With Labour’s pledge to hold down rent rises, young people in Britain finally have a policy that’s targeted at them. Sadly, it’s not going to help much.
Millennials are the forgotten group of the 2015 General Election campaign. Although they played a significant party in propelling the Liberal Democrats into the coalition government in 2010, the group has been given little attention this time round.
However, with the announcement of Labour’s plans to cap rent rises to inflation over the duration of a tenancy young people may finally have a reason to cheer. After all, it is the young who are increasingly been caught by the UK’s mix of rising house prices, rising rents and stagnant wages.
Describing the policy, Labour leader Ed Miliband said:
“We’re going to have fairness for those who rent their homes too with three year stable tenancies and a real cap on how much rents can rise in that time, set at no more than inflation. So that people can enjoy real security in the place they live.”
Who could disagree with greater “fairness” and “security” in the housing market?
Well, no-one really. But this policy isn’t really likely to achieve much of either.
Here’s why: These so-called second-generation rent controls are likely to mean that landlords set the rent for three year tenancies at a level that they would have expected the rents to rise over that period. And, indeed, they may also factor in the risk that rents might rise faster than they expect so could add a little on top of that amount as a precaution.
Ryan Bourne, head of public policy at the Institute for Economic Affairs (IEA), argues that if anything such a move could actually increase the cost of renting rather than driving down costs (emphasis added):
“[Introducing this type of measure] means the overall market rents are likely to
increase slightly if tenancy rent controls are introduced. In effect, an option is being given to the tenant (if market rents increase rapidly, the tenant will not face rent increases as high as market rent increases and if market rents fall or increase slowly, the tenant can expect a reduction in rent). Such options come with a cost and with risks to landlords.”
If there is clear evidence of market abuse, or monopolistic behaviour, in the housing market then there could be a good reason for the government stepping in to protect renters from being gouged. If, however, the high costs of renting reflect a significant shortfall of house building in the areas where they are most needed then any policy that seeks to address it simply by holding down rents is very, very unlikely to succeed.
And there are good reasons to believe that Britain is already suffering an acute shortfall in housing supply. In 2009, the now-defunct National Housing and Planning Advice Unit estimated that the UK would need 290,500 additional homes built in
each year to 2031 in order to address the growing affordability problem in the country.
Here’s what has actually happened in the intervening years:
In short, Britain has a housing crisis.
If elected, Labour plans to build 1 million new houses over the course of the next parliament at around 200,000 a year. Yet given the huge shortfall built up over the past six years and continually rising demand due to a growing population that number is likely to be nowhere near enough.
As a short term solution to the rising cost of renting and the (associated) rising housing benefit bill paid by the government, the suggested rent caps can possibly paper over some of the problem and are very unlikely to have a huge negative impact — though it’s unclear whether the government could insist that renters take on three-year contracts and even less clear that it should. But most housing market experts see high rental costs as the market’s way of screaming that there is simply not enough supply in the right areas to cope with demand.
More radical policies — including reforms of planning laws as well as an ambitious state house-building programme — are almost certainly the best way to help today’s young people. It’s a great pity that no-one running for office is willing to seriously consider the aspirations of Generation Y.
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