Labour Government Wants Rent Control to Help Generation Rent

The next British General Election is due in 2015. It is not clear which Party (Tory, Labour, Lib Dem) would win.  With the GE around the corner, all the political parties are now jostling for position.

I'll give it back to the landlords

Ed Miliband (Labour Leader) will say that a Labour government (if he wins) will take action to deliver a fairer deal for the nine million people living in rented homes.  He would ban landlords from evicting tenants as a quick way of increasing rental income.   He will pledge to introduce three-year tenancy agreements with strict rules to make it more difficult to evict tenants. His policy is designed to be one of the most eye-catching elements in his campaign to tackle the "cost of living crisis".

Generation Rent
Pledging to champion Britain's overlooked "generation rent", Labout will introduce a mechanism to place a ceiling on rent increases and ban letting agents from demanding fees from tenants that can be as much as £500.

"Generation rent is a generation that has been ignored for too long. Nine million people are living in rented homes today, over a million families and over two million children. That is why a Labour government will take action to deliver a fairer deal for them, too."

Labour sources were adamant that their reforms do not amount to the blunt instrument of rent controls because the market will still set the rent. The Labour plans would give tenants security, with a three-year tenancy agreement to allow them to plan ahead, with predictable rent.  The Miliband plan will have three main elements:

1) New three-year tenancy agreements that would start with a six-month probationary period allowing landlords to evict a tenant if they are in breach of their contract. This would then be followed by a two-and-a half-year term in which tenants would be able, as they are now, to terminate contracts after the first six months with one month's notice.

Landlords, however, would only be able to terminate contracts with two months notice if a tenant fell into arrears or was guilty of anti-social behaviour; or if the landlord wanted to sell the property or needed it for their family. This is designed to prevent landlords from terminating tenancy agreements to put up rent.

2) A new formula to prevent excessive rental increases. Labour will be guided by the Royal Institute of Chartered Surveyors, which is examining options for a new benchmark. This could be linked to average rent rises, inflation or a combination of the two.

3) Ban letting agents from charging tenants fees just to sign a tenancy agreement. They will instead have to ask landlords for fees.

Political Hot Potato
There has been  a 13% rise in the average costs of rent since 2010.  One of the biggest causes of the cost of living crisis in UK is the price of renting or buying a home.

Observations 

It is very Labour to put in more regulations and rules which appear to help the less well-off.  In principle, this is not unreasonable.  After all, the scale of the problems facing "Generation Rent" UK voters look very large.

However, the issue is whether Labour has any ideas with regard to the fundamental issues facing the housing crisis in the UK.  UK needs some form of public housing scheme, or some fundamental and structural reforms to build new homes, so that these 9 million renters do not even need to rent in the first place.

Therefore, it would be very disappointing if all Labour intends to do is to introduce this form of 'rent control' to help "Generation Rent".  What about trying to solve the root causes?

Happy Investing!