Opinion and debate are the lifeblood of any democracy. In nearly all cases there are many sides to an argument and each one often has its own brand of validity. Not so when it comes to housing in the UK and, in particular, London. There is an acute shortage of housing. That is a fact.
The political football that is housing is one that has been kicked from pillar to post for centuries and this isn’t likely to stop any time soon. One term that usually rears its head in this debate is known as rent control. With less than a week to run in his campaign, Ed Miliband announced that as prime minister he would immediately implement rent controls on residential properties. He even went so far as to engrave this commitment (along with his other election policies) on a statue to mark the occasion.
Reoccurring topic
Some weeks later, rent control – along with several other policies that were targeted at property owners – seem to be a thing of the past. But, as we know, history tends to repeat itself and rent control is a topic that is bound to be put back on the agenda sooner that one might think.
With that in mind, I thought it would be worthwhile to explore rent control: its objective; its track record in Realstar’s native Canada and its impact on the marketplace.
The idea of a restriction on astronomical, unaffordable annual increases in rents certainly comes from a good place. In essence it recognises that most people receive salaries which, if they’re lucky, track inflation over time. We know that salaries have not kept up with inflation (despite its low levels of late) and furthermore, that this real-wage metric tends to drop well below inflationary growth during times of economic hardship such as the recent recession. Therefore, in order to protect hard-working families from being thrown out of their homes by unscrupulous landlords, the idea of a restriction on this increase seeks to eliminate this scenario.
With that clearly noble and well-meaning objective in mind, the key question is “Does it work?”
Lessons from Canada
Realstar has been operating in what we tend to refer to as the multi-unit rental housing sector for over 40 years (side appeal – can we please change the name from PRS to something else? It sounds like some kind of disease). We own and operate nearly 30,000 flats (we call them apartments) coast-to-coast across Canada. Rent control has been an on-and-off stalwart of the Canadian rental housing sector from its earliest days.
Specific legislation varies from province to province, however the general theme is that rents can only increase by inflation for in-situ tenants. Once tenants vacate their units, rents can be rebased to market value for a new incoming tenant. In addition, there are certain allowable additions for generating an acceptable return on certain capital investments.
Canada’s national vacancy rate is sub-4%. In our own portfolio it is less than 1%. One main reason for this has been rent control. As a result of the compound effect of the differential between market rent and rent-controlled rents, there have been nearly no new-build rental properties in more than 30 years.
The legislative-enforced rent levels mean that existing buildings charge materially less than a new build would have to charge in order to be economically viable and developers simply can’t make the numbers stack up. As a result, nearly all new-build residential in Canada since the 1980s is primarily for sale, not rent.
Time will tell
From a UK perspective, what the government and consumers really want is a large volume of high-quality, low-cost accommodation for hard-working people who are doing their best to contribute in all the ways great citizens do: to their friends, family, local and wider communities.
Is rent control the way forward? Only the government will decide. In our experience, it tends to be politically savvy in the short term, but ends up hurting supply and therefore the consumer in the medium to long term.
Ryan Prince is co-founder and chief executive of Realstar Living
