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Lib Dem housing plans are the solution to shortage - not rent controls

April 27, 2015 10:24 AM
By Alan Bullion

Labour's plans are ill thought through and will make things even worse for tenants. They want to help 'Generation Rent' but charity 'Generation Rent' has slammed the plans - saying it won't bring down rents and will incentivise landlords to evict tenants. Rather than reduce rents, Labour's plans will lead to huge rent hikes every three years, higher rents overall and fewer available rental properties.

The only way to keep rents under control and stop house prices from spiralling is to follow the Liberal Democrat plan to build 300,000 homes. As well as ambition house build targets, the Liberal Democrats will help young people with their tenancy deposit and support people to gradually buy their home through our Rent to Own policy.

Labour failed to build anywhere near enough homes in Government - with house building falling to levels not seen since the 1920s. Even Ed Balls admitted that Labour failed to recognise the "importance of building more homes and more affordable homes".

Liberal Democrat plans

1. Set an ambitious goal to build 300,000 homes a year, including in 10 new Garden Cities in areas where homes are needed most, in areas where there is local support, providing tens of thousands of high-quality new homes, with gardens and shared green space, jobs, schools and public transport.

2. Introduce a new "Help to Rent" and "Rent to Own" schemes which will provide government-backed tenancy deposit loans for all first time renters under 30. And we will help working people buy their first home for the same cost as renting, with a new model of Rent to Own homes, where each month's rental payment steadily buys you a share in the home, which you'll own outright after 30 years.

3. Directly commission house building from Government. As is being trialled in Northstowe in Cambridgeshire, we will support government-backed schemes to build houses for sale, where necessary, to compensate for the shortfall in the private market.

Analysis of Labour's proposal:

The most likely result of Labour's policy would be to simply change the timing of rent costs over a tenancy by raising the returns that landlords require.

Since landlords know they cannot adjust rents each year to fully reflect market conditions, they are likely to set rents at the start of the tenancy according to their judgement as to what they expect rents over the lifetime of the tenancy to be.

In fact, if they expect that the market rent will increase by more than the average used to determine the rent control, they will front-load the rent level to compensate for their future loss.

Labour have used the example of Germany as evidence that a rent control system could work in the UK. In Germany, rents are set by the market initially but then can only be raised within tenancies according to inflation or increases in the landlord's costs.

However, this ignores huge structural differences in the housing market more broadly compared with the UK, the biggest one being that Germany has been able to deliver the number of houses required to meet demand, as demonstrated by the fact that both rents and house prices are much lower-relative to income-than in the UK.

The German example only proves one thing, which is that the priority has to be building the 300,000 homes a year that the UK needs-only the Liberal Democrats have committed to achieving this.