Corbyn recession panic: Labour rent cap plan could spark disastrous housing crash

Last month at its annual conference in Brighton, the Labour Party pledged to introduce a cap on rents, a plan first muted in its manifesto prior to the 2017 general election. In June, Labour released its ‘Land for the Many’ report, which recommended rents within tenancies could be increased “at no more than the rate of wage inflation or consumer price inflation (whichever is lower)”. This system would see landlords able to set the rates as they like when the property is put on the market for new tenants.

But landlords would also be limited, as Land for the Many recommended a policy of “open-ended” tenancies to replace fixed short-term contracts, which can be as short as six months, and now the plans from Jeremy Corbyn and his party have been attacked.

Evan Maindonald, chief executive of property development and investment firm MELT Property, told Express.co.uk: “The only result of capping rents will be to drive landlords out of the market, reducing the supply of available homes and making it impossible for tenants to find a place to live.

“The cost would depend on the level of discount offered to tenants, but the this could easily exceed £100billion. This is not something the government could afford to cover.

“Policies such as these would impact poorest people most by driving the economy into recession. They would make the UK an unattractive place to invest and drive investment elsewhere.

A housing market crash is highly likely result of the introduction of such policies. They would almost certainly cause a recession

Evan Maindonald

“A housing market crash is highly likely result of the introduction of such policies. They would almost certainly cause a recession.”

Matthew Lesh, head of research at the Adam Institute think tank, warned introducing rent caps should be “consigned to the dumpster of history”.

He told this website: “Only an economic illiterate would propose rent control. Every time and every place that rent controls have been tried, it has proven a total disaster.

“Rent controls would worsen our housing crisis by discouraging investment and building.

“It was once said — by a Swedish socialist economist Assar Lindbeck — that rent control is the best way to destroy a city, apart from bombing.

“In Stockholm, you have to wait up to 35 years for a rent-controlled apartment, with an average wait of 10 years. The result is a system of bribes, patronage, and a black market to access a home. This idea should be consigned to the dumpster of history.”

Len Shackleton, editorial and research fellow at the Institute of Economic Affairs, warned managing the policy would be “near-impossible”, significantly reducing the choice of accommodation for tenants that need it most.

He told Express.co.uk: “Economists are virtually unanimous that rent controls are a bad thing. They reduce the supply of accommodation offered by the private sector, and reduce the incentive – and the ability – to maintain the quality of the rented housing stock.

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“Remaining landlords would take any chance to get out of existing rental contracts and historically, this has worked against poorer tenants who may find it difficult to keep up payments or meet other contract requirements.”

“Labour says it will make it difficult for landlords to end tenancies, but policing over five million tenancies will be near-impossible.

Tim Focas, director of financial services at the Westminster think tank Parliament Street, accused Labour of demonstrating another example of “failing to understand” the best way for a market to succeed.

He said: “This policy is just another example of the Labour failing to understand that markets work best when supply and demand are allowed to find a natural balance. The problem with any form of rent control is that it keeps overall rents artificially high by not incentivising new builds.

“Berlin became one of the first European cities to introduce a rent cap after the government passed a law allowing local authorities to institute limits if the housing market in certain areas.

“But the law, introduced over three years ago, did not work. When comparing the prices of apartments on offer with the average prices according to the rents in each area, rents in Berlin were an average of 31 percent higher than the cap allowed.”

David Cox, chief executive of ARLA Propertymark, a professional body for letting agents, warned: “Rent controls do not work; it hits hardest those it’s designed to help the most. The last time rent controls existed in this country, the private rented sector (PRS) shrunk to their lowest levels ever.

“At a time of demand for PRS homes massively outstripping supply, rent controls will cause the sector to shrink.

The Residential Landlords Association (RLA), which represents more than 35,000 landlords, branded Labour’s plan “an attack on landlords”.

RLA policy director David Smith warned capping rents would lead to a slump in investment at a time when the housing market needs it most, and actually drive rents up, forcing tenants to move out of cities.

He told Express.co.uk: “Rent controls are meaningless if people can’t find a home to live in. They will lead to a drop in investment at a time when increasing supply needs to be the focus.

“Localised rent controls would also have a huge impact in the surrounding areas. With demand continuing to outstrip supply, residents would have to move out of cities and rents would be pushed up further as demand increases in commuter belts.”

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