THE RENT’S TOO HIGH: 21st century rent control 2 The Rent’s Too High: 21st Century Rent Control Foreword Diane Abbott, MP for Hackney North & Stoke Newington London is experiencing its own, very It will take special measures to stabilise particular cost of living crisis, and the biggest housing costs in London. One of those component is housing costs. Rents in the measures is rent control. It is no coincidence capital are the highest in the country but that New York, Paris and Berlin all have because of London’s inflated house prices some version of rent control. young people and families are find themselves A major international city, without measures trapped in the rental sector. For Londoners to stabilise rent, runs the risk of rents spiralling on an average wage, owning your own out of the ordinary person’s reach. Housing is home inside the M25 is becoming the too important to the population’s health and impossible dream. wellbeing to be left to market forces alone. Some argue that the answer to high housing For too long politicians and commentators costs in London is simply increasing supply. have been dogmatic in their rejection of any This might work if the capital’s housing market form of rent controls. But it is time to look functioned normally. But London’s housing at the issue again. There is more than one market is broken. One distorting factor is method of implementing rent controls. the existence of an almost endless supply of This pamphlet begins the debate. the world’s super wealthy, buying up London property as a financial safe haven and sending ripples of housing cost inflation across the capital. There is more than one method of implementing rent controls. This pamphlet begins the debate. 4 The Rent’s Too High: 21st Century Rent Control Introduction We know the housing crisis in London is acute. It has been for years and is only getting worse. Recent reports suggest that by 2020, the average first-time buyer in the capital will need a deposit of around £100,000 if house prices continue to rise at current rates.1 For private renters though, the Indeed, the population of London situation may be even worse. is projected to increase to over At least if you have managed 10 million people within the to secure a mortgage, you are next 15 years.3 Yet it is precisely gaining part of an asset with every this demographic who are least mortgage payment as well as able to afford the high rents benefiting from the capital gain. and who are most likely to be scraping by in overcrowded, For a London renter on the other unsuitable accommodation. hand, you are seeing increasing amounts of your wages taken up This rental catastrophe is negatively by rent, with nothing to show for impacting the London economy it in the long-run. And make no too. Average and lower-income mistake, the rent is too high – a tenants have very little disposable typical privately rented home in income to use in other parts of London now pays on average the economy – and to spend on £188 more than those with a their own quality of life, after the mortgage each month.2 huge outgoing to their landlord. This affordability disaster is hitting All other parts of the economy some of the poorest people suffer when there is such a in society. As one of the major concentrated movement of wages labour markets in the UK, London into the hands of a small number continues to attract thousands of of landlords. young people, recent graduates and migrants. 5 The Rent’s Too High: 21st Century Rent Control The population of London is projected to increase to over 10 million people within the next 15 years.3 Yet it is precisely this demographic who are least able to afford the high rents. At the same time, high rents are The affordability crisis harms a business cost that make London London across the board. uncompetitive as a global city. Businesses move out, the service and leisure economies suffer, whilst If businesses of all kinds have we also hit the poorest hardest, to pay higher wages so their undermining the diversity of the employees can afford to live in capital and exploiting the most the capital, it means that other vulnerable. Rents have to be places may become attractive affordable – and controlling them to large businesses. Competitor should be a major political priority cities - whether that is Paris, of the next London Mayor. New York, or Singapore – have lower business costs because of rent controls in these cities or subsidies in public housing. 1 http://www.standard.co.uk/news/uk/mortgage-deposit-for-firsttime-buyers-will-hit- 100000-by-2020-says-study-8465149.html 2 http://www.dailymail.co.uk/news/article-2581446/Rent-costs-124-month-mortgage- Rock-bottom-rates-mean-cost-paying-mortgage-never-lower.html 3 http://www.standard.co.uk/news/london/london-population-to-top-10-million- within-the-next-15-years-9451892.html 6 The Rent’s Too High: 21st Century Rent Control Rent Controls A proposal for rent controls in London needs to address three issues: at what level to set the maximum rent, how it would function in practice and what effect in would have on the wider housing market. Defining an affordability measure This would provide a ceiling of A living rent can be built on the good work of affordability that is not present pegged at the Living Wage Foundation which within other current proposals has already calculated the living for rent controls. 35% would wage for London at £9.15 be £391 Proposals for caps on rent per hour.4 rises are beneficial to tenants per month If we take the average working in terms of security as large for a single week of 35 hours, this amounts rent rises are common and can person. to a 140-hour working month mean a household having to and gross wage of £1,281. After move out. However, they are income tax and National Insurance not a mechanism for addressing the net wage would be £1,117, affordability as landlords remain meaning that a living rent pegged free to set the rents where they at 35% (the widely accepted figure like between tenancies. And in of affordability by ratio of rent to London and many other parts of wages) would be £391 per month the UK there is an affordability for a single person – i.e. a one- crisis when it comes to rents. bedroom flat. This could be scaled up for each additional bedroom. 4 http://www.livingwage.org.uk/calculation 7 The Rent’s Too High: 21st Century Rent Control Implementation An important factor to consider when implementing a rent control is the recognition that there are different sorts of homes of differing values that a variety of people might want to live in. London would be more 1 Base the rent control on London needs competitive if housing costs were Council Tax bands. Cap rents at to attract a lower, but would become less 50% per month of the annual competitive if this were because council tax band for the home. diverse range there were no homes available Croydon for example has a of people for that were attractive to people on band A (pretty much a bedsit) its continued middle or higher incomes. London band of £780. The rent cap success needs to attract a diverse range of would therefore be £390 people for its continued success per month. and for none and for none of those people to of those 2 Charging more rent. Landlords be paying more in housing costs should be free to charge people to be than is reasonable – wherever more rent but this should be paying more they are on the income scale. subject to a 50% surcharge.This in housing Therefore you need a dynamic surcharge should be paid to the costs than is rent control that allows for GLA into a ring-fenced housing different levels of housing cost fund that is invested in social reasonable. without incentivising the building house building and potentially exclusively of luxury apartments or used to provide temporary making the lowest cost housing respite to owner occupiers the only viable form of investment. experiencing negative equity, a fund to soften the blow of Our proposal is a dynamic rent control based on a well the inevitable bursting of the understood property index, housing bubble. together with an option for landlords to charge more, but with a financial penalty for doing so. 8 The Rent’s Too High: 21st Century Rent Control Landlords would be free to lobby government for more Council Tax bands or to lobby councils for higher Council Tax rates and it would be up to politicians to decide these things and to be accountable publicly and electorally for those decisions. 3 Taking an example of a luxury 4 The rent cap becomes apartment in Chelsea, the very accountable. Landlords would top end of the rental market, be free to lobby government a 4-bed penthouse might be for more Council Tax bands rented for £32,000 per month, or to lobby councils for but the band H council tax higher Council Tax rates and is £2,143.30. This would place it would be up to politicians the rent at £29,856 above the to decide these things and to rent cap, therefore attracting be accountable publicly and a surcharge payable to the electorally for those decisions.