Sadiq Khan’s plans for rent control and tenancy reform: what are they and how would they work?

Sadiq Khan’s plans for rent control and tenancy reform: what are they and how would they work?

Last week, Sadiq Khan published what he called a “blueprint” for reforming private renting in the capital. With recommendations for improved security of tenure and powers for London Mayors to regulate rent levels, it is likely to excite enthusiasm among Londoners, whose backing for rent control appears particularly strong, with 68% telling YouGov in December that they support them compared with just 16% opposed. What does this blueprint propose and would its measures produce desirable results?

Two points to bear in mind right from the start: one, Mayor Khan will have to ask national government to bestow powers to cap rents, and the current one seems unlikely to oblige; two, there are long-established arguments that rent control can end up doing more harm than good, in particular to the poorest and most vulnerable private renters – the precise opposite of what Khan wants to achieve.

Such arguments are not confined to those on the Right whose reflexive response to the idea of the state at any level constraining the freedoms of private landlords is to make comparisons with Venezuela or the Soviet Union. Sober housing academics and even some on the Left, such as New Statesman’s Stephen Bush, argue that rent control simply doesn’t work. And just four years ago, research for the London Assembly’s housing committee found that rent caps in London could bring mixed blessings.

So is there a potential way for London Mayors to implement rent controls  that doesn’t end up creating more problems than it solves? Khan’s blueprint has the considerable asset of being worked on by his deputy for housing James Murray and Westminster North MP Karen Buck. Two of Labour’s ablest housing specialist politicians in the capital, they were never going to pretend that rent control without accompanying measures to mitigate drawbacks can’t have undesirable outcomes. They have drawn on rent control proposals devised by the New Economics Foundation think tank.

The blueprint looks at tenure security first. In that respect, the Mayor and national government have not been wholly at odds of late. Theresa May’s administration planned to deprive private landlords in England and Wales of the right to evict tenants on assured shorthold tenancies (ASTs)at short notice – as little as two months – without giving a reason under Section 21 of the Housing Act (1988). Khan’s blueprint too wants Section 21 gone.

But the Mayor also recommends the replacement of ASTs, the most common kind of private tenants contract and often six months to one year long, with open-ended ones. This goes further than other tenancy reform proposals, such as Shelter’s stable rental contract produced in 2012, which, with families much in mind, argued for a five-year contracts and the May’s government’s model for three-year tenancies, consulted on last year.

That suggestion included a “break clause” to come into effect after six months, creating, in the words of the consultation document, “an opportunity for the landlord and tenant to leave the agreement after an initial six months if dissatisfied” (paragraph 59). However, Mayor Khan wants all break clauses gone, saying they could be open to abuse by unscrupulous landlords using them as de facto section 21 notices. He says their complete removal would “encourage landlords to resolve disputes through mediation” instead.

These changes would be big pillars of the Mayor’s London Model for tenure security reform. And if they suggest the blueprint is pretty radical, the rent control section is likely to confirm that impression. It sets the explicit goal of not simply capping private sector rent rises but actually reducing them. I’ve had this confirmed by City Hall, just to be extra sure: not reductions in the amount by which rents could rise, not reductions relative to the rate of inflation, not even a freeze, but actual cuts in rents as they stood at the time any powers to control them were devolved, albeit it gradually over time.

Shelter, whose stable rental contract idea included allowing landlords to raise rents during a tenancy by regulated amounts, describes the call for powers to “proactively reduce rents” as probably “an international first”. The charity’s policy analyst John Bibby writes: “Most rent control has been the equivalent of moderating how quickly you open a fizzy drink. This would be pushing the gas back into the bottle.”

That’s the Mayor’s objective, and easy enough to state. The hard part is designing a rent control system that would be efficient both at bringing rents down – “tackling affordability” – and preventing the kinds of unintended consequences mentioned above. The blueprint recognises that some examples of rent control in other countries demonstrate that it can “reduce the supply and quality of rental housing if the approach chosen makes investing in the rental market less attractive” (para 2.61)      and that trade-offs are integral.

Another concern, often emphasised by rent control sceptics, is that if rent controls do produce a slow down or even a shrinkage of the supply of homes for private rent in a city with a booming population and private renting on the rise, the market becomes less accessible to the poorest and most vulnerable. That is because those landlords who don’t decide to sell up and get out of the business altogether, even though their profits are reduced, could become choosier about who they let to. Why would they prefer tenants in difficult circumstances on low incomes to people with steady, well-paid jobs who they might feel less likely to be troublesome?The Mayor recognises that reforming security of tenure could make it harder for vulnerable groups to secure tenancies too.

Given the wide scope for getting rent control wrong it is not, perhaps, surprising that the Mayor’s blueprint does not include firm plans for a London system. Rather, it sets out some principles and a mechanism for working out the best way to proceed.

It recommends that a “universal register of landlords” is established to provide those charged with developing the policy with the data they need to do the job – I’ve learned from City Hall that all concerned were surprised at how hard it is get the information they require. An arms-length London Private Rent Commission would be set up to manage the landlord register, use it to “design and implement” the London rent control system, including its own enforcement role, and set about getting private rents lowered. The commission would also examine how to incentivise further investment in new and current private rented housing. Finally, the Mayor would like to interim powers to bring in short term caps on rent increases until the long term system has been worked out.

All of these things, including assembling the data, would need government permission. This would also furnish the blueprint with the status it desires. A parallel has been made with the Low Pay Commission, an independent body sponsored by the government that advises it about mandatory minimum wage levels.

There plenty more to the blueprint, including a “third pillar” of the London Model retained landlord’s right to regain possession of their properties, a recommendation to beef up the courts so that new mayoral powers can be enforced, an emphasis on the continuing need for far more housing let at social rent levels and an 80-page technical paper.

Given the ideological complexion of the new Conservative government led by Boris Johnson, a green light for Mayor Khan’s plans looks a long way off. But in the febrile climate of Uk national politics, who knows what might be happening in even three months’ time?

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Categories: Analysis

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