Sadiq Khan is planning to introduce rent controls in London.
Rolling out rent controls would be a populist move that would hurt renters by distorting the rental housing market. In whatever form rent controls come in, this approach has consistently resulted in fewer and poorer quality homes for rent, and has led to rent increases in some cases.
If the Mayor wanted to help renters in London, he should focus on building new affordable homes, bring back the family homes target and end his ban on building on industrial brownfield land.
RENT CONTROL MYTHS
1) Myth: The Mayor of London has the power to introduce rent controls.
The Mayor has no power to introduce rent controls so any scheme would require government approval. The government has a clear position of opposing rent control. At his first Mayor’s Question Time in May 2016, Sadiq Khan said: “I have no plans to introduce rent controls, nor the powers to do so."
2) Myth: Rent Controls can limit increases in rent
Some advocates of rent controls propose caps to limit increases in rent (known as rent caps or rent stabilisation). However, there is evidence this would not work.
EVIDENCE: Experts told the London Assembly Housing Committee in 2015 that this could actually lead to higher and more frequent increases in rent. Most landlords do not increase rent on a regular basis, especially for good tenants, but may start doing so if rent caps meant that they would need to protect themselves against unexpected increases in costs.
3) Myth: Rent Controls will not impact property standards
The UK had rent controls from the First World War until they were abandoned in 1988. In that time the quality of rented accommodation in the UK became significantly worse as landlords lost money and stopped investing in rental stock.
EVIDENCE: “The impact of pre-1988 rent controls was that little new private rental sector stock entered the market, with long-run rates of return being depressed. What stock remained tended to be older than in other tenures, and of lower quality, as the use value of higher quality stock was considerably higher in the owner-occupied sector, resulting in tenure switch. Those who remained often lacked funds (or incentives) for the adequate repair and improvement of properties. Many consider rent control to have been a major factor to the subsequent delay of much of the inner city housing stock.” (HM Treasury, Investment in the UK private rented sector, February 2010, p.21)
4) Myth: This policy has worked elsewhere
International experience of rent control demonstrates this policy does not work.
EVIDENCE: 🇸🇪 In Stockholm, rent control measures have led to a chronic shortage of housing and an average wait of 21 years for a new home in some parts of the city. 🇺🇸 In San Francisco, research at Stanford University has shown that older renters have benefited from rent controls at the expense of young people renting new-builds. 🇻🇪 In Venezuela, the number of properties available for rent fell by 72% between 2010 and 2012 following the introduction of rent controls.
5) Myth: Rent controls will not reduce rental stock
Rent controls would reduce the availability of new homes to rent by deterring current
and future investors from investing in the private rented market.
EVIDENCE: Research in 2015 by Cambridge University, commissioned by the London Assembly Housing Committee, found that any form of rent control would reduce the number of homes available to rent in London, in some cases by up to 62% by 2025.
6) Myth: Rent controls have worked in the UK before
HISTORY: Rent controls were introduced in the First World War, and these became more extensive over time. These continued until the 1988 Housing Act removed them and introduced shorthold tenancies.
WHAT HAPPENED: According to a HM Treasury Report during the last Labour government: “A key factor behind the decline in the private rented sector was the introduction of rent controls during the First World War. Artificially low rents reduced investment in the sector, contributing to a tenure shift to owner-occupation and lower maintenance standards in the stock that remained. The low quality of stock that had resulted from rent controls also deterred many potential tenants.” (HM Treasury, Investment in the UK private rented sector, February 2010, p.11)
“Rent controls had a particularly negative effect impact on both supply and quality of UK rental accommodation over the period to 1988” (p.17)
7) Myth: Berlin's rent controls have "worked well"
In September 2020, Sadiq Khan called for London to follow Berlin's rent control example, saying: "if Berlin can freeze rents for five years, there's no reason London shouldn't be able to freeze rents for two years in these extraordinary times." The Deputy Mayor for Housing had previously tweeted that the German's capitals rent controls had "worked well".
WHAT HAPPENED: A German analysis showed Berlin's rent freeze led to a 41 per cent fall in supply within one year while demand soared by 172 per cent. In contrast, other German cities without the new rule saw the number of rental apartments increase by 35%. The analysis was done by German online real estate market ImmoScout24.
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