Why Welsh government must reject rent controls and Right-to-Rent
Why Welsh government must reject rent controls and Right-to-Rent
In the final NRLA blog before the Senedd Cymru/Welsh Parliament election, we explain why importing rent controls from abroad and Right-to-Rent from England will lead to disruption.
The simple truth is rent controls do not work. Evidence across the world shows they have several negative and unintended consequences that include, perversely, disproportionate rent increases. Without controls, many landlords do not increase their rent year-on-year. Indeed, when they do, it’s often proportionate and below inflation. In point of fact, the highest average annual rent increase in Wales over the last nine years was 1.7% according to recent ONS figures. However, controls encourage rent rises as landlords increase their rents by the maximum limit annually. Alternatively, they may substantially increase them before the introduction of controls or between tenancies to ensure they can recover potential costs down the line.
In Berlin rent controls failed to stop rent levels accelerating. Between 2015 and 2017, rents in central Berlin shot up by almost 10% according to a 2019 report. Before the introduction of the rent brake they had been rising by just 1-2% each year. Rising rents are also fuelled by a fall in supply as landlords flee an increasingly inflexible private rented sector. The case of Berlin was recently covered in a Bloomberg article which sets out the negative consequences of rent controls for Germany’s capital.
The heavy-handedness of controls forces landlords out of the sector, dramatically shrinking the supply of rental homes for those that cannot afford to buy. This happened in San Francisco when controls reduced supply by 15%. It happened in Sweden when Stockholm’s controls rippled out to increase rents outside of the city. Often economic development in non-urban areas is hit, as labour migrates to the cities, attracted by the lure of rent controls. This trend in particular can produce significant delays in individuals’ wait for public housing.
Controls create discrepancies between controlled and non-controlled rental properties: around 45% of all occupied and vacant rental units in New York City are either ‘stabilised’ or ‘controlled’. Past RLA analysis shows non-controlled rents in New York are up to 25% higher as a result. The ‘average’ control tenant chooses to remain in residence 18 years longer than an identical tenant in an identical, non-controlled property. This is an outcome which ultimately reduces the flexibility within the PRS, meaning that many individuals are unable to access rented accommodation.
Research has also found controls create a system that is open to abuse and expensive to oversee. Take one recent example of where this has occurred. Attempts to introduce controls in Paris became mired in legal challenges and administrative tangles, with a whole range of disputes involving regulators, tenants and private landlords serving to undermine the system. Additional rules on exemptions and allowances have also added to the complexity.
Right-to-Rent is a scheme that requires landlords to check that tenants who occupy their properties have legal status to live in the UK. The NRLA argues it forces landlords to act as border control. Our arguments helped persuade the High Court that it breached human rights law – a ruling subsequently successfully appealed by the UK Government. Currently, Right-to-Rent rules are only in place in England, but the NRLA opposes the expansion of the scheme to the devolved nations and is calling for the policy to be dropped altogether.
Tackling the crises in housing is no easy task but adopting ideas that are counterproductive will only exacerbate the problem.