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OPINION

Property Matters: Capped rent scheme looks unworkable

Property Matters: Capped rent scheme looks unworkable
May 27, 2016
Property Matters: Capped rent scheme looks unworkable

The first priority, which doesn't seem to be very far up the wish list, is to engage with existing landlords as a means of achieving a greater supply of rental accommodation. A proposal to place a cap on rents through imposing a London Living Rent based on rents being held to one-third of tenants' income looks to be fraught with difficulties, both with regard to implementation and as a means of encouraging more landlords into the market.

At the moment, the government's definition of affordable housing is for rent to be charged at up to 80 per cent of the market rate. Research by property services group TheHouseShop.com reveals the size of the gap between the existing level of rents and what is being proposed by the new mayor. Taking Islington as an example, the average monthly rent for a property with two bedrooms is £2,670 and the average monthly income is £2,805. But by limiting rent to one-third of average income, monthly rent comes down to £935. With the average flat priced at around £600,000, this implies a gross yield that goes from over 5 per cent to less than 2 per cent, and after tax and any mortgage payments many landlords would go out of business. Small wonder then that most interested parties view the scheme as unworkable.

Other manifesto pledges include working with councils to develop landlord licensing schemes that can name and shame rogue landlords and create a not-for-profit letting agency. All of this sounds impressive, but doesn't really address the fundamental problem; there are not enough apartments for rent in London.

For a growing number of new renters, it's becoming clear that the only way to move out of the family home is to move out of London as well. Transport links are slowly improving in many areas, but rents are lagging behind those close to London, and require less outlay even when adding on the cost of travel.

The common theme running through all of this is the continued gap between demand and the supply of new properties. The government has clearly-stated targets to see 1m new homes built by 2020 and 200,000 affordable new homes by the same date. In a recent survey covering 389 housebuilders in England, consulting agency McBains Cooper found that less than a third thought that the 1m target could be achieved, although in London there was greater optimism, with 43 per cent believing it could be achieved. But fewer than one in 10 held the same view in the West Midlands and only 14 per cent in the south-east. Crucially, other factors coming into play include non-availability of finance, a factor highlighted by a third of all those taking part in the survey, while nearly a third also suggested that it was not sufficiently profitable to build.

Other primary hurdles include a shortage of land, a still largely choked up planning regime and a shortage of skilled labour. And while the government has earmarked accelerating the planning process for brownfield sites, there is sufficient evidence to suggest that there is not enough brownfield land to close the gap completely. By implication, building on greenbelt will have to be embraced as a concept in the face of what would be a wall of opposition.

Bringing landlords on board would seem to be the very first step that the new mayor should take because without new or bigger landlords there will not be any meaningful increase in the number of properties available for rent. The effects of this can already be seen. According to letting agent YourMove, average rents in London have risen by 19 per cent since the last mayoral election in May 2013 and by 35 per cent since Boris Johnson was first elected in 2008. Compare this with a 19 per cent increase since 2008 elsewhere in England and Wales, and the chronic shortage of space in London becomes all the more apparent.