The pros and cons of rent controls in London

London Mayor Sadiq Khan appears to be laying the groundwork for a radical overhaul of private renting, according to reports.

In a letter to Labour MP Karen Buck that has been seen by The Guardian, the mayor said that the capital needed a “strategic approach to rent stabilisation and control” and that arguments for capping rent increases at inflation are “overwhelming”.

Khan was elected on promises to tackle the rising cost of housing, and the idea of rent controls have been floated repeatedly by the Labour Party.

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But not everyone is convinced - so just what are the pros and cons?

Rent control and how it works

Rent control measures hand authorities the power to regulate rent levels, stripping private landlords of the ability to “overinflate” the amounts they charge, the BBC says.

The three main ways to do so are capping rent, capping increases to rent or temporarily freezing rent, adds Channel 4 News. However, “even within these categories, policies could vary hugely” - something that is particularly true within the first category, where “either rents could be set at current market rates, or set at a lower limit”, adds the broadcaster.

Anna Clarke, a senior research associate at the Cambridge Centre for Housing and Planning Research, told the BBC that one possibility would be for local authorities to reduce rent levels from the current market rate to levels comparable to social housing.

“The effects of this would vary greatly around the country,” she said, noting that in some areas, such as parts of northern England, the difference between market and social housing rates is small, so the change would be negligible, whereas in areas such as London, it would be far greater.

Alternatively, the UK could adopt methods used by other European cities. In Paris, rental prices are set by a third party in areas of high demand, while in German cities including Berlin and Munich, there are caps on how high rents can be.

What are the drawbacks?

Unsurprisingly, private landlords are highly critical of the proposed rent regulations.

The National Landlords Association calls rent control “one of the most catastrophic risks to the private rented sector”. The organisation claims that such regulations would be “treating the symptoms rather than the causes of the housing crisis” and would lead to a “loss of good landlords”.

And according to Shelter, private landlords are not the only ones who would suffer. The homelessness charity says evidence suggests controls that involve “setting the rent, not just controlling the increase”, would be broadly problematic for “those on low incomes” and “would force a significant number of landlords to sell their home, as they could make more money that way”.

“Now, that might be good for middle earners – a glut of homes suddenly for sale might become available,” the charity adds. “But this is where the risk comes in for low earners. They can’t afford to buy, and increasingly rely on the private rented sector.

“As landlords sell up, they would be left with fewer places to live. In the absence of a much larger supply of council and social housing, that risks pushing people into homelessness.”

What are the advantages?

Campaign group Generation Rent says Shelter’s claims are inaccurate.

“While rent controls on their own would not reduce the underlying shortage of homes, it will not increase it either. If we see a surge in home ownership, there will be fewer rented properties but also fewer renters,” the group says. “With wealthier renters becoming home owners, there will also be less spending power in the rental market, reducing effective demand and its upward pressure on prices.”

This theory appears to be backed up by a 2015 report by researchers at Cambridge University, who surveyed private landlords to ask how they would respond to various types of rent control.

The researchers said that with most of the scenarios, the landlord’s responses indicated that the only outcome would be “small reductions in average rents”, leading to an “aggregate loss of rental income to the sector of between 0% and 5.5%”.

“This is a relatively small loss of income and not, in itself likely to cause a substantial change to the size of the sector,” the report continued, adding that the only scenario likely to result in a significant income reduction to the housing sector was if initial rents were initially set well below market rates.

Channel 4 News agrees, concluding that “it seems perfectly possible that many forms of rent control would not significantly damage the housing sector”, and that “government support for new developments could help fill the gap of any reductions to private sector”.

However, Generation Rent adds that rent control “can only ever be a stopgap for a healthy housing market” - and that “eliminating that shortage remains the long-term goal”.