When the words “rent” and “control” are put together it makes property types in the UK recoil. It doesn’t need to, and historic prejudices need rethinking.
The lack of housing in the UK is well chronicled. No matter what numbers you choose, the gulf between supply and demand is huge and getting wider. Building more requires us to consider all options.
Housebuilders are the obvious candidates to do the building, but their first responsibility is to their shareholders. Housing associations are in limbo. The changes to Right to Buy have created significant confusion about where their revenue will come from in the future.
Pension and insurance funds have the money and have taken to the idea of investing in the UK private rented sector. They just don’t want to take on the risk of building the properties at any scale.
Government has a part to play. But the challenge of facilitation for any government is to put the long-term need before short-term political expedience.
Investors rightly worry that greater government control would lead to populist policies that change every year, which would obviously put them off.
A body independent of government could assuage those concerns and establish long-term targets for the quality and amount of supply. After all, interest rates are set independently of political influence.
Such a body could also give investors the certainty and clarity to put their money to work. Ultimately, under such conditions rent control and regulation need not be an investor’s foe. They would give investors clarity about incomes.
Germany and the Netherlands, two of the largest investible residential markets in Europe, have forms of rent regulation. An index-linked rental contract, perhaps with moderating caps and floors, would appeal to renters because it gives them clarity on costs. It would also give long-term investors clarity on income.
Indeed, real rental growth of all UK property between 1980 and 2014 is an uninspiring -0.9% pa, according to MSCI.
Regulation may serve to limit speculation, and perhaps volatility, which would encourage conservative investors to invest. It could even help planning and provision of necessary resources, such as skilled workers and construction materials.
The crucial question is whether government can provide the stability and clarity for investors to solve the housing crisis for them. Those with the money need to know that the rules are not going to change as soon as they invest.
Rent control has become a dirty word in the UK property market, but a simple system, overseen by an independent body with long-term targets and underpinned by a political system that leans more to strategic guidance rather than short-term intervention could be a much needed game-changer.
Andrew Allen is head of global property research and strategy at Aberdeen Asset Management
