Reasons to ignore Corbyn’s 10-second tirade against property investors
I try to swerve political commentary as much as possible. But I’m afraid I couldn’t resist writing about Jeremy Corbyn’s attempt to win the vote of the UK’s increasingly large population of voters living in private rented accommodation. His comments caused an avalanche of laughter in the office.
The Conservative government has spent much of the last two or three years attempting to make life difficult for buy-to-let landlords with some ridiculous and poorly considered policies. Higher stamp duties hit investors, restrictions on property maintenance allowance, and the phasing out of mortgage interest tax relief at the higher rate of income tax. In response, buy-to-let landlords have simply found several strategies to stop property tax changes reducing buy-to-let investment profits.
Now along comes Jeremy Corbyn, who announced in his speech at the Labour Party Conference that he wants to impose rent controls in UK cities. Should you be worried by this latest threat to UK property investment? We think not. Here’s why you should join in the laughter.
History is not on Corbyn’s side
In its report of Jeremy Corbyn’s speech to the Conference, ARLA Propertymark points out the labour leader’s inability to learn from history. They say, “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.”
Berlin – the proof that rent controls don’t work
Rent controls were introduced in Berlin in June 2015. Almost immediately, rental prices began to fall. After three months of falls, the politicians who had put the policy in place gave themselves a pat on the back. Their self-congratulations were comprehensive. Then something unexpected happened: rents started rising again in November and December 2015.
By the end of the year, rents had increased from 12 months earlier. They were up by 5% from the end of 2014. And rents have continued to rise in the city. By the end of 2016, average rents had increased to €6.40 per square metre – an increase of almost 10% in just two years, despite rent controls!
Why are rents rising so fast in rent-controlled Berlin?
There are two main reasons why rents are rising so quickly in Berlin:
- First, because the authorities realised that to simply prohibit any rent rise would cut off the essential supply of privately rented homes. The rent controls put in place allow rent increases, but limit them according to average rents. Of course, when landlords raise their current rents, the average rent charged rises, and so landlords can increase rents further at their next review!
- Second, demand for rental properties is higher than supply and growing (much as it is here in the UK). Renters are at a disadvantage, and to secure the best properties they are willing to pay more. It increases the average further, allowing other buy-to-let landlords to increase rents!
In May of this year, Reiner Wild, Managing Director of the Berlin Tenants’ Association, in an interview with local broadcaster RBB, stated, “The rent controls, unfortunately, do not work.”
Jeremy Corbyn’s ‘commitment’ to rent controls is a ploy to buy votes
It isn’t the first time Corbyn has promised something undeliverable. Remember his pledge to abolish student loans and eliminate existing student debt? Undoubtedly this won huge numbers of student votes. Within weeks after the General Election, the Labour Party, including Corbyn himself, were distancing themselves from the pledge, admitting it was unaffordable and saying that they had ‘never promised to eliminate current student debts’. Tell that to all the students who voted for Labour.
This latest promise falls into the same category. It’s a promise that cannot be fulfilled and has simply been made to buy votes, from the fastest-growing sector of the UK economy – the private rented sector. By the time of the next general election, there will be more than 6 million households in the PRS in the UK. That’s a huge pool of potential votes for Corbyn to bribe. Will such a tactic work a second time, on a different set of voters? We think not.
Is Jeremy Corbyn committed to rent controls?
We aren’t convinced that rent controls will become part of the next Labour manifesto. To summarise the arguments against it:
- History in the UK property market shows that rent controls could destroy the PRS in the UK. No UK government can afford to allow this to happen. The knock-on effect on property prices could alienate many millions of voters. Also, the central government neither has the money nor resources to provide enough social housing to replace properties lost to PRS.
- Rent control experiments elsewhere, such as Berlin, are not working.
- And surely, the voting population of the UK are a little savvier than to be caught out by false promises designed to be vote-winners and no more a second time?
We think Jeremy Corbyn knows this. We think the Labour Party knows this. Which is why the pledge to put rent controls in place took up only two sentences of Corbyn’s 80-minute speech. Here’s the full transcript of what he said about rent controls during his 10-second tirade against the buy-to-let landlord:
“And we will control rents – when the younger generation’s housing costs are three times more than those of their grandparents, that is not sustainable.
“Rent controls exist in many cities across the world, and I want our cities to have those powers too and tenants to have those protections.”
No, please don’t laugh too hard. Jeremy Corbyn is trying his best. Honestly. Or not, as the case may be!
Contact one of the Ezytrac team today on+44 01522 503 717, and discover how Ezytrac could help your property portfolio reach its maximum potential, while you live the lifestyle you desire.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA