Labour fleshes out its policy on rent restrictions

David Kingman reports on Labour’s policies, which are designed to appeal to Generation RentIf_Blog_To_Let_signs

The Labour Party has offered to introduce greater security for tenants renting privately if it ends up in government following the 2015 general election, under new plans which have recently been announced. However, critics have argued that the new policies would lead to reduced investment in the private rented sector, resulting in worse conditions for tenants.

Predictable rent increases

With an estimated 4.5 million households now renting privately – many of them young people who belong to “Generation Rent” – the votes of private renters offer a tantalising prize to all the political parties.

Labour have attempted to seize the initiative by promising to reform the private rented sector if they win power. Under their recently-announced policy, they have pledged to make it compulsory for all new tenancy agreements to last a minimum of three years (as opposed to the one-year tenancies which currently predominate) and to ensure that rents can only be increased in line with inflation throughout the lifetime of the tenancy. Tenants would still have to negotiate the initial cost of their rent with the landlord, but under Labour’s plans they would also gain a new legal right to know what the previous occupants of a property paid, the idea being that this will make it easier for them to get a fair deal.

Although Labour haven’t explained exactly how they would do this, they have also announced that certain types of tenant could still get short-term tenancies if they request them, such as students and commuters who rent flats during the working week but live somewhere else at weekends. The party argues that the degree of protection which its new policy would give tenants would still be less than private renters enjoy in most other European countries, such as Germany where the maximum level of rent in each neighbourhood is capped and it can be virtually impossible for landlords to evict tenants.

Less generous tax breaks?

Labour has also adopted an idea championed by IF in our report Why BTL (buy-to-let) equals “Big Tax Let-off” into the tax breaks which the private rented sector enjoys, as they are proposing to reduce the “wear and tear allowance” under which landlords can pocket 10% of gross rents from each property for maintenance and upkeep without having to provide any evidence of what the money was used for. IF has argued that this system is poorly designed because it effectively gives landlords an incentive not to invest in their properties, as the tax authorities don’t take any action if they don’t spend the money on upkeep, and housing supply is so constrained in many parts of the UK that even property which is in very bad condition can still be let out fairly easily.

Labour are proposing that landlords who are found to be letting non-decent property should lose access to this tax break. This would be a step in the right direction, but given what a