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Labour's rent cap pledge could 'deter investment in housing'

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Critics claim Labour party’s promise to bring in new rent caps could stifle the emerging private rented sector (PRS)

At the weekend, party leader Ed Miliband announced a number of pledges ‘to address house-building levels and falling home ownership’, including a new exemption for first-time buyers in England and Wales from paying stamp duty when buying homes below £300,000.

Miliband also said he wanted foreign buyers to face higher taxes when buying homes and bring in a ‘local first’ policy to ensure properties were advertised in the UK before being promoted overseas.

However Labour’s bid to stop tenants being ‘ripped off’ with the introduction of an inflation-pegged cap on rents and new three-year tenancy agreements, has provoked the most reaction.

Responding to the news, the British Property Federation (BPF) warned that Labour’s ‘overly-prescriptive approach to rent increases’ might deter investment in the housing sector. 

Melanie Leech, the BPF’s chief executive, said: ‘Ultimately what will help tenants best is more investment in housing.

‘This additional investment [from pension funds and other institutions] will be vital to tackle the housing crisis, and we would urge the next government to do all it can to encourage it, rather than chase it away with an overly-proscriptive approach to rent setting.’

Jeremy Blackburn, RICS Head of Policy, agreed: ‘[Labour’s] rent control proposals risk undermining the PRS by failing to take a holistic look at inflation, market value and the living wage across the whole of the UK.  

‘Capping rent inflation through three-year fixed tenancies is likely to impact investment into the existing quality of homes in the PRS and could force smaller landlords to exit the market – limiting supply at a time when the UK faces a chronic shortage of homes across all tenures.’

Institutional investors could be discouraged by intervention in the rental market

Rhian Kelly, CBI director for business environment, added: ‘Labour is right to focus on increasing housing supply, as the UK needs to build 240,000 homes a year by 2025 to meet demand and add more garden cities to provide the communities our country needs. This work should be led by a new national infrastructure commission.

‘[But] Institutional investors, which are critical for building new homes, could be discouraged by plans to intervene in the rental market in this way, as it will add uncertainty - private rental market regulation must strike a balance between adequately protecting tenants and not overburdening landlords or property managers.’

  • 2 Comments

Readers' comments (2)

  • So called "huge" rent increases, "greedy landlords" etc are a repetition of the same old socialist dirge. The London market is of course the most dynamic but if you take a look at the likely yields the net rental income (after 20% tax is deducted) only comes out at about 3.5% which is hardly spectacular. Yes there is some capital growth as any profit on sale is taxed as Capital Gains Tax. Many London tenants will not want a three year term as there is significant churn, most of the tenants being young. Landlords do generally not want tenants on benefit as there is a high likelihood of damage and worse. I'm all for use of empty property which is often bought by foreign investors who are simply gambling and don't want tenants. If the purchasers are from Europe, or Russia, wher local currencies have fallen, their investments have proved to be very profitable. Most UK investors are looking for income, so if income falls, income tax receipts will fall too. Millithing hasn't thought it through. Just the usual grandstanding.

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  • In Germany, a right of centre government has introduced rent caps to follow inflation... If it works in the strongest economy in Europe, it can work here - but there are too many people with vested interests in blocking it. This isn't grandstanding, it is a sensible response to the peculiarly British madness of treating housing as a speculative investment rather than as places to live. A landlord's ability to charge whatever they like attracts more people to invest in 'buy to let' properties (or even worse 'buy to leave') which in turn drives up house prices for people with the modest but increasingly unrealistic aim of buying a family house. Why should this practice be supported in a widely acknowledged housing crisis?

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