Capping it all... reflections of Labour’s proposals for the rental market

Capping it all... reflections of Labour’s proposals for the rental market

Ed Miliband recently announced Labour’s proposals for changes to the private rental sector (PRS). If Labour gets into power they plan to introduce an annual rent-increase cap, with an ‘upper limit’ on rises, based on average market rents.

Furthermore Labour want to introduce a six-month probation period on tenancy agreements. This agreement would then run automatically for a further 29 months. The landlord can only exercise their right to possession if the tenant defaults with the rent, the landlord needs to sell the property or if they need to move back in to their property.

Rental freeze

It also appears that the landlord will not be able to raise the rent during this time, so in effect rents will be frozen for the entire three year period. In my opinion this is a big mistake and will undoubtedly lead to more landlords exiting the market and have a reverse effect to the one intended. A cap will simply not be appealing to many investors. The last time we had rent controls in the 1960’s they simply didn’t work. 

I do have some sympathy with the tenants’ perspective that constantly having to move due to a Section 21 notice is very unsettling and frustrating. Generally however it is in the landlord’s best interest to have a good long standing relationship with a reliable tenant.

Landlords would always prefer these tenants stay as long as possible. The only exception would be if the landlord had a genuine reason to sell or move back into the property. Many I am sure would be happy to provide longer tenancies, which the current government is trying to promote under ‘The Tenants Charter’. Most landlords are prepared to be flexible and even take a lesser rent, if they have a good tenant and would be delighted to promote longer tenancies. This is simply a good business relationship - if it works well why make unnecessary changes? I am concerned that having the above proposals thrust on the PRS will ultimately do more harm than good.

In addition, Labour’s proposal that letting agents would no longer be able to charge letting fees upfront, is muddled and disingenuous at a time when the industry is doing a lot to improve its standards. There needs to be transparency and a minority of agents do ‘over charge’ instead of offering clear pricing and standard fixed admin fees. For years there has been a call for improved regulation within the sector. I remember speaking with a well-known journalist in 2001 where we floated the idea of a redress scheme, that would focus on improving standards and practice for letting agents. This will come into effect this year and can only be good for the industry as a whole.

Generation Rent

Finally, we are undoubtedly in ‘Generation Rent.’ Nine million people rent in this country and we are increasingly becoming more in line with the likes of France and Germany where most people rent.

If however we don’t keep up with the demand of 200,000 new properties, which will be needed each year we will still be having the same conversations years down the line. We will definitely be unable to keep up with the demands of an ever-growing population. Let us hope that future governments build more homes to help rectify the current housing shortage.

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