Rent Capping – a Wish too Far!

Rent Capping – a Wish too Far!

The recent statement by Bristol City Council that it is looking to bringing in rent controls to try and stabilize the soaring rents in the city, has been welcomed by many as a step to enabling tenants to afford to live where they work. The theory is very laudable and the intentions are appealing on many levels, to any caring person; the philanthropy behind the idea is hard to contest on a human basis, but is questionable if drilled own into.


However, there is a huge catch, in the real world where property letting is fundamentally based on profit and loss. If landlords are expected to purchase properties at the current high levels, coupled with potentially higher percentage point mortgages BUT be told by local councils, they can only achieve a set amount of rent. The net result will be that landlords are unlikely to see any benefit to entering the PRS; there will be a nominal profit if not a straight loss – hardly an incentive for the new breed of landlord who is keen on yields!


The unmentioned problem, running parallel with the lack of new committed landlords; is the mortgage valuation! Surveyors and mortgage valuers like to use comparables that make market sense, and the financial lenders need to see as high a rent as realistic so that the property stacks up not only on the loan to value rate, but also on rental yield. If rents are capped, it is most likely that the properties will fail on the mortgage survey and the prospective landlord will remain just that, having dropped out of the sale.


Existing landlords will be very discouraged and disenchanted with staying in the PRS, if they know their rents will be capped and they will be unable to achieve market rents. The net result will be two fold, both of which will actually penalize the tenant: firstly many landlords will leave the PRS, either selling or going into short term lets which are not so regulated. Even less property being available in the current market which is already suffering from a critical shortage of supply, will only mean one thing – rents will increase dramatically in any areas of the market that are not capped. In turn this could cause many tenants having to rent an unsuitable property for their needs, just to get a roof over their head.


Additionally, landlords who do remain, will be a lot less inclined to offer quality accommodation or worse will not maintain their current stock. At the very time the government is desperately trying to encourage landlords to offer more energy efficient and better quality accommodation, landlords will be looking to cut costs to try and make a meagre profit from their investment. Again, it is the tenants who will suffer from poorer quality accommodation and properties that continue to cost more to heat!


Rather than control rents, which will have a long term detrimental effect on the market that is already nervous about future viability; it would make much more sense to concentrate on building more social housing. At present and dating back to the 1990`s local authorities seem to have preferred to sell off stock into the private sector; this short term “cash cow” was always going to have payback in time to come. Due to the current state of the market, that time is now; with many skilled and important local workers unable to afford the few properties that make it to the market, causing many to have to either commute to work or move away for a job. Neither outcome is satisfactory, particularly in the more expensive and desirable parts of the country, where local authorities are struggling to attract the very workers the towns and cities need to run, let alone thrive.


Anyone old enough to remember pre 1989 will have seen the devastating impact of Regulated Rents (also known as “protected” or “secure” rents), where the local authority Valuation Officer (VOA) could set the rents in their areas. The negative affect this had on private landlords who saw no benefit to remaining in the property sector, particularly as inflation was also eating into any profits, was profound. Surely, both local authorities and the government do not want to travel down this road, no matter how enticing it might seem in the short term on moral grounds!