The Conservatives will make no gains in the cities without some action on rent
Joe Wright, 14 May 2014
Rent controls have been a hot topic in the past few weeks after the Labour leader, Ed Miliband, pledged tougher regulation of the market should he win the next election. These included a promise to scrap estate agent fees for tenants, making 3 year tenancy contracts the norm for tenants that want them, and the introduction of upper limits on rent increases for certain local markets. The government’s response was to somewhat hysterically deride the ideas as ‘Venezuelan-style rent controls’, (though they did offer some more valid criticisms about damaging supply some time after).
The Labour leader is relatively late to the debate about rent; mainly because the UK’s private rented market was always considered a secondary issue to buying in British politics. Most city MPs are well aware of what rent inflation is doing to their constituencies. Jeremy Corbyn MP introduced a Private Members Bill in October proposing similar ideas. It is due for its second reading on Friday (though is likely to be rescheduled according to the Parliament site). The Bill will fail. The provisions included are less moderate than those proposed by Mr Miliband, and politically it would be a huge own goal for the government to allow it any chance of success.
Mr Corbyn’s constituency, Islington, has felt the difficulties of a heated housing market more than most, having long a standing group of low income residents while becoming a very desirable place to live in London. It has had some of the largest increases in bottom quartile rents of any London borough, and landlords are only increasingly aware of the value of their properties. The borough has maintained a proportionately large social rented sector and introduced some schemes to encourage affordable rents – though even 60 per cent of Islington’s lowest market rent is a struggle for most -but for those in Islington’s Private Rented Sector, market pressures are likely to make their situation only more precarious.
Yesterday, an amendment to the Consumer Rights Bill aimed at banning letting fees to tenants was voted down by the government, losing by 51 votes. The provision was relatively simple and aimed at banning the charging of fees to the tenants for a service to landlords. Similar measures are already coming into effect in France and Germany. Not only is it a fairer system for cash strapped tenants (who must also come up with a deposit) but it is good for tenant security as having to pay fees to advertise a property will make landlords more inclined to keep their current tenants. Rent regulation is anathema for the current intake of conservatives, but this amendment provided a relatively palatable opportunity for the rural-dominated Tory party to give a nod to the cities (not to mention do the right thing), to at least acknowledge the premium renters have to pay to live in places like London is becoming too unfair.
Governments bear the responsibility
For thirty years or more British Governments have been almost entirely responsible for the truly dismaying rise in the cost of property both to buy and to rent through a failure to ensure enough housing both private and social was built, by removing rent controls, ending credit controls on mortgages, failing to control mortgage lending generally and, most dramatically, by allowing mass immigration to add between three and four million people to the population in the past 15 years.
To understand exactly how inflated housing costs have become compare property prices today with what they were in 1955. Then the average residential property price was around £2,000. Uprated for inflation the average price of properties today would be around £40,000. (http://livinginamadhouse.wordpress.com/2010/10/24/the-vicious-poison-in-the-british-economy-is-the-outlandish-cost-of-housing/). Makes you think. If that was the case now, even those on half of the average national wage (half of the present average wage would be about £13,000 ) would be able to purchase a property of some sort.
Joe Wright’s proposal would be a start but something much more radical needs to be done. I suggest this:
1. Use the money the Government have earmarked for the underwriting of risk and the 15% deposits in new build properties up £600,000 to engage on a massive social housing building programme.
2. Put a tax on land held by property developers with planning permission while they refuse to build on the land as per the planning permission.
3. Ban Buy-to-let mortgages.
4. Introduce rent controls on private landlords. If rents were frozen for a number of years this should not impact too seriously on most private landlords, the majority of whom will either own their properties or have small mortgages on them . Even those with large mortgages should be able to survive in the low interest environment which looks as though it will continue to several years at least. If they can pay the mortgage now they should be able to keep in paying it until interest rates rise significantly. By that time
All of those policies could be done whilst we remain within the EU. If we left the EU it would be possible to:
5. Deny all social housing to foreigners.
6. Ban foreigners from purchasing residential property.
7. Put an end to further mass immigration.
These policies will greatly increase the supply of housing in the medium term if not sooner . If even 1-4 were implemented this would do a great deal to bring the cost of housing to a level where those on the average wage could afford to rent in most areas and
In view of the growing media misrepresentation of those in social housing as state subsidised parasites, It is also worth pointing out that over the past half century owner occupiers have received far more directly and indirectly from governments than social housing tenants, viz:
The reality is rather different. Social housing tenants have long received far less subsidy than owner occupiers who have been granted massive benefits by governments since at least 1969 when Roy Jenkins introduced Mortgage Interest Relief At Source (MIRAS). MIRAS lasted until 2000 when it was ended by Gordon Brown. In addition to MIRAS owner occupiers receive or have received these benefits:
1. Right-to-Buy (RTB). The gains from RTB both from a considerably reduced purchase price (way below the market value) and the huge rise in property values in the period 1980 to 2008. The rules to qualify were tightened and the discounts offered were gradually reduced in the period, but have been boosted again by the Coalition Government which announced a discount of up to £100,000 in the Budget (http://www.standard.co.uk/news/politics/budget-2013-100000-off-righttobuy-a-london-home-8540690.html).
2. Private residence tax relief. No capital gains tax is paid on a property used as a private residence when it is sold.
3. No inheritance tax (IT) is paid on a private property when it is inherited by a spouse who is resident in this country. Regardless of who are the beneficiaries, no IT is paid on a property if it forms part of an estate worth less than the inheritance tax exemption limit (£325,000 in 2012-13). No IT is paid on a private property if the private property has been gifted to someone else more than 7 years before the death of the person making the gift.
4. Housing benefit for the interest paid on a mortgage. This could be received by someone unemployed or employed, but with an income so low they qualified for housing benefit.
5. A surprisingly large number of taxpayer funded schemes providing substantial grants, especially for energy saving improvements (http://www.freegive.co.uk/grants.htm).
6. The lax credit policies from the mid-1980s onwards which allowed mortgage providers to grossly inflate property prices before the 2008 crash by granting no deposit mortgages and even mortgages up to 125% of the purchase price. In addition, “light touch” regulation of the banks and their ilk greatly increased the money supply which also inflated property prices. Finally, prices were inflated further by the permitting of massive immigration during the years of the Blair and Brown Governments which added some three million to the UK population.
7. Since the crash of 2008 successive British governments have offered massive direct and indirect aid to those with mortgages. The direct aid has been such things as mortgage payment holidays (http://www.guardian.co.uk/politics/2008/dec/04/brown-mortgage-interest-break-repossessions), and indirect protection, for example, keeping Bank Rate at microscopically low levels.
Whilst all this has been going on social housing has become ever scarcer as several million social housing properties have been sold off under RTB (http://www.politics.co.uk/reference/right-to-buy) and the provision of new social housing since the mid-1980s has been meagre in the extreme.