Sadiq Khan has decided to built his entire mayoral campaign on rent controls. I’m not exaggerating for effect: he has declared the upcoming London mayoral contest to be a veritable “referendum on rent controls”. I was wondering whether to vote vote Rory Stewart or Sadiq Khan in May – Sadiq has thankfully made it easy for me to go Rory now.
There are three main reasons why I don’t like Sadiq building his campaign on rent controls. The first is that rent controls themselves are a bad idea. There are a lot of reasons why they don’t work as intended; I will only cover the most obvious. While it helps many of those already renting, it has a negative impact on those who wish to get into the rental market over time. It inflates the market outside of those under rent control making properties within the rent controlled purlieu gold dust, meaning no one moves unless they absolutely have to. This creates a logjam for those looking to rent, with younger renters unable to find anywhere to live, particularly as less people rent out properties as it becomes less lucrative to do so. Landlords also have way less incentive to do upkeep, since they can’t get market rate for a better looking property. The rental housing stock depreciates, both in terms of quality and quantity.
The second reason I don’t appreciate the sitting mayor making the upcoming plebiscite a referendum on rent controls is that Khan has argued against them in the past and I don’t appreciate the hypocrisy. The third and final reason I’m not up for this is that imposing rent controls across London avoids the real solution to the housing problem in the city, which is to build more housing in London, something which should be easy to do given the extreme value of the land combined with more than enough brown-field areas to use. But there is a reason that’s a tricky road for Khan to take: left-wing London NIMBYism.
I have seen this first-hand. I live in Camberwell-Peckham borders and I have watched the neighbours I have who are most like me – people who have bought the freeholds on their property at market rate, meaning they are well-off, as opposed to those renting from the council – argue against any and all development of new housing. The most common argument they give is that new developments will “destroy community cohesion”. The second is that the current brown-field sites should be used to “create jobs”, in other words, that we should have, I don’t know, a factory or something there. When it is pointed out that people need more places to live, they say that the new developments “don’t contain enough social housing”, even if that isn’t the case, technically speaking. Also, if the new developments don’t have enough social or affordable housing within them by your estimation, why not argue that point? Why not organise petitions to get more social housing built – instead of arguing against any development happening whatsoever?
My hunch is that this type of metropolitan, left-wing NIMBYism – these are all Labour voting types, if not Green – is done not really because those involved are worried about how much social housing stock we have, or the cohesion of communities they actually live in yet talk about as if they were somewhere hundreds of miles away, but because they don’t want a lot of noisy building works going on nearby, all to create housing that will lessen their views of the nearby park while possibly hurting the value of their own property. And here’s the thing about NIMBYism: I don’t mind it so long as it is done in an honest, straightforward way. People are completely allowed to argue for their own interests. Just don’t dress it up as caring about the poor; as if what you’re doing is some sort of righteous giving back when in fact you’re being selfish.
I get that Khan doesn’t want to take that on – to face down NIMBYism within his own side. He’s being a lot like the NIMBYs I live amongst – acting in his own self-interest while dressing it up as standing up for the poor and helpless. And that’s why I won’t be voting for Sadiq Khan for mayor this time round.
“particularly as less people rent out properties as it becomes less lucrative to do so”
What do you think landlords will do with their properties they are no longer renting out? Will they leave them empty? Unlikely as the vast majority of rental properties are owned with a mortgage, so it makes zero business sense to leave them empty, that will just cost the owner money.
So they’ll do one of these two things:
1: Rent it to someone new
2: Sell it.
If they rent it out, then nothing has changed.
If they sell it, then one of these three types of people has to buy the property:
1: A BTL landlord – who will presumeably rent it out, so no change
2: Someone who was renting and is now an owener occupier – one less rental proerty, but one less household seeking to rent – so no change in the demand for rental prpoerries.
3: Some who has sold a house to moving into this one – but their old house has also been sold, and it must have gone to one of these three types of buyer, so again no change to the rental demand.
