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Rent control – a retrospective

October 7, 2013 by Samir

PeabodyHousing journalist Samir Jeraj looks at the history of rent control

25 Years ago this month, parliament voted to abolish rent-control in private rented housing. Hated by many, and loved by few – it’s time to take a look at what we’ve lost and gained since 1988.

Rent-control actually dates back to the First World War – a time when 77% of people were private renters.

Rent control – the beginning

In Glasgow, people rapidly moved into the city to work in the munitions factories. Housing was in demand, and landlords took their chance to make a quick profit.

However, the tenants grew tired of rising rents, evictions, and the poor conditions they were living in. A Rent Strike  was organised across Glasgow from 1915-16, led by women tenants, involving up to 20 000 tenants..

The rent strike soon escalated into a strike in the factories, as workers downed tools. The Liberal-led Government of Lloyd George wouldn’t have any disruption of supplies for the war effort. Rents were controlled and rolled back to pre-war levels until the war ended.

Rent control and Rachmanism

Through the century, acts were passed amending and modifying controls. Decontrol in the 1950s led to the rise of Rachmanism.

Rachman figured out he could hike rents for new tenants if he could only ‘persuade’ (often violently) his current tenants to leave. This led to the protection from eviction legislation we still have today.

The results of rent control?

Critics of rent-control point to how, since it’s introduction, the private rented sector shrunk down to a rump by the 1990s (around 9%) as landlords preferred to leave their properties empty.

Social-policy types (like me) would also point out that the 1920-1980 period was also marked by the rise of social housing.

Housing and health

Back during the 19th Century conscription revealed the terrible health and physical condition of the Victorian working population. This became known as ‘The Condition of England Question’.

By the start of the 20th Century housing was recognised as being key to health. The niche and nascent social housing created by the Rowntrees and the Peabody Trust became the model for council housing, enshrined as a duty for councils to provide under Lloyd George in 1919.

The Council housing stock grew to a peak of 32% by 1981 before Right to Buy moved much of this into owner-occupation. Tenants, when given a choice, opted for social housing over private renting.

So, what happened after 1988? Well the law came into force a year later in 1989.

The effect of the Housing Act 1988

Private renting started to grow. Again, it’s fate was linked to social housing, which declined in the 1980s under Right to Buy, and then was not replaced one for one by new Council or Housing Association building.

By the 2011 census, the unthinkable had happened. Private renters outnumbered social renters.

Rents rising

Renting has got more expensive. The average rent in the UK is now £743 a month  – there is also the growing divide between increasingly hyper-expensive rents in London (and places like Oxford, Cambridge etc.) where most of the jobs are, and the rest of the UK.

A report earlier this year found that rents were unaffordable in a third of the UK for a household (two adults, one child) with an income of £22 000.

In 2008, the cost of owner-occupation was around £4200 a year more expensive than renting. Now renters pay £875 a year more than owners .

Lettings agents, relatively unknown in the late 80s, are also around to add extra fees and charges as landlords become less directly involved in their property.

Renting has, in general, become more profitable. The average return is up to 10%, plus any rise in property value.

Full circle?

So, now that the number of renters is growing and the alternatives (social renting or home-owning) are fading, what will the future be?

To my mind, if the UK can’t figure out how to lower rents and provide greater security in renting, maybe rent strikes will be back to haunt us.

(Picture is of the statute of George Peabody in the City of London)

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Filed Under: Analysis Tagged With: Rent Control

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Comments

  1. HB welcome says

    October 7, 2013 at 11:04 AM

    Less of a history, more of an anti private rented sector rant.

    “Renting has got more expensive.”

    As has most other things due to inflation. According to your link, rent increases have been below inflation.

    “A report earlier this year found that rents were unaffordable in a third of the UK for a household (two adults, one child) with an income of £22 000.”

    So households on below average income cannot afford to live in above average priced accommodation. No surprises there.

    “In 2008, the cost of owner-occupation was around £4200 a year more expensive than renting. Now renters pay £875 a year more than owners.”

    When we have record low interest rates.
    And renters still don’t have to pay for maintenance, insurance, service charges etc on the property.

    “as landlords become less directly involved in their property.”

    Do you have a source for that or have you just made it up?

    “Renting has, in general, become more profitable. The average return is up to 10%, plus any rise in property value.”

    More profitable than what? It’s certainly not more profitable than when we had double digit HPI ten years ago.

    “maybe rent strikes will be back to haunt us.”

    Maybe they won’t.

  2. JamieT says

    October 7, 2013 at 12:18 PM

    Your article is more a pro-rent control piece than an unbiased look a the facts.

    “Renting has, in general, become more profitable. The average return is up to 10%, plus any rise in property value.”

    Please re-read the source.
    I don’t think the Guardian article said the average yield is 10%. It was also talking about GROSS rental yields not net profitability. The map actually shows very few areas with 10% yields. Property price increases have not been significant outside London/South East.

    According to Letting Agent Today:

    “The Office for National Statistics has reported that in the 12 months to August 2013 rents paid by tenants rose by 1.2%. Private rents in Great Britain excluding London rose by 0.8% during the same period. In London, rents rose by 1.9% and in the south-east by 1.1%.”

