Mayor Khan’s recent assertion that he will make London’s Mayoral election about rent control, coupled with the introduction of rent controls in Berlin, Paris and California in the second half of 2019, has thrust the topic into the limelight once again. For the BtR sector, the prospect of rent controls has the potential to stymie further growth, undermine existing projects and roll back progress of UK BtR. Or does it? In the long run could well-managed rent controls improve the position of the BtR sector versus the amateur and single property landlord as well as drive predictable growth?
Rent controls come in two main forms; hard, where rent levels are stipulated and unchanged over long periods of time, and soft, where increases to rental prices are regulated.
The number of renters is growing, yet renting has become increasingly unaffordable and when it comes to the tenant experience, particularly for those with single property or amateur landlords, quality of product can be variable. Surveys show support for rent controls because above all else people want stability. Tenants worry about unpredictable rent rises that may force them to leave their home and community.
Not only does the BtR sector offer a quality product but many providers already self-adopt soft rent control through transparently set out indexation of rent levels, thereby creating the stable predictable environment that investors and tenants alike want. In a sense, soft rent control already differentiates the BtR offering.
But could even hard rent controls be good for the BtR sector?
Whilst the exact nature of hard rent controls can vary - and the detail matters - taking a broad view, many of the most observed outcomes of hard rent controls identified around the world could counter-intuitively complement, not undermine, the private BtR model.
Key, usually unintended, consequences of hard rent controls around the world typically include:
- Tenant service and support degradation
- The increase of rents in non-controlled areas
- Reduced supply as amateur and single property landlords exit
- Tenants staying in their rent-controlled homes longer
- Rent controlled homes not necessarily representing value.
The BtR offer can respond to all these consequences by:
- Providing exceptional customer service
- Tracking market dynamics closely to boost investment cases across different locations
- Satisfying demand created by the exit of others
- Championing the all-round proposition of BtR as providing great value for money
- Further embracing longer term tenants (as it does already).
The role of government
Of course, the biggest risk for BtR from hard rent controls is that they could threaten the viability of projects, where viability is likely to be a challenge already. This is highly significant but also depends on the detail. Recently implemented hard rent controls in Paris have exempted refurbished or new buildings. Even in Berlin where the policy is seen as relatively radical, buildings constructed after 2014 are exempt from the newly implemented hard rent controls.
Coupled with other policymaking examples such as the increase in tax credits for new buildings in the UK Government’s March Budget, we can infer that governments are probably keen for any rent controls that are implemented to encourage rather than hamper investment from professional landlords, as a vehicle for driving up quality of product and tenant experience.
All things being equal and given that the BtR sector lives for quality of product and customer experience, there may be less to fear from even hard rent controls than first meets the eye. It is perhaps the amateur and single property landlords who should worry.
The implementation of enforced rent controls on the private sector, hard or soft, remain unlikely in the UK. Even though Mayor Sadiq Khan would like them in London, he lacks the powers without central government intervention. Nevertheless, it is worth considering that even if they do emerge in the future, provided they are thought-through, they may only speed up the inevitable decline of the amateur and single property landlord in favour of a bigger professional BtR sector. When it comes to solving the housing challenges facing our cities, many might argue that would be a good thing.