Thursday, 1 May 2014

Rent caps: Splendid bit of Indian Bicycle Marketing

From the BBC:

A future Labour government would cap rent increases in the private sector and scrap letting fees to estate agents to give a "fairer deal" to tenants.

Ed Miliband will pledge to end "excessive" rent rises when he launches his party's campaign for local council and European elections. An "upper limit" on rises will be put in place based on average market rates...

If you bother to read and understand, you will notice pretty quickly that it will have next to no effect on rent levels at all.

It is not a cap in absolute terms, it is merely a cap on the percentage increase each year - starting from current high levels - and as we know, market rents increase roughly in line with wages, so between one and three per cent a year.

Landlords cannot increase rents any faster than the market will allow them (putting to one side sheds let for outrageous sums of money to illegal immigrants, but that is a separate topic), so restricting rent increases to (say) 3% a year will have no effect.

The Conservatives said evidence from other countries suggested rent controls lead to "poorer quality accommodation, fewer homes being rented (1) and ultimately higher rents"...(2)

Conservative Party chairman Grant Shapps said the Labour plan was a "short-term gimmick" and accused the opposition of "political tampering".(3)

"The only way to raise people's living standards is to grow the economy, cut people's taxes and create more jobs. (4) We have a long-term economic plan to do that, Ed Miliband doesn't."(5)

Under the rules of IBM, the Tories can't go for the jugular and point out that Labour's plans will not change rent levels by one penny up or down, and that this is a complete gimmick, because that is not in the script.

The back room deal between the parties is that people who would like to see lower rents will vote Labour and those who would like to see higher rents will vote Conservative. So they have to maintain this illusion by pretending to take the other party's policies at face value.

1) Evidence from the UK for most of the 20th century, when we had proper rent controls, confirms this to be probably true - but the houses didn't disappear, they were bought by owner-occupiers instead. I'm not aware that the UK government ever set limits on selling prices of new or existing housing, but by setting fairly strict rent caps in absolute terms they did it indirectly. The price of a house is merely the capitalised rent, so if rents are capped, so are house prices.

That is a large part of the explanation for the rapid rise in owner-occupation levels in this country, which most people would agree is A Good Thing. Funny how the Home-Owner-Ists have airbrushed this out of history.

2) Evidence from Germany suggests that rent controls and good quality housing are not mutually exclusive and you can have both, it's two separate topics. So that's bollocks.

3) Quite unlike Help To Buy, of course.

4) Well yes, but higher wages would just go into higher rents.

5) Neither of them do.


Lola said...

Re (2) and the German Experience - that wasn't quite the same experience in many US cities. What's special about Germany?

Kj said...

Lola: that they´ve built shedloads more housing over the years for one reason or the other I venture to guess.

Mark Wadsworth said...

L, Building reg's and rent controls are two completely separate topics.

a) A country can choose whether to have strict building reg's and minimum standards or not.

b) A country can choose whether to have explicit or implicit rent controls.

If you have no building reg's and rent controls, you get cheap crap.

If you have building reg's and no rent controls you get nice but expensive stuff

If you choose both you get good stuff at affordable rents.

If you choose neither, you get expensive crap. The UK appears to have chosen the "expensive crap" option.

Kj, yes, and not just a lot more but a lot more nice stuff.

Kj said...

But how´s "mobility" in Germany? Does the fact that such a high amount of people rent (at least until recently AFAIU), mean that labour mobility is higher in spite of rent-controls? Working the other way is long term tenancies ofcourse. I´m not saying that "one should not have rent controls or secure tenancies so people move where they can get work", but if they have issues like "nope, not moving, got a dirt cheap secure tenancy right here-"type (or maybe it doesn´t really matter if the whole country is like that).

Mark Wadsworth said...

Kj, they are German, it works.

Their rents are not "dirt cheap" but they are affordable and seeing as everything is equally affordable, you don't worry about giving up your old tenancy, which lasts pretty much as long as the tenant wants it to, and then moving somewhere else on similar terms.