Britain’s Labour party is promising legislative changes to support tenants in the private rented sector, should the party be voted into power in the 2015 general election. But the announcement has led some to warn that the proposals threaten to frighten off institutional investment in the sector – which is already promising to deal with some of the issue raised.
Labour specifically wants to tackle the insecurity of short tenancy agreements, to enable more steady rents, and to reduce one-off fees and additional costs related to taking out tenancies.
On tenancies, Labour says it wants to make three year long tenancies the norm, with landlords required to give longer notice periods. Said Labour leader Ed Milliband: “Generation rent is a generation that has been ignored for too long. Nine million people are living in rented homes today . . . a Labour government will take action to deliver a fairer deal for them too.”
This could present a practical problem for small scale buy-to-let landlords. Often mortgages for these borrowers restrict tenancies to a maximum 12 months.
Rent rises would be limited to a maximum ceiling, based on a percentage rise related to local market averages.
And there would be a restriction on letting agents charging fees to tenants. This is often an area for complaint, with up front fees; and often issues around retentions from a deposit, even if there are clear grounds for it being returned in full. Labour says this restriction would save tenants an average £350 per tenancy.
Not everyone is impressed, however. In a letter to the Financial Times, Charles Fairhurst of Fairbridge Residential Investment warned: “Institutional investors in the private rented sector, as well as domestic and overseas buy-to-let investors, will read Labour’s announcements and question whether this is a good time to invest in the sector. The result will lead to a reduced supply of UK housing until the Labour party’s housing plans are clarified, which makes its annual new homes target of 200,000 look unrealistic.”
And at law firm Addleshaw Goddard, Marnix Elsenaar warned: “Rent caps would severely undermine the potential to get the investment we desperately need in the sector.”
Despite the concern over rental controls, some point to other markets where some form of rent control works just fine. Germany – the poster child for the private rented sector – has rent controls and longer tenancies, and the market there is robust, with many major institutional investors happily involved. Other markets including France and American cities such as San Francisco also operate some form of restriction on the pace of rental increases.