Could rent controls in London make the city’s housing more affordable? The city’s mayor, Sadiq Khan, who unveiled his proposals for rent controls earlier this month certainly thinks so. Others are vehemently opposed, warning that controls would lead to a significant reduction in the supply of housing and homes slipping into disrepair, as landlords struggle to cover their costs. 

What is rent control?

Rent control is simply a limit on the amount of rent that can be charged. Usually, this is done by limiting rent rises to a certain annual percentage. The aim is to avoid rents rising excessively quickly, keeping rental homes within reach of those on average incomes. The argument goes that when rental prices rise beyond the means of large numbers of people, it can be difficult for a city to hang on to essential workers, meaning public money often ends up picking up the slack in the form of housing benefit or subsidised affordable housing. 

London rents

There’s no doubt that London rents are expensive, averaging over £2000 a month and set to rise by 4% in 2019. Average rents jumped by 29% between 2007 and 2017, with Londoners spending over 40% of their income on rent. 

Fast-growing rental prices have led to increasing concerns that the London rental market is unsustainable. The mayor wants to remedy this by reducing rents to below current market levels, as well as capping rises. 

The Mayor said of the proposals “It is high time for private renting in London to be transformed — Londoners need fundamental change that is long overdue. Unlike other mayors around the world, I have no powers over the private rented sector”.

What could rent control in London mean for landlords?

If the mayor gets the powers he wants, what could that mean for London renting and London landlords?

Khan’s political opponent, Conservative assembly member and mayoral hopeful Shaun Bailey, is clear on this, saying “Rent controls don’t work.” Bailey recognises that London rents are problematic, but argues strongly that rent controls won’t help, quoting economist Assar Lindbeck as saying that rent controls are “the most effective technique presently known to destroy a city – except for bombing”.

That’s pretty strong stuff. What have landlords got to say?

The National Landlords Association argues that the problem is that wages have not kept pace with inflation, rather than that landlords have raised rents to unacceptable levels. They also say that rent control is likely to “stifle the supply of housing and reduce the money available to a landlord to maintain their properties”. Building more homes and supporting economic growth, are the ways to keep rents affordable. 

We’re running a Twitter poll on the issue, asking landlords for their views. The majority of respondents agree with the NLA — rent control doesn’t work. 

But rent control is not a new idea. It’s been tried in various places around the world. Can we look to other cities to see what would happen in London?

Rent control in Berlin

Half of Germans rent, and 85% of Berlin’s homes are rented. Rents across Germany are controlled, with rent rises linked to inflation. It generally works well, with rents at sustainable levels and landlords able to make profits. There is a vital difference though: German landlords tend to be corporates who often build to rent, and tenants usually signing long-term agreements. The average German tenancy lasts eight years, meaning that landlords have far lower costs from void periods and re-letting. 

Rent control in San Francisco

In San Francisco, rent controls have covered some properties since 1979, and most since 1994, except for new builds. Rent control there has led to housing shortages and gentrification, as old buildings are demolished and new-builds put in their place to get around the regulations, and others are converted to owner-occupation. Rent control has been shown to have reduced the supply of housing by as much as 15%. This has had the opposite of the intended effect leading to increased gentrification and rising rents. 

Rent control in London

Landlords everywhere want stable incomes and viable businesses. Where rent controls have been introduced, landlords have tended to find ways to prosper regardless of the regulations. Rent controls have the potential to cause significant problems for London landlords, particularly those with small portfolios and large mortgages, but there could be ways in which they could continue to thrive.

One option could be short lets, on AirBnB or otherwise. Particularly in prime central areas, these kinds of lettings can provide excellent profits. While they don’t offer the security of long-term tenancies, there is steady demand.

But there is still a significant element of insecurity involved in short lets, and they might yet be regulated too. Long-term tenancies could provide an answer, giving landlords with sustainable, long-term income and no worries about finding new tenants. 

Our view on rent control

Rent control will always be a tricky issue. Any form of rent control will likely disadvantage at least some landlords. Those in favour point to Berlin as a model of success, but the housing market there is so very different to the UK’s that it isn’t a particularly useful comparison. But rent control doesn’t have to be a disaster. We believe that landlords should always look to build sustainable, long-term businesses that can weather any political or economic storm. 

What do you think? Could rent control work or would it cause chaos? Follow @LyvlyLandords on Twitter and join the #rentcontrol debate.