    (http://www.lettingagenttoday.co.uk/news_features/Rents-edge-up-just-slightly-over-the-year-says-ONS)

    So, much less than inflation then….

  3. Samir Jeraj says

    October 7, 2013 at 2:48 PM

    Thank you for the comments so far. I thought this might be a controversial area. Tessa and Ben should also be contributing posts about this over the month, so please do keep an eye out for them too.

    I’ll try and deal with the points raised.

    The high rent point was a bit of a glib explanation. I would point to higher rates of PRS arrears and wages struggling to keep up with inflation as other factors. The affordability point should also take lettings agency fees into account.

    The point on families on £22 000 a year was that the market is failing to provide them with housing. If a third of the UK is inaccessible to people then that is a major social policy issue.

    The landlord involvement in property point was another slightly glib one. I was basically pointing to the rise of lettings agents replacing direct management.

    Just to remove confusion, the rate of return section was meaning the return by area average, as stated in the article, and not the UK average.

    I appreciate it’s an emotive issue, especially when it’s your livelihood, but the evidence clearly shows people can’t afford their rent as much as they used to. That either entails lowering rents and/or increasing wages.

    Thanks again for the comments and critical eye.

  4. HB welcome says

    October 7, 2013 at 5:58 PM

    Hi Samir,

    The replies you’ve had have been factual not emotive, as opposed to your original article which reveals more of your personal viewpoint of the PRS rather than an accurate historical analysis.

    It is littered with half truths, inaccuracies and incorrect conclusions.

    Just to take your last point;

    “That either entails lowering rents and/or increasing wages.”

    It is not an either/or situation, there are many other alternatives, not least of which, what is actually happening now- people consuming less housing;

    http://www.channel4.com/news/broken-ladder-generation-rent-microapartment-oldham-landlord

  5. Samir Jeraj says

    October 7, 2013 at 6:25 PM

    Thanks for the feedback. I thought I was using relatively restrained and neutral language rather than emotive language. The aim was to provide a bit of analysis to provoke thought and debate as part of a series with the other contributors.

    I don’t have enough information on Rent Control to form a strong opinion as to whether is should or shouldn’t (and in what form) happen. From what I know so far I think it’s problematic and is a blunt policy instrument, but may have a role in combination with other policies (to deal with its own negative effects) and other policies to tackle the broad under supply of housing.

    It’s an interesting point on consuming less. As I said in the article, housing and health have been recognised as being intertwined – reducing the size of housing would likely have a strong negative impact on physical and mental health.

    One thing I didn’t mention, which perhaps I should have (another controversial area) is the increasing total amount of housing benefit paid into the PRS since 1988.

  6. David Griffith says

    October 7, 2013 at 8:06 PM

    Samir,

    Interesting article describing a problem that exists particularly in the parts of the SE of England.

    For some landlords renting has become more profitable recently, particularly if they purchased their properties some time ago, but this is a symptom of the problem not the cause.

    As you are a specialist in housing I would be more interested in your thoughts on how the problem arose and what should be done to solve it.

  7. Samir Jeraj says

    October 8, 2013 at 8:17 AM

    Thanks David,

    There are several inter-locking reasons that are generally pointed to.

    Council house building collapsed to virtually nil by the end of the 80s. Housing Associations have never been able to build as much housing as Councils did.

    Economic changes in the 1970s and 1980s meant London and the South-East became the area where there were more jobs, whereas former industrial areas declined. That encouraged people to move there to work and put extra pressure on the housing stock in the South East and opened up a regional housing divide.

    Another big factor is the shift of savings away from pensions and into housing. In an environment of low interest rates, affordable credit, and rising property values, a lot of people chose to invest in housing rather than the traditional pension.

  8. Richard Watters says

    October 8, 2013 at 3:18 PM

    Like so many aspects of property in the UK there are two markets – London and the S.E. and the rest of the UK.
    For example, in many areas of the North there are:

    1. More properties available to rent than tenants

    2. A market that works i.e. properties priced based on location, quality, etc., and a wide choice, so that people can choose a property within their budget

    3. Property to rent (and to buy) is affordable to a family on average income

    Even IF Rent controls were be right for London they would be irrelevant elsewhere.

    I keep hearing about the shortage of housing. Again this is a London-centric issue. The real solution to so many of the UK’s economic problems is to create a buoyant economy in the regions. This will create employment – and there’s plenty of houses for people there!

  9. Colin Lunt says

    October 9, 2013 at 3:01 PM

    An opinion from the North East as someone who was previously involved in housing in the South East. There cannot be one law for “good landlords and good tenants” and another for “bad landlords and bad tenants”. Therefore whatever the law is, it must be inclusive of all types; and yes unfortunately some people may see it as overkill but that is the nature of law. There is not a different law for “good drivers” and “bad drivers”; everyone is treated the same on the road.

