You will hear a lot of myths about rent controls - including from well-meaning people who should know better. Here are four of the more common ones debunked:
1) Isn’t the only problem supply?
Not really. Firstly, supply isn’t really as big of an issue as it's made out to be – for instance, there is a higher proportion of empty bedrooms in the UK than at any time since the Great Plague (!). The ratio of rooms to people has never been higher in modern history. We’re not against new builds, especially not new social housing, but the supply question is kind of a red herring.
Secondly, there isn’t much evidence that rent controls are that bad for supply or, perhaps more importantly, that our current system is any good for it. The rapid growth in the PRS has come at the expense of other tenures (former council or owner-occupied properties being converted to rented flats), not the result of new builds. UK Government statistics from a few years ago had the number of new PRS flats coming from new builds at less than one in ten.
There is, though, a reason that the supply argument is pushed so hard by developers and landlords – it’s an opportunity for them to make loads of money. This is partly through land banking – where developers buy land, often receive planning permission, but then never use that permission and sell the land on years later. There aren’t great estimates for the amount of this going on in Scotland, but it’s reasonable to assume it isn’t massively different to down south – where more than 400,000 homes with planning permission are going unbuilt by developers.
Another, perhaps more concerning reason the supply argument is the one favoured by developers and landlords is because it skirts around the issues of power, control and regulation. They know that if we simply build loads more private flats, without changing any of the patterns of ownership or usage, it will mean a huge windfall for them. If the new builds are publicly owned, that's another question - but the industry lobbyists who push for this aren't usually proposing that!
2) All landlords would leave the sector and tenants would have nowhere to live.
Landlords threaten to leave the sector if regulation is increased, but a quick glance across Europe is enough to dismiss this: the most heavily regulated private rented sectors are consistently the biggest. Germany, with the biggest PRS in Europe, is easily one of the most heavily regulated.
Besides, a huge portion of the income landlords receive from their properties comes not in the form of rental income, but income from capital gains – the value of the properties themselves increasing. With house prices predicted to continue to spiral, any reduction in rental income would have a negligible impact on the profits of landlords.
But perhaps most importantly, the properties these landlords are currently renting out already exist. Unless these landlords left these properties abandoned, leaving the sector wouldn’t impact on supply at all.
3) Didn’t they fail when we had them last time?
Landlords insist that the various rent controls which existed in the UK between 1915 and 1988 were disastrous for tenants. They point out that, over those 70 years, we went from almost nine in ten people renting privately to fewer than one in ten. They claim this is proof that rent controls devastate the private rented sector (PRS).
This argument, in fact, was a favourite of David Cameron, who told the House of Commons in 2013: “I do not support the idea of mass rent controls because I think we would see a massive decline in the private rented sector, which is what happened the last time we had such rent controls.”
But that change, by absolutely any measure, was an enormous success of public policy. The reduction in the private rented sector can be explained in three obvious – and positive – ways:
- Millions of council homes were built to give people a secure, safe, affordable place to stay outside the PRS.
- Millions of people were able to buy their own homes through real-terms increases in wages and the expansion of mortgage availability.
- Millions of the properties that landlords were renting out were demolished in slum clearances because they were, well, slums.
All of these changes were the deliberate objective of successive governments, both Labour and Conservative, which sought to reduce the amount of people in the private rented sector because they recognised it was the worst of all tenures.
But bluntly, pointing to the relative decline in the PRS as evidence of the failure of rent controls is either a complete misunderstanding or a deliberate lie.
4) All economists agree that rent controls are bad
You’ll often hear comments bandied around claiming that all economists agree rent controls are unambiguously bad. There is a grain of truth to this – a poll from 1992 showed a surprising degree of consensus that rent controls would have negative effects.
But here’s the hitch. Nobody is proposing the type of rent controls that this supposed unanimous opposition is directed at. During the first world war, what are now called ‘first generation rent controls’ were brought in across most countries involved in the conflict – these were blunt caps or freezes on rent, and are rightly criticised for having negative side effects. But now we have 70 years of evidence from across the world about how to implement rent controls without unintended consequences.
In his article ‘Time for Revisionism on Rent Control?’, Richard Arnott, a Boston economics professor, says: “Economists’ traditional opposition to rent control is based on a combination of ingrained hostility to price controls and the experience with first-generation controls.” He goes on to conclude that “second-generation rent controls are so different that they should be judged largely independently of the experience with first-generation controls.”
