which would be more appealing to young sharers and others who are likely to move on relatively quickly.

I agree that we need bigger corporate or potentially third sector landlords - I've felt for a long time that there would be scope for a modern equivalent of the original building societies. So, a not-for-profit organisation where people could put their savings which would then be invested in good quality rental housing generating a return from the interest (and obv. benefitting from economies of scale for maintenance etc). I know plenty of self-employed / small business people (including us) who have little faith in the current pension providers & investment in the stock market & who end up as landlords really as a last resort rather than by desire.

Certainly one argument against the 'rental as dead money' is that in the early days of council housing when they tended to be good quality properties at a relatively high rent (and only on offer to what would then have probably been thought of as the 'respectable working classes') they were extremely popular.

Did you not read my post, niceguy? I repeat - some landlords might sell up if not allowed to rip tenants off to the same degree but their houses would 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.

You seem to see tenants as some sort of separate 'class' who can only ever rent - the reality is that if fewer properties were bought by grasping BTL landlords, then house prices would drop as less competition for buying properties and so more tenants could afford to buy their own homes. Which is preferable. Landlords don't invent properties - they jut remove one more propertyy frrom the open market where it can be bought by a potential owner occupier.

If my landlord decided to sell the house I rent tomorrow, I wouldn't be homeless, I'd buy it and be an owner occupier instead. The problem is the lack of houes to buy thanks to BTL and therefore high prices.

You see you assume landlords are all out to rip people off and get as much as they can. I think in reality it's far from the truth. I'm sure there are a few bad apples out there, just like you will find corrupt public officials or whatever.

My ex-FIL is one of the most decent straight arrow kind of guys I've ever met. Pity his DD was a nutter but I digress. Anyway, him & his wife bought a few properties with the idea that they would rent them out for a fair price and offer a good service to their tenants. They didnt even want to actually make an income from their rentals. Just to cover costs and they hoped the rise in capitals would one day become their retirement nestegg.

What he soon found was that the rent he charged not only needed to cover void periods but also the cost of refurbishment. Everytime a tenant left the house was a shitehole. The final straw was when a tenant point blank refused to pay his rent and stayed for months rent free until he took it through court and got an eviction notice. At that point the tenant disappeared into thin air.

My own experience of renting my mum's house is similar. There's always something to fix, something to decorate. Tenants tend to stay on average for 12-18 months then there's the inevitable void whilst you look to find a replacement.

There are so many costs and considerations involved with being a landlord. It's not all just buy a house, rent it out and count the cash.

Lastly I'd argue that house prices are far more influenced by owner occupiers speculating and trying to climb the property ladder than BTL mortgages. The last housing boom was not caused by a massive increase in rental homes but people taking on stupid 125% self cert mortgages fuelled by cheap interest.

Thanks TalkingPeace - I hadn't grasped that point about land value tax and housebuilders. I totally agree that housebuilders should have to pay for having large landbanks with planning permission! That situation is ridiculous.

breadandbutterfly - talking about grasping BTL landlords misses the point rather. Landlords are not a separate class of evil capitalists, they are people like the rest of us who respond to incentives. As niceguy says, renting out property is not necessarily easy money.

niceguy and mooncup - i don't really care whether you view landlords as making easy money or a separate class or as 'good' guys or not - it makes no difference to my point. Which is that if landlords decide en masse - whether through frustrated greed or just rents being too low to pay the mortgages - to cease being landlords as a result of rent controls, this will not cause a rented housing shortage.

All the properties the landlords sell will instead be bought by current tenants, who will suddenly have a much bigger choice of properties to buy. As it stands, first-time buyer properties are often those particukarly attractive to landlords. Which pushes the prices up and makes it hard for first-time buyers to compete. In many cases, tenants' rent would more than cover a mortgage. But suitable properties are all snapped up by landlords. Many people become 'accidental' landlords, where they decide to rent out a propery rather than sell it when they need to move. Reducing rents would make this uneconomical to do.

All this would have the effect of increasing the amount of property for sale, hence reducing prices. Which for unwilling tenants - which is 56% of them, acc to a survey I recently read - means the very welcome opportunity to buy their own homes instead.

