Housing remains near the top of the agenda ahead of the election in May but Labour’s plans for rent controls haven’t been welcomed by estate agents and surveyors.
The main highlights of Labour’s proposals include extending tenancy agreements from six months to three years and placing a cap on rents in the private sector.
These proposals are likely to be a major turn-off for the UK’s buy-to-let investors who until now have enjoyed a largely untroubled period since the dawn of buy-to-let in the 1990s.
Looming large on the horizon however are parties to the left of the political spectrum who feel that reform is needed to help tenants feel more secure in their homes.
Policy Could Undermine Private Rented Sector
Jeremy Blackburn, RICS Head of Policy, described Labour’s policy as “A welcome move away from the arbitrary rent caps announced last May” however he also said that “Labour’s rent control proposals risk undermining the Private Rented Sector (PRS) by failing to take a holistic look at inflation, market value and the living wage across the whole of the UK.
Capping rent inflation through three-year fixed tenancies is likely to impact investment into the existing quality of homes in the PRS and could force smaller landlords to exit the market – limiting supply at a time when the UK faces a chronic shortage of homes across all tenures.
The PRS has a vital role to play in the supply-side equation of the housing crisis and transparent landlord fees and fairness for tenants are already at the heart of the existing voluntary Private Rented Sector Code of Practice.
However, this code lacks the ‘statutory teeth’ to be enforced across the whole of the rented sector and the next government needs to address this if we are to fulfil our commitment to more and better quality homes.”
The housing shortage is one area of concern which Labour are attempting to address if they end up in number 10 in May. The problem is that the housing shortage in the UK is largely confined to the South of the UK. There are still regions in the UK where property prices have barely recovered since the last recession leaving thousands of homes on the market for months or even years in some areas.
Robert Bartlett, Group CEO of Chestertons, says: “This will be one of the closest elections in decades and property has never been higher up the political agenda, with pretty much all parties pledging to build more new homes and backing changes to property and wealth taxes. We can’t predict the outcome of the vote or the discussions between the parties that may follow, but we can draw conclusions as to the types of policies we might see introduced under various political permutations.
Major Reforms To PRS Proposed By Labour, Lib Dems and Greens
He continues: “Labour, the Lib-Dems and the Greens all propose major reform to the private rental market, including national landlord registration schemes, minimum terms for tenancies and rent reviews and, in some cases, direct rent controls. While we welcome the aim of a fairer, more transparent and accessible rented sector, the main factor behind rising rents is that the available supply of good-quality homes is being outstripped by rising demand. If a lot of new legislation is imposed on landlords quickly and without proper consultation, there is a real danger that properties may actually be withdrawn from the market, which will only serve to exacerbate the very problems the new laws seek to address.”
He adds: “If Labour gets in we can also expect some form of Mansion Tax. There isn’t much detail on how this would work in practice, or how much money it would raise, but it’s likely properties worth over £2m would be subject to the levy, and we also know the vast majority of these homes would be in London. Many older people who bought property a long time ago and have seen values rise over time could be forced to sell up and downsize to avoid a tax they can’t afford to pay.”
He concludes: “Ultimately we need to see many more housing starts in all areas of the UK and, with the exception of the Greens, who favour refurbishment and energy efficiency improvements over building new houses, all of the parties are in agreement that hundreds of thousands of new homes of all sizes are needed to meet the growing housing shortage.
“They all favour development on brownfield sites over encroachment into the Green-belt, but unfortunately there isn’t much detail on how these homes can actually be delivered. The property sector as a whole continues to hold its breath and await the outcome of the vote and the inter-party talks that will surely follow. We just hope that any proposals put forward will allow full consultation across our industry, to ensure new laws don’t end up having the opposite of their intended effects.”
Government Needs To Encourage Investment
Lucy Morton, Director and Head of Agency at W.A.Ellis and JLL, strongly criticised Labour on its housing policy adding; “The next Government urgently needs to encourage housing investment and not deter investors; these investors not only underpin the property market but also generate a huge income into UK PLC.
Investors have a choice, in other investments they can achieve both capital and income appreciation in line with the market.
The Labour Party plans to introduce a mansion tax and also cap rent increases in line with inflation which will discourage investors and ultimately reduce the supply of stock. Inflation based increases mean landlords are not incentivised, and indeed may not be able to afford to maintain their properties in good repair during the tenancies.
Further, they might be inclined to inflate rents at the beginning and end of the three year term and look at ways of terminating their tenancies during the three year term by selling. The net result is less available stock of poorer quality and more insecurity for tenants.
The next Government needs to urgently address the housing crisis in the UK and encourage investment. We are already experiencing a decrease in interest and demand from investors due to the uncertainty of the election and these flawed Labour policies. Generation rent needs willing, not reluctant, landlords.”
Posted on: April 28, 2015