Rent controls are not the answer to rising rents in London, says new report

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Rents in London are rising due to a squeeze on the private rental market that has dramatically reduced the supply of homes, according to a new analysis, but it says rent controls are not the answer.

There were just 18,700 newly advertised properties to let in Greater London last month, compared to 28,800 in June 2017, a drop of 35% in the number of rental properties over two years.

The research from property website Home.co.uk says that with demand for rented accommodation in the capital still strong, this decline in supply has led to a marked increase in rents.

Rents across Greater London are up by 7.3% over the last year, based on growth in the mix-adjusted average. But in certain central London boroughs it has been higher with rents in Wandsworth up 22.1% in the last 12 months, a rise of 14.6% in Southwark, a rise of 12.1% in Camden and a rise of 10.8% in Hammersmith and Fulham.

The Labour party and Sadiq Khan, the Mayor of London, are both in favour of some kind of rental cap in the city but Doug Shephard, director of Home.co.uk, says such a move would be treating the symptom and not the cause. He believes it would hinder the recovery of the property sales market in London.

According to the latest Home.co.uk figures, the typical London home is now worth 14% less than when prices peaked back in May 2016.

‘Lack of rental supply is the problem. Rent caps will just make the situation worse. I’m not convinced that London landlords will want to be participants in this Marxist dystopia, and the likely consequences for future supply are obvious,’ said Shephard.

‘In addition, the folly of rent capping would likely postpone the recovery in the London sales market indefinitely. Not an attractive proposition for the many new home owners who managed to escape the rent-trap but are now trapped in negative equity,’ he pointed out.

The report says that a key factor in the lack of supply and corresponding rise in rents has been increased regulation and taxation, which has forced many existing landlords to sell up. It has also put off many of those looking to enter the capital’s buy to let market.

It explains that buy to let investors are now unable to offset all their mortgage interest against their profits and within two years none of this interest will be tax deductable. In addition, increased red tape includes additional licensing for Homes of Multiple Occupancy (HMOs), in which councils can impose their own licensing on landlords letting such homes.

Furthermore, discretionary additional and selective licensing varies by local authority, which can add another layer of bureaucracy to landlords depending on the location of their rental property.

‘Over the last few years, the increased taxation and regulation of the private rental sector by a revenue hungry Government has been like shooting fish in a barrel. For many landlords, their secure revenue generating asset has been transformed, through legislation, into a loss making liability. Many have chosen to exit the sector or at least trim their portfolios of all but the profitable properties and pay down some or all of their debt,’ Shephard concluded.

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Written by: Houseladder



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