The issue with the rental sector in the past 25 years, is that houses that were for sale have been cheaper (due to BTL inteerst only mortgages) for landlords to buy than owner occupiers, thereby massivly inflating house prices. If those people can’t afford to buy a house they have been forced into the private rental sector and with effectivly a monopoly BTL landlords have been able to increase the rents year on year on year.
Rent controls will do one main thing, force some BTL landlords out for the sector, this is great news. It will bring down house prices and many normal people and familes will be able to move from the private rental sector into being owner occupiers.
What do you think landlords will do with their properties they are no longer renting out? Will they leave them empty
You’re missing the point. It’s not that landlord will let properties sit empty — as you point out, that would be madness. The point is that:
(a) there’s no incentive for anyone to become a landlord, so nobody will enter the sector & no new rental properties will become available
(b) there’s no incentive for existing landlords to perform upkeep on their properties, so gradually over time they will become uninhabitable, until eventually when the mortgage is paid off and the house is falling down, there’s no incentive for the landlord to renovate, no one will buy it (due to (a)) and do they will just let it sit empty.
Rent controls destroy cities slowly, but surely. Not through a Big Bang of landlords selling properties off, but through a gradual decline in quality and then quantity of available rental housing.
I’m confused, why do we need more landlords to enter the market?
The vast majority of BTL properties are bought with interest only mortgages so I’m struggling to understand how there’ll be a large number of landlords with mortgage free rental properties any time soon.
Surely its the otherway round, landlords with interest only mortgages need tennants otherwise the property is loss making.
If the property is empty, or the rent controls make owning the property uneconomical, the landlord will sell them and they must sell to one of those three groups that I outlined above, hence there will be no discernable change to the total pool of renters and rental properties.
In the past, private rental properties were either predominantly owned outright or owned with repayment mortgages, the huge explosive growth of the BTL interest only mortgages in the past 25 years means the situation is totally different now to the 50’s and 60’s.
You can’t really lose money renting out a house you own outright, but you can certainly lose a lot if you have an interest only mortgage and no tennant…
I’m confused, why do we need more landlords to enter the market?
Because currently demand for rentals outstrips supply. Therefore we need to increase supply of rentals. So we need more landlords to enter the market.
(This will have the effect of driving down rents due to increased competition for tenants)
the rent controls make owning the property uneconomical,
Ah, I see your problem. It’s entirely possible for rent controls to make renting out the property uneconomical (because the cost of upkeep would be greater than the rent you could charge) while owning the property (say as an investment) remains economical.
Demand for private rentals is high precicly because people are forced to rent privately, because they can’t afford to buy due to crazy house price inflation, because it’s cheaper to get an interest only BTL mortgage than a repayment owner occupier mortgage.
In 1995 there were approximately 2m housholdeds renting privately, in 2017 it was approximately 4.5m households. An increase of 2.5m.
In 1995 there were apprximately 13m owner occupier households, in 2017 it was approximatly 14m, an increase of only 1m.
Yet in the same amount of time over 3 millon new housed have been built in the UK. If only 1m of them have been bought by owner occupiers the other 2 million have been bought by BTL landlords (yes some will be empty but the total number of empty proerties in the UK is 200k and only a fraction of those will be new build properties left empty). Why have 2 million been bought by BLT landlords and not owner occupiers? Because for the past 25 years it has been cheaper to get an interest only BTL mortgage than a repayment mortgage so people wanting to buy as owner occupiers have found themselves unable to compete with BTL landlord. And as a seller, who would you rather sell to, the answer is always the person who offers you the most money. QED house price inflation.
As the number of private renter households has gone up by 2.5million the number of owner occupiers have gone up by 1m and the numenbr of new houses has gone up by 3m, half a million properties that were once lived in by owner occupiers must now be owned by BTL landlords.
It is an incorrect reading of the numbers and statistics to suggest that because the number of private renters has gone up that is because people are demanding to rent privately. Demand for private rentals is high because more and more people are forced to rent privatley.
Any policy that gets landlords to return properties to the market place, reduces house prices and allows more people to buy should be applauded.