    ‘High rents’ are not confined to the south east. Just yesterday I saw a one bed flat in a relatively low demand area (Benwell if you know Tyneside) at a monthly rental of £450; a single person on the minimum wage would have to work about 17 hours to pay their rent around 40% of a weeks wage. They may qualify for some housing benefit but will lose some money because of the taper at the rate of 65p pence in the pound for every penny over their needs allowance. A single person cannot down size any further unless it is seen as necessary that if a person is unable to earn high wages that they should live in a bedsit with the lack of privacy that often suggests. You cannot have friends or family to stay or for dinner or have what would normally be regarded as family life in a box.

    Shared housing at an early stage in life for young people might be ok but as people get older it seems reasonable that they would want a home and some possessions and their own furniture. A suitable home is not a box as seems to have been put forward in the Broken Ladder article cited by HB Welcome. A homeowner or tenant of a house may have had a relationship break up, but have children; how can they maintain reasonable contact with them in a bedsit in a house shared with several others?

    Social housing at a reasonably affordable rent used to be available for those who could not pay market rent or did not want to struggle to become a homeowner. Since the 1980s that option has drastically declined; private rents are often much higher than social rents. Social landlords could obtain long term 50 year finance to build and maintain property at reasonable rent because they do not require significant profit to be taken from the business.

    Some landlords are more distant from their properties. In the early 2000s many investor landlords (some from the south) bought properties up here for small amounts of money, did them up often with very little investment. Damp painted over and not treated then let out at unrealistic rents, sometimes over above the RAC reasonable market rent figure. We used to see the same complaints about the same property year on year after one tenant moved out followed by a quick makeover and another moved in when the problems could not be seen.

    The HHSRS power of the council and the soft touch approach, has limited what could be done after an informal suggestion that repairs were advised, if the default was not at the higher level where a Prohibition Order was appropriate. Locally the massive increase in student numbers has pushed up rents for a room so that £100+ pppw is not uncommon. Other landlords catering for the non-student market have gradually increased their rents to narrow the gap as I indicated with the let in Benwell.

    Former Right to Buy properties let out at double the rent of the remaining properties in the same street. Landlords and tenants are often both poorly treated by agents, and that fact has unusually united both tenant and landlord groups. That was, I believe, the point that Samir was making.

    Private letting for families is often not secure; some landlords on this site have previously pleaded that they are in it for the long term; that is fine but many are not and even the most motivated landlords do not know when they may have to sell due to a family break up or some other circumstance. Tenants in that situation do not have the right to stay if a buyer wants vacant possession.

    If families are to be generally directed to private lets then the rents need to be at an affordable level comparable to social rent; and if a private landlord is unwilling or able to provide that then it may be necessary for them to leave the market. Governments of both parties have distorted the market against poorer tenants and the ability of councils/HAs to provide accommodation. The RTB of council homes has meant that Councils have been required to sell at undervalue but are then unable to replace like for like as Samir pointed out but the RTB property as I have mentioned above.

    I have attempted to put forward general policy issues rather than making statistical claims that may be contradicted or that another party says I have drawn the wrong conclusion from those stats. In straightforward policy terms private letting for families who want to put down roots for a secure future is more often than not a less desirable option than social housing.

    That is not to say that all private letting is bad or it is an anti-landlord stance; it is just a reasonable policy assertion.

    To respond to Richard’s point there is a shortage of suitable properties in many areas of the north. The Pathfinder area improvement policy led to thousands of properties being demolished but without replacements being provided or where there has been replacement are not always available at a social rent. The glut of properties no longer exists except in a few places.

    Thousands of people are on Council waiting lists: housing supply is not just a problem of London and the SE.

  10. HB welcome says

    October 10, 2013 at 10:59 AM

    Hi Colin,
    Your post is centred around your view that the state should provide subsidised social housing for the masses and that private rents should be tied to those subsidised rents.

    In that we disagree.

  11. HB welcome says

    October 10, 2013 at 11:09 AM

    Regarding the £450 pcm one bed flat in Benwell, a quick look on Rightmove shows that properties can be had for a lot cheaper than that;

    http://www.rightmove.co.uk/property-to-rent/Benwell.html?propertyStatus=all&includeLetAgreed=true&_includeLetAgreed=on&index=90

    If you are single and working for minimum wage sometimes you have to settle for less.

  12. Colin Lunt says

    October 10, 2013 at 5:26 PM

    Hi HB
    If you look at some of the ads on that site they are for “rooms” in shared houses. One was for international students at £175 per room or another at £200 per room. Bilbrough must be one of the less attractive areas in Benwell let alone Newcastle.

  13. JamieT says

    October 23, 2013 at 12:44 PM

    “If families are to be generally directed to private lets then the rents need to be at an affordable level comparable to social rent; and if a private landlord is unwilling or able to provide that then it may be necessary for them to leave the market.”

    So, what you’re saying is that due to lack of govenernment funding for social housing, the government should fix open market prices and make landlords take the hit and if landlords don’t like it it’s tough?

    Wow. Did I wake up in this morning?

    Ultimately rent controls reduce housing supply and quality and reduce tax receipts. They also cause black market practices.

    The only thing to combat this is investing more government money in beurocracy, controls and policing to enforce standards and tax incentives to encourage investment. Why not just spend the money on social housing instead?

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