Opinion: Sadiq Khan should be careful what he wishes for when it comes to rent controls in London

 
Toby Nicholson
London Mayor Sadiq Khan

The recent news that Mayor of London Sadiq Khan is moving ahead with plans to impose rent controls on London’s housing market comes as no surprise. Khan’s been contemplating regulation for some time and it featured in his 2016 pre-election manifesto, but nearly three years later, we still haven’t actually seen a concrete policy. Khan likely has an eye on the upcoming mayoral elections in May 2020, and is undoubtedly looking to leave a meaningful mark on the capital’s housing market.


Regulation is a broad term and could include a raft of changes to current housing policy – anything from freezing rents outright, capping increases in line with inflation, or re-shaping tenancy agreements to better protect tenants from unscrupulous landlords looking to maximise their returns. But what would this mean for Londoners – would tenants actually benefit?

In the short term, it’s hard to argue that they wouldn’t.

If rents were frozen, or even capped, tenants would have more occupational and financial certainty, thus providing stability and making the idea of renting more appealing for those unable to purchase.

That, in turn, would protect society’s most financially vulnerable and prevent the gentrification of micro locations. It would also lower barriers to entry for those starting out, and promote broader housing equality.


But the long term effects are less clear. The general consensus, especially among economists, is that rent controls are ineffective. Fundamentally, controls disincentivise the private sector from developing housing, thereby significantly curtailing supply.

Confined rents cause land prices and build costs to often exceed a development’s overall value, making it harder for developers, contractors and investors to justify and progress schemes. Given a lack of supply is principally why the country’s housing market is broken, implementing measures that discourage private sector investment would only exacerbate existing imbalances.

While some may be lucky enough to secure a fixed lower rent, in a more constrained housing market rent control would create challenging circumstances for those struggling to find accommodation. The ability to move and be socially ‘fluid’ is important for a society’s wellbeing, yet rent controls encourage people to stay put, leading to potential societal stagnation as people become anchored to certain locations.

And then there are the associated challenges of enforcing regulation. Determining the genuine rental value of an apartment is dependent on a number of factors and is easy to miscalculate. Rolling this out to over three million London households with precision would be almost impossible. Private landlords may learn to dodge rental regulation, scraping back lost income by charging it back to tenants in other ways, although self-regulation by professional landlords in the Build to Rent sector is already preventing this.

The best remedy to the existing crisis is to build more. Although rent freezes and other measures are likely being considered with the best of intentions, they may have adverse long-term effects. And while they may tick some additional ballot boxes for Khan in the 2020 mayoral election, the wiser approach would be to maintain focus on hitting the government’s ambitious housing targets.