David Gauke: Rent control is the mullet hairstyle of policies – it is both very bad and back in fashion | Conservative Home

Watching the 10 o’clock news the other evening, I decided to put out a tweet.

It was in response to the resignation of the minister for homelessness, Rushanara Ali, for putting up the rent on a property she owned within a few weeks of her previous tenants having moved out.  “Landlords should be allowed to rent out their properties at the market price”, I suggested.

The tweet didn’t go viral by any means, but it stimulated more of a debate than it might have done.

There were plenty who agreed with the message, but there were two areas of criticism of my tweet.  The first was something of a misunderstanding of what I was saying, in that it was taken as purely a defence of Ali and that I had missed the point that, at the same time as ending one tenancy and replacing it with another shortly afterwards, Ali was part of a Government that was legislating to ban such behaviour in the Renters’ Rights Bill.

The issue was the hypocrisy.

I agree.  To repeat my point, landlords should be allowed to rent out their properties at the market price.  This is statement both in defence of Ali’s actions as a landlord and a criticism of the contents of the Renters’ Rights Bill.  That is an easy position for me to hold, not so easy if you are part of the ministerial team taking the Bill through the Commons.  Ali’s position was untenable.

The second criticism was more fundamental.  In short, it was argued, landlords should not have the right to behave as Ali did.  X being X, this was not exactly how these sentiments were expressed (lots of suggestions that landlords should be eradicated, with approving references to Mao etc), but even if we ignore the more extreme contributions to the debate, this reflects growing demands for greater intervention in the rental market, particularly on cost.

The context here is important.  We have had decades of stagnant wage growth, but rents have grown over this period.  This long term trend was interrupted during the pandemic when rents fell, but since 2022 rents have grown strongly, especially in London.  The consequence is that private renters spend a greater share of their income on housing than homeowners with mortgages (39 per cent versus 20 per cent), and a greater share than previous generations did.  For example, the average tenant in London pays half of their take home pay in rent.

It is hardly surprising, therefore, that rental costs are considered unfair or unreasonable and there is political demand for intervention.  The Government’s response is the Renters’ Rights Bill (similar to the Conservatives’ Renters (Reform) Bill) which aims to strengthen the position of tenants.  It will prevent landlords from terminating a tenancy and then letting it out to new tenants at a higher rent (which is where Ali ran into trouble).  The Bill will not prevent a landlord increasing rents to existing tenants, but it is a cumbersome process subject to appeal where all the risks lie with the landlord.  But even this is unlikely to satisfy some campaigners.

Young, politically-engaged, financially hard-pressed voters clustered in urban constituencies and active on social media, seeing much of their income go to older, wealthier landlords will inevitably feel resentment.  It is a resentment which Jeremy Corbyn’s new party – as well as the Greens – will seek to exploit, offering easy, populist answers to complex problems.  Labour – under pressure in inner city seats – may well struggle to resist demands for a more interventionist approach.  In particular, the debate is likely to move quickly to the issue of rent controls.

Rent control is the mullet hairstyle of policies – it is both very bad and back in fashion.  The Scottish government has tried it (rent controls, that is – John Swinney is not a natural for a mullet hairstyle), the Mayor of London advocates it, and it is widely supported on the Left of US politics.  Zohran Mamdani, the Democrats’ candidate to be Mayor of New York, is planning to freeze rents for over 2 million New Yorkers.  How long before it becomes a more serious proposal here?

No column discussing rent control (at least, no column by me discussing rent control) is complete without reference to the line of the Swedish economist, Assar Lindbeck, that “rent control appears to be the most efficient technique presently known to destroy a city—except for bombing”.  It is a policy that has been tried many times but invariably with adverse outcomes.

There are beneficiaries in the short term, of course, namely those lucky enough to have a tenancy where the rent is suppressed but ultimately it is not just the rent that is suppressed but the supply of rental accommodation.  Landlords decide either to sell their properties or cease to invest in their upkeep. This means that those seeking tenancies lose out and, in the longer run, the quality of rental properties declines.

The point here is that market prices are very rarely, if ever, the cause of a problem but a symptom.  The issue with high rental prices in London, say, is that lots of people want to live there but there is not enough rental property that is available.  Market prices incentivise a response through a combination of reducing demand or increasing supply.

It is on this latter point that we run into the real difficulty.  Despite the market signals, supply is not being increased.  This is not, however, a market failure but a regulatory one.

Post-Grenfell regulations are resulting in additional costs on development and bottlenecks at the Building Safety Regulator.  The London Mayor also takes a very inflexible approach to affordable housing, only permitting developments that meet his stringent requirements.  This is a classic example of well-meaning policy having a perverse outcome.  Affordable housing requirements essentially act as a tax on housing developers meaning that less housing is developed.  Plenty of studies show that building more houses make houses more affordable, regardless of whether those homes are intended to be “affordable” or otherwise.

The consequence is that very little is being built in London at present, in a city where many of its residents are paying half of their income in rent.

Pro-market arguments are hardly the fashion at the moment. If ever there was a policy area, however, where they need to be made it is in housing.  Government intervention has made it very hard to build houses.  The consequence is that housing costs are high, resulting in yet more government intervention with which even its own ministers fail to comply.  There is then a bidding war on which party will support further regulations that will result in even greater distortions and inefficiencies.  Landlords will be driven from the market, tenants will have even fewer choices, and investment will fall.

It does not have to be this way.

Government could step back, deliver properly on planning reform, allow market participants to respond to price signals, and get some houses built.

This might also have the ancillary benefit of not finding their ministers vulnerable to the charge of hypocrisy.