Right now, Massachusetts is considering some new rent controls measures, and a number of senior academics have weighed in. Duncan Kennedy, a Harvard professor, has made these same points as above and highlights that studies of more modern forms of rent controls - like in Oregon - show positive results.
Another academic, Joshua Mason, an Economics Professor at City University of New York, and a Fellow at the Roosevelt Institute, makes the comparison between rent controls and the minimum wage. He points out that when the minimum wage was being introduced, critics - often critics with deeply vested interests - pointed to first-year supply and demand economics and said it would reduce employment. The fact is that it didn’t. Mason makes the point that the criticisms about rent control are largely similar and that, as with the minimum wage, “we are finding that the simple supply-and-demand story doesn’t capture what happens in the real world.”
What he says next is worth quoting in full:
“Contrary to the predictions of the simple supply-and-demand model, none of these studies have found evidence that introducing or strengthening rent regulations reduces new housing construction, or that eliminating rent regulation increases construction. Most of these studies do, however, find that rent control is effective at holding down rents.”
Sources and further reading:
The Myths and Realities of Rent Control. Hamish Kallin and Tom Slater. A Century of Housing Struggles: From the 1915 Rent Strikes to Contemporary Housing Activisms.
All That Is Solid: How the Great Housing Disaster Defines Our Times, and What We Can Do About It. Danny Dorling.
The Future of Private Renting. Daniel Bentley, Civitas. Available online at: http://www.civitas.org.uk/pdf/thefutureofprivaterenting
Developers leave 420,000 homes with planning permission unbuilt, new figures show. Independent: https://www.independent.co.uk/news/uk/politics/developers-real-estate-homes-planning-permission-unbuilt-social-housing-crisis-figures-a8212641.html
In Defense of Rent Control and Rent Caps. Duncan Kennedy:
Part one: https://lpeblog.org/2020/02/03/in-defense-of-rent-control-and-rent-caps-part-i-of-ii/
Part two: https://lpeblog.org/2020/02/04/in-defense-of-rent-control-and-rent-caps-part-ii-of-ii/
Considerations on Rent Control. JW Mason:
NEWS: Tenants’ group shuts down property investment workshopSee all posts
Posted by Gordon Maloney · February 29, 2020 2:59 PM
Gordon Maloney published NEWS: Tenants’ group shuts down property investment workshop in Campaign updates 2020-02-29 14:59:10 +0000
NEWS: Tenants’ group shuts down property investment workshop
- Tenants’ Union Living Rent organised the protest against what they describe as “parasitic housing practices”
- The event was cancelled after protesters inside challenged the organisers on the “morality” of what they were doing
Protesters from Living Rent, Scotland’s tenants’ union, this week (27/2) shut down a property investment workshop hosted by BBC’s Martin Roberts, of Homes Under the Hammer fame.
The event boasted that it would teach landlords to “maximise their profits”, “make money while they sleep,” and “live the life they deserved”, but the protesters say that this means driving up rents and forcing tenants into poverty.
Around fifty protesters gathered outside, chanting and flyering members of the public, while a number of protesters inside the event challenged the organisers over the consequences of this approach to housing. After roughly 30 minutes, the organisers called off the event and attendees were ushered out.
The union say these sorts of events underline the need for the Scottish Government to introduce rent controls, which they say are necessary to stop tenants being forced into poverty by “sky-high rents.”
Eve Rogers, one of the protesters inside, said:
“The presenters point-blank refused to face up to questions about how their parasitic, speculative pursuit of profit are directly linked to the housing crisis. These people want to make fortunes while they sleep, but they can’t pretend that there are no ethical questions behind what they’re doing. Nor can they expect tenants to simply sit back and let it happen while our lives are made a misery.
This approach - treating a house as some kind of investment, rather than as a home for people to live in - is the root cause of so much homelessness, poverty, and shocking living conditions. But housing is a fundamental right, and that’s why we’re demanding the government introduce rent controls across the country.”
We’re campaigning for strong, nation-wide rent controls to guarantee everyone in Scotland a safe, secure, warm and affordable home.
Sign the petition here: www.livingrent.org/rentcontrols
Read our full proposal here: https://commonweal.scot/policy-library/rent-controls-scotland-needs
Why rent controls?
