Rent control has apparently failed in every instance it has been introduced in the past, not just in the UK but in other countries too.

We know that politicians don’t learn from past mistakes and are opportunists. Currently rent control is again being talked about as being introduced should we have a disastrous election result, and the economically illiterate Milliband gets elected. Its an easy vote-winning statement to make that will appeal to the “victims” within the electorate (Labour’s core voters).

However it doesnt take a lot of questioning and understanding of the market forces of supply & demand to realise that the idea is wrong-headed and will have the opposite effect to that which was intended.

The following article that I have copied from the National Landlords Association’s website also highlights another reason why rent control will cause problems across the housing industry; the effects on housebuilders’ finances.

Article Posted – 18 Feb 2015
Rent control is understandably considered part of an unholy trinity of public policy by private landlords, along with indefinite security of tenure and unwarranted licensing schemes.

There is good reason for landlords to fear the re-introduction of price intervention policies. They have a long history of market damage in the UK and abroad, never less than when private rents are concerned. However, little focus is given to the implications price control can have on other facets of the housing supply chain.

Delegates attending a recent housing conference in the City of London spent some time discussing the topic with a number of (very) large investors and building firms – and the conclusions were stark to say the least.

It seems the principal concern of institutional investors and their financial backers was not necessarily the impact on individual tenancy terms, or even their long-term income. They were far more interested in the impact the uncertainty and potential negative consequences of such a change would have on banks and builders’ ability to ‘de-risk’ new developments and in the worst instances break ground on new sites.

Few people, it would seem, realize that many house builders are only able to finance builds by the release of a primary phase to off-plan purchasers. i.e. those prepared to invest in a property before construction on the basis of developers’ ‘literature and architects’ plans.

Understandably, this tends to be landlords making business decisions, rather than households buying a home.

In the uncertainty that would undoubtedly follow proposals to introduce rent limits, both landlords and risk-averse lenders will almost certainly focus their intentions on lower risk investments and decimating new-build demand. The consequence of which will be stalled sites and a further reduction in house building.

A far cry from the quarter of a million units many agree the UK needs to build year on year.

– See more at: http://www.landlords.org.uk/news-campaigns/news/why-rent-control-will-halt-house-building#sthash.QOmY6mYP.dpuf

Leave a Reply