Rent caps will deter investors and harm renters, warn property experts

Labour’s proposals to limit rent rises will deter investment into the private rented sector and ultimately harm private renters, experts at property consultancy Daniel Watney LLP have warned.

Ed Miliband has pledged to cap rents during the course of the standard three-year tenancies so they cannot rise by more than the CPI measure of inflation, while allowing flexibility for them to be reduced.

Market rates will still apply at the start of a contract, but tenants will have a legal right to know what the previous tenant paid.

The rent cap would not apply to those who have agreed shorter contracts with their landlords, such as students or business people needing flexibility.

Labour also wants three-year tenancy agreements to become the norm, with landlords having to give two months’ notice before asking a tenant to leave, and only if they have a “good reason” to do so.

Labour are also to consider a reduction of the “wear and tear” allowance for those landlords who rent out the very worst properties.

But such measures will threaten the emergence of an institution-backed, professional private rented sector, warns Julian Goddard, head of residential at Daniel Watney.

This in turn will jeopardise the provision of new rental accommodation, limiting supply, and pushing rents higher.

Institutional ownership of private rental market stands at currently just 2 per cent (£18bn), but many predict, encouraged by favourable demographic and macroeconomic trends, it is only likely to grow.

Many individual landlords, who form the bulk of the market (75 per cent), may also be squeezed out of the market by Labour’s proposals, further reducing supply.

Julian Goddard, partner and head of residential at Daniel Watney, said:

“The key point here is that posing rent controls as the solution deliberately conflates various issues around supply, service standards, trust and affordability. Clearly, there is a widespread feeling that rents are too high. But rent controls are not the answer just as landlords are not to blame for a lack of house building over successive Tory and Labour governments.

“The government has invested £1 billion in a Build To Rent Fund and promoted the need to get institutional investors building a European-style, family-oriented rental market here. But this fledging industry is in its embryonic stages and Miliband’s meddling threatens to spook investors before they’ve had a chance to really make things move.

“Many professional landlords are already offering long term tenancies with fixed rent increases over three years. But imposing a model that’s insensitive to market conditions, will cause investors to look twice, compounding the problem with supply, and in turn, push rents up even higher.

“So far from creating a more affordable, secure private rented sector, rent controls threaten to do the very opposite, and it will be renters who suffer most – not landlords.”