Friday 30 August 2013

Watch out for rent controls

warns Moneyweek's Matthew Lynn, addressing the nation's "new breed of landlords", buy-to-letters. After explaining how rising rents and low interest rates are making buy-to-let landlords pots of money and pointing out that rent controls would simply destroy the private rental industry, just as it did last time, he concludes:

"If house prices keep rising and rents alongside them, and if landlords appear to be growing rich on the back of that without doing much work, then people will start to get angry. Britain's housing market is so completely politicised already and so distorted by government that rent controls could easily be reintroduced."

This encapsulates two unpleasant features of British society, envy (It's all right for me to make money without working from the rise in value of my home, but if you do it, you're a parasite) and blaming other people for your ills (It's always the fault of the {insert hate figures here}, never your own fault). Look out, buy-to-letters, you may just be the next occupant of those parentheses.

11 comments:

Rich Tee said...

It's annoying because, as a tenant, I am opposed to rent controls for exactly the reasons stated.

I would much prefer changes to legislation in favour of longer tenancies, and the right of tenants to appeal to a local judge for compensation from the landlord on hardship grounds when asked to leave the property. These laws are common on the continent.

But I understand that it is banks who oppose such measures because it would make it more difficult to reposess a property from a Buy to Let landlord!

Mark Wadsworth said...

Ah, but the very strict rent controls we used to have were one of the reasons why the number of owner-occupiers grew so quickly, we've discussed that.

And isn't the government supposed to be encouraging that?

Bayard said...

RT, I agree, but rather than get the law involved, I would have longer compulsory minimum notice periods on both parties to accompany the longer tenancies. Ideally, I would prefer there to be an option to buy a longish lease with a high ground rent, which gives the tenant security and the ability to redecorate etc, the landlord some money up front, but also an income. Effectively the tenant would be buying the bricks and mortar and renting the land it stood on (which is why ground rent is called ground rent, I suppose).

"And isn't the government supposed to be encouraging that?"

Well, I suppose that a return to the 1970's would certainly shift a lot of housing from rented to owner-occupation which, as far as the government is concerned, would be a good thing. However, this would cause a short dip in house prices, which they would not see as a good thing. Also, it would mean that there would be a huge increase in the number of people who can't afford to buy anywhere and can't find anywhere to rent, as, unlike the immediate post war rent controls, they are, sure as shit, not going to be accompanied by a huge council-house building programme, in fact the precise opposite.

Kj said...

B: your idea about long leases is interesting. It reminds me of a case in point from our history that is tangentially related.
There's a type of land-lease agreement that has existed for ages. And I quote the page:


In a country that has, at least until very recent times, had more lack of capital than of place, tomtefeste has been an efficient way for landowners of making unproductive land productive without heavy investment, while leaseholders have been able to secure ground for their houses without having to find money to buy it. The lease has been a legal framework strong enough to give house builders the necessary certainty of being able to remain in occupation as an assured tenant for the time agreed.


Sure, it awards landowners unearned rents, but it has worked as a charm. When people's incomes increased after the second world war, people went out and got leases in rural areas and put up vacation cabins like topsy. No banks involved, just an annual sum and building materials paid out of wages.
Ofcourse the end of the story is that the law has been updated to allow for market increases in rents. This has pitted two parties who both wants the monopoly rents for themselves, it even went to the European Human Rights Court, where the leasholders lost. It's very interesting to note that noone could ever afford to do this today, even if there's plenty of land; landowners are very weary of handing out lease-agreements they can't be sure there won't be a lawsuit over later, and would rather sell lots outright. Pretty sad stuff actually.

Bayard said...

Kj, are you saying that under the tomtefeste lease, the landlord was unable to put up the rent, even to allow for inflation?
I can see that this is a problem with this type of lease: if you allow the landlord to put up the rent, the tenant is trapped by the term of the lease, but if you don't allow the landlord to put up the rent, then they won't enter into the agreement in the first place.
However, if the lease is used to sell an existing house, it doesn't need to be as long as it would be if it was used to sell land that the leasee is going to build a house on - ten years would be long enough, the length of a fixed-term mortgage. That's still better than a six-month tenancy.

Kj said...

B: before it became regulated by statuatory law, it was common law and increases were regulated by contract, and after, increases were restricted. The problem was when stat. law changed from pushing down increases to allowing for going back to market rents. Plus they introduced compulsory purchase rights for the leaseholders, where the actual sums involved were heavily argued in court cases. OTOH there are tomtefeste agreements where the council has the freehold, and won't dare to touch the original terms. I used to live in a terraced development built in the 60s, where the council still gets a few hundred quid each year for 24 units. This while prices are increasing 7-8% p.a..

I can see that this is a problem with this type of lease: if you allow the landlord to put up the rent, the tenant is trapped by the term of the lease, but if you don't allow the landlord to put up the rent, then they won't enter into the agreement in the first place.

Yes, as is witnessed in HK, with govt having a tough time renegotiating leases upwards to true market rents. But if you'd allow for contracts to specify their own terms, and not allow statuatory regulation to override them, landowners and tenants would always be able to reach an agreement. The history of tomtefeste shows that the introduction of stat. regulation, (that and raging homeownerism to be fair), caused the collapse of the system.

Kj said...

B: but back to your idea. A fair arrangement under an LVT system could look like this: Landlord owns lot and building, tenant agrees to pay LVT bill pluss rent to the landlord. Pays up front for guaranteed lease period, which acts as a deposit if tenant terminates before lease period.

Bayard said...

Kj, that gets round the security problem, but doesn't get round the "my house doesn't feel like my home because I can't alter it or paint it any colour I like" problem.

James Higham said...

Politics of envy is something I'm on about the whole time.

Mark Wadsworth said...

Everybody complains about the politics of envy, so that's a bit of a dead end.

I believe in taxing rental or monopoly income instead of earned income, and I get accused of being envious of monopolists.

Kj said...

Kj, that gets round the security problem, but doesn't get round the "my house doesn't feel like my home because I can't alter it or paint it any colour I like" problem.

The more secure a tenancy is, and this can be arranged by allowing a wide range of rental agreements, the more a tenant will be willing to make improvements that gives value to the tenant himself without increasing the rents because of it. If you can rent a shell of an apartment/terrace, with a fixed rate of return for the owner, adjusted only by LVT-rates, there´s no reason for the tenant not to paint his house, do up the kitchen*, maintain the garden etc., if that´s what he likes.
*like in Germany, where it´s not uncommon to rent really unfurnished, even without kitchen interiors.