Final Countdown: Are you prepared to put the X in a box?

To cap it all off! What would a rent cap mean for me?

With Brexit the primary focus at the moment, and a month or so until the Autumn budget, you might have been forgiven for thinking you had a break from the political posts for a while...

However, at the Labour Party conference in Brighton this week there were significant statement made that have a very definite impact on the private rental sector should they come into force – but what exactly is Mr Corbyn suggesting?

What was said?

Corbyn vowed that should Labour come to power at the next election, he will introduce rent controls in cities across the UK, promising that there will be no ‘jacking up of rents’ under his watch.

He added that rents had soared die to the unregulated marked and that quick action was required to bring them down.

How would it work?

It is not yet clear whether the proposed system would implement a rent cap on the amount that can be charged in a geographical area/for a type of property, or is it would be looking at a cap on rental increases.

Labour's general election co-ordinator Andrew Gwynne (in an interview with the BBC’s Daily Politics show) drew attention to the rent control policiies in place in New York, stating 'if New York has them then London can have them'.

In light of this statement, we delved into the New York rent control policy guidelines to see how it works across the water.

The NYC rent control policy guidelines -

  • Limits the price a landlord can charge a tenant for rent
  • Regulate the services the landlord must provide
  • Allow the tenant to demand a lower rent if the landlord fails to provide agreed services
  • Outside of New York City, the state government determines the maximum rents and rate increases - owners may periodically apply for increases.
  • In New York City, rent control is based on the Maximum Base Rent system. A maximum allowable rent is established for each unit, and every two years, the landlord may increase the rent up to 7.5% until the Maximum Base Rent is reached.
  • A tenant may challenge increases on grounds that the building does not meet regulations, or the owner does not need to increase the rent that much to cover expenses.
  • In New York City, the maximum base rent (MBR) is calculated to ensure the rent from rent control units covers the cost of building maintenance and improvements.
  • The MBR formula reflects property taxes, water and sewer charges, operating and maintenance expenses, return on capital value and vacancy and collection loss allowance.
  • The MBR is updated every two years to reflect changes in these expenses.

There is no guarentee that any proposed legislation bought into the UK would reflect this scheme, however it is interesting to see how a working model is managed. Mr Corbyn assured attendees of the Labour Party conference that details of the scheme would be revealed further in a Green Paper in due course - we will of course keep you updated.

Is it used anywhere else?

A little close to home, legislation passed in 2016 by the Scottish Parliament is due to come into effect in Edinburgh in December, which will introduce ‘Rent Pressure Zones’. There are also calls for the scheme to be introduced in Glasgow.

In a Rent Pressure Zone (RPZ) landlords will still be allowed to increase rent, but they are only allowed to limit this increase to the annual rise of inflation plus one percent.

Rent Pressure Zones are also active across Ireland, with increases capped at 4% annually.

As for complete rental rate caps, few areas are willing to take this step. In 2015, Berlin introduced legislation which banned landlords from increasing rents by more that 10% above the local average, for new and existing contracts. The move was following an average increase of 9% between 2013 and 2014, and was made to ensure that the housing market remained in line with average wages.

What do the experts think?

There's no shortage of expert option on this topic.

The National Landlords Association have created a full briefing document on the key housing policies announced at Labour's Annual Conference, which you can read here - their expert policy team has provided interesting insight into not only this topic, but a few of the lesser talked-about ones as well.

But David Cox, chief executive of ARLA Propertymark is concerned that the proposal may be a backwards step, and not the move that the UK property market needs at this time:

The last time rent controls existed the private rented sector went from housing 90% of the population to just 7%. Whenever and wherever rent controls are introduced, the quantity of available housing reduces significantly, and the conditions in privately rented properties deteriorate dramatically. Landlords, agents, and successive governments over the last 30 years have worked hard to improve the conditions of rented properties and this is like taking two steps backwards. Rent control is not the answer – to bring rent costs down we need a concerted housebuilding effort to increase stock in line with ever-growing demand.

David Cox, chief executive of ARLA Propertymark

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