- Rents in Scotland are out of control - over the last 12 months rents have gone up by by almost 10% in Edinburgh, Glasgow, and the Highlands, with many other areas seeing big increases
- Research by the Joseph Rowntree Foundation has shown that the number of people living in poverty who live in the private rented sector has tripled over the last decade.
- High rents trap people in private rented housing, by leaving them with not enough at the end of the month to put towards a deposit. That creates a vicious cycle where people have no other options in terms of housing.
- The effects of high rents are disproportionately felt amongst already disadvantaged groups. Women, young people, and migrant communities – who typically earn less than the average – are hit twice as hard by high rents.
- The quality of private rented housing is also unacceptable - in 2016, the Scottish House Conditions Survey found that 60% of privately rented homes was in a state of disrepair - worse than for any other tenure type. If rent controls were linked to the quality of housing, it would provide an immediate incentive for landlords to improve the quality.
- Rents controls are also really popular - a recent poll shows 75% support across Scotland, and 85% amongst SNP voters
What’s our proposal?
The rent controls we are proposing take the best aspects from models across Europe and to learn from the challenges these models have faced, to build a model specific for Scotland’s needs:
- We want a points-based system that links the maximum rent a landlord can charge to the quality of the flat; this would act as a carrot for them to make improvements, and a stick for landlords who refuse to do so.
- This would also be attached to the property, not the lease - meaning that tenants moving out wouldn’t have any impact on the rent.
- We also want rents limited to a specific Rent Affordability Index to ensure that they are affordable for tenants in any given area
- To oversee this all, we want a new Scottish Living Rent Commission to act as an umbrella body and a centre of expertise and regulation in the private rented sector.
Why not rent pressure zones?
In 2016, the Scottish Government introduced “Rent Pressure Zones”, and these were meant to stop unaffordable rents - but they have failed utterly:
- The burden of proof on local authorities is unreasonable and creates unnecessary barriers in making successful applications. No council has successfully been able to use these powers.
- RPZs only create rental limits within tenancies and do not prevent rent hikes between tenancies—doing little to stabilise rents in the long term and creating dangerous side-effects.
- RPZs only limit increases in rent, so do not address the fact that rents in much of Scotland are already too high.
- RPZs do nothing to improve the quality of Scotland’s PRS housing stock. As detailed below, we believe this is a significant missed opportunity and that proper rent controls represent a powerful tool to improve the quality of Scotland’s PRS stock.
- The 2016 Act sought to provide greater tenant security, but without workable controls on rent, landlords can easily force out tenants through rent increases.
- RPZs can only be applied to small, localised areas, so cannot address the scale and degree of the rent problem in Scotland.
Living Rent today publishes a major new report, exposing a loophole unscrupulous landlords are abusing to exploit tenants. You can read the full report here.
We are calling on the Scottish Government to do four things:
1) Limit the length of holiday lets to no more than 31 days
2) Limit how many days of the year a property can be rented out as a Holiday Let
3) Require holiday let landlords to register - just like normal landlords have to
4) Require third-party companies - like Airbnb or Edinburgh Party Lets - to register, just like normal letting agents have to
However, we will not wait for action from the Government. We can also today announce that we are pursuing a number of cases of sham holiday lets in court, and will take direct action against landlords and letting agents operating them.
Over the last decade, the Scottish Government has introduced a number of welcome changes in the Private Rented Sector (PRS); including requiring landlords to register, the introduction of mandatory tenancy deposit protection schemes, better protections from evictions, clarifying the illegality of premium fees, and the introduction of the First-Tier Tribunal to make the process by which tenants can raise disputes more accessible.
While more remains to be done, the PRS is undoubtedly a better place for tenants following these changes. However, a major oversight risks undermining these steps forward: regulations around short-term or holiday lets are subject to far less regulation.
Living Rent has been contacted by increasing numbers of tenants who have signed holiday lets that are nothing of the sort: some lasting for far in excess of 6 months. These holiday let leases afford tenants almost none of the protections tenants would be guaranteed under Short-Assured Tenancies or Scottish Private Residential Tenancies; neither landlords nor agencies operating on their behalf need to register; properties are exempt from HMO licensing; tenants aren’t entitled to third-party protection of their deposits; the properties are not subject to the same standards in terms of fire safety and repairs; and it is significantly easier to evict someone from a holiday let.
There is reason to believe that some landlords are exploiting this lack of regulation in holiday lets to avoid their legal responsibilities as landlords - putting tenants and communities at risk. Our report outlines the situation, and finishes by proposing a way forward.