The current Mayor of London, Sadiq Khan, has been extremely vocal over the last few weeks regarding rent controls. He has been demanding an array of new powers which would allow the Greater London Authority to introduce rent controls. This has prompted a very interesting conversation, are rent controls warranted in London? Might they be warranted across the rest of the UK?
London rents as a percentage of income
Back in the 1980s private rents in London accounted for just 14% of annual income but this has increased dramatically to just over 41% in 2017. We have also seen a significant increase in the cost of London property – and the average wage – but the rental figure will surprise many. However, when you consider rent now accounts for an average 41% of annual income, let alone other regular living expenses, this does not leave an awful lot to live on.
It is also worth comparing and contrasting London and UK average rental figures. The average rent across the UK now accounts for 29% of annual income – a far cry from the 41% in London. So, London does certainly have challenges!
Lack of affordable housing
There is no doubt that the 1980s right to buy scheme, which continued for decades, plundered local authority social housing stock. Tenants were allowed to buy properties at an often huge discount to market value and unfortunately many of these were never replaced by local authorities. Yes, we have seen the introduction of housing associations, and a degree of new council properties, but nowhere near enough to satisfy demand.
As the government continues its quest to balance the UK budget it is unlikely that significant funding will be made available to local authorities for affordable rental properties.
Do rent controls work?
The Conservative government is very much based upon a “free-market policy” which to a certain extent allows markets to dictate prices and levels. There is an argument to suggest that rental charges across the UK have pushed ahead far too quickly but then again investors are spending hundreds of thousands of pounds on buy to let properties. If there was a degree of rent controls this would have a knock-on effect to rental yields and returns for investors. If the returns weren’t there then quite simply investors would not invest. Where would the UK housing market stand then?
As we touched on above, there is no doubt a lack of private rental properties, as well as local authority homes, have exacerbated what was already a growing problem with London rents. If there were more properties available then this would reduce the upward pressure on prices and rental yields. However, there is an argument to suggest that Sadiq Khan is simply playing politics. He was well aware that Boris Johnson, the previous Mayor of London, was about to become leader of the Conservative party.
The problem is that a lack of affordable housing across London, and the rest of the UK, has been a problem for decades now. It is not a new problem, it has not just crept up on us but it has conveniently been swept under the carpet by governments and the London Mayor’s office. Playing politics with UK housing policy via rent controls and increased charges is difficult to justify. The fact that tenant’s rights have also been strengthened in recent times has left many private landlords questioning their long-term commitment to the UK housing market.
With the next Mayor of London election to be held in 2020, and Boris Johnson taking up leadership of the Conservative party, what better time for Sadiq Khan to ruffle a few political feathers? He has been Mayor of London since 2016 so why has he not requested rent controls prior to his recent outburst? In reality Sadiq Khan knows that the UK government is highly unlikely to introduce legislation to allow rent controls in London. However, this type of policy certainly puts the current Mayor of London on the side of the electorate. The only problem, is the timing just a coincidence?