Labour’s plans to introduce rent controls if it wins next year’s general election have come under fire.
In a withering report, the Institute of Economic Affairs says that Ed Miliband is going for completely the wrong solutions and accuses him of flawed thinking.
Instead, the IEA says he should instead look at a radical liberalisation of the planning system to allow the private rented sector to grow.
As well as rent controls, Labour wants to ban letting agent fees charged to tenants, and to increase the default length of the tenancy agreement to three years.
Under its rent control proposals, Labour would allow the rent to be set at the outset of the tenancy, but there would be restrictions on how much it could be raised during the tenancy itself.
But the IEA says that Labour’s proposals would actually result in higher rents, because landlords would raise them before the start of each new tenancy to compensate for future losses.
It also argues that landlords and agents would deliberately seek out highly mobile tenants, so that they could raise rents in between tenancies.
The IEA also attacks the proposed three-year tenancies, saying that security of tenure is not a major consideration for most tenants.
It also warns that if Labour’s proposals go ahead, they would be very hard to reverse, because of the vested interests of statutory bodies. It says tenant lobby groups would “gain the upper hand over small landlords, young people and mobile households”.
Mark Littlewood, director general at the IEA, said: “It is absurd that households across the UK have to pay such a large proportion of their monthly income on rent.
“But imposing rent controls on the market will do nothing to improve affordability, and will simply result in a number of perverse incentives that will harm those very individuals which such a policy sets out to protect.
“The Government needs to wake up to the fact that only through increasing the supply of rented accommodation can we really address the problems of high rents and poor tenancy security.”
The IEA’s report also says that rent controls in Britain between 1915 and 1989 were associated with the collapse of the private rental sector, from close to nine-tenths of the housing stock at the start of the 20th century to close to one-tenth by the late 1980s.
Swedish economist Assar Lindbeck – a socialist – once said: “Rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”
And Vietnam’s foreign minister Nguyen Co Thach said of rent controls: “The Americans couldn’t destroy Hanoi, but we have destroyed our city by very low rents. We realised it was stupid and that we must change policy.”
Labour really are clueless aren't they. Let me spell it out for you Ed:
1 Landlords have to make a return in the private sector
2 If they can't make enough of a return, in a market of rising capital values they'll cash in and put their money into something else
3 At the same time knowing that interests rates will rise but the rent you charge is going to be artifically capped, demand from new B2L investors will drop through the floor.
4 No landlords equals guess what? Yes Ed, NO PROPERTIES TO RENT
Sorry to shout but someone needs to get through to this clown.
Let's see if he's brave enough to simply put in their manifesto next year that their policy is to completely destroy the PRS with nothing to replace it.
Generation Rent will be replaced overnight by a new class, OOISMAD, Only Option Is Mum And Dad ie they'll be back living at home with their parents.
Nice.
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At last! I trust the Labour party will do what they should have done ages ago…. replace Ed Milliband.
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Sadly I don't think he will learn from history; very few politicians are willing to accept that a predessor knew better than them and even fewer are prepared to learn from anothers mistakes.
The average person renting doesn't care about the history of rent control either; they'll hear the soundbite, like the idea and cast their vote – the reality of it won't hit them until its too late.
If we tell tenants now that they have to sign a 3 year contract they'd run a mile.
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I agree with you Ray. On the point of three year tenancies, A while back I came across some disgruntled tenants who were being pushed by the agent into a three tenancy on the basis that "the landlord won't agree without it" In the end, the tenant managed to arrange a viewing at the property with the landlord present, and of course this gave them the opportunity to discuss the matter face to face. Truth was, all the landlord wanted was a six or twelve month tenancy, no more, and he was being told by the agent that the tenants were insisting on three years! The point being, most tenants don't want it.
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Agree with all points made – socialism red in tooth and claw has always screwed up the private sector where it has felt it had a strong enough mandate. Even if the economic facts are painstakingly explained to these clowns, no matter: all they are concerned about are the headlines, the soundbite, the temporary kudos.
In our business, I can honestly say over 95% of all our applicants ask for no more than a 12 month tenancy-and usually with a 6 month break option. So much for 3 years. Utter tosh.
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