The remaing 44% can continue to rent from the smaller selection of rental properties.

bread - but what about existing home owners if house prices fell? obviously people without mortgages would be fine, but what about the majority? surely banks would raise interest rates as lending became more risky & vast numbers of people would face increased monthly mortgage payments, negative equality etc. etc.

sound like a distaster to me. previous governments should have stopped this happening but your medicine will make bad, worse.

yoyoyo "banks would raise interest rates".
they are not a coherent unit and some are already charging ten times base rate on mortgages.
and negative equity is only a problem at sale time (in the UK, not in some states in the USA of course).
I can happily cope with a 50% market collapse as it would make what I want to buy affordable.

if risks increase the market price for a mortgage will rise. how can it be otherwise? that is also what they have all done over since the credit crunch.

you may be able to cope, i might be able to cope. that puts us in a tiny minority.

still sounds like a disaster.

yoyoyo
why would the rate on a loan secured on a tangible asset increase in risk?
once the loan is below the rebuild value of the property (which is the TRUE value of any house) which is why these huge deposits are being demanded, where is the excess risk to earn the excess reward?

No

Hb should be market rent, not less, not more.

the value of the tangible asset changes.

say i lend you £90k cash secured on a house worth £100k. if house prices are falling & am going to wonder if you can pay me back, particular when your house is worht

Rachman, btw (am reading thread backwards) was a stooge and much maligned. Read Linda Grant's The Clothes on our Backs (or similar title).

yoyoyo
Please READ what I said. The true value of any house is the bricks and mortar cost to rebuild it from the ground up. No more no less.

hullygully
but in the UK "Market rent" is distorted upwards by over 500,000 empty properties, thousands of private landlords not declaring their tax and lots of expats from Russia, Greece etc buying property speculatively and ramping up the prices. Let alone the amount that is owned in tax dodging offshore companies.

Sadly I agree with the government in using a cap on HB to force rents down - in that the landlords either have to drop the rent down to what HB will pay or lose their tenants - and there is HUGE oversupply of property in many towns and cities

talkin - The true value of any house is the bricks and mortar cost to rebuild it from the ground up

there is no such thing as true value. rebuild cost only applies to house insurance.

if i am a bank & i reposes a house, i care about what someone will pay me for it so i can recover as much of the original loan as possible.

The true value of any house is what someone is prepared to pay for it.

And in the UK for the last n years, because we do not have foreclosure rules like the US, that value has NEVER fallen below the rebuild cost (not the stupid insurance one, the real one). How do I know? Simple. Look at Barratt's accounts.

You can't surely be suggesting that house prices are artificially propped up to protect existing homeowners at the expense of the young?

Oh wait...

but the loan is not given on the rebuild value. rebuild is about 1/3 of house price.

with your approach, so noone could get a mortgage with less than 66% deposit.

athing i am indifferent to house prices personally - i am talking about the widespread consequences of house prices falls.

after a very long deep recession (much worse than where we are now) it might be better/fairer. but it might not. lots of people could suck up the low priced property & the cycle begin again.

& what political party would do this? they would go to the wilderness for decades & be memorial failures.

We do not have a truely free market in rents in the UK. I am a private tenant and do not receive any benefits so I do pay a free market rent but with council houses, housing benefit and housing associations (many of which are in severe financial distress) there are a lot of people on subsidised rents.

If you cut out all the subsidies and got rid of hosuing benefit and sold off all the public housing stock then we would get a proper market for rents. Rents would fall without housing benefit asy more young single people would live with parents and more old people wouls move out of 3/4 bed houses into 1 bed flats.

More beta - its like the free market leading to more efficient allocation of limited resources

Bread, you assume that tenants are only tenants because they cannot afford to buy because landlords have scooped up all the houses.

It's much more complex than that. Many people rent because they need to be flexible. Many because they simply cannot afford it.

So if you cannot afford to buy your own place and are left on housing benefit and stuck renting, how do you suddenly go get a mortgage to buy the house then?

YO Yo - Agreed, it is hard on those who own but are on the edge - the Labour govt has a lot to answer for. There is no perfect solution - but the boil needs lancing. Keeping house prices artificially high through historically low interest rates, QE, etc is crippling our economy. Banks need to write down the losses, so that confidence can be restored to the banking ystem and ordinary people can have enough money in their pockets to have something left over after paying the rent/mortgage, so thatthey can spend again and the wheels of our economy can spart to spin again. Plus this will ensure that work does pay. Currently, high rents/house prices are a huuuge disincentive to working hard - far better to not work and get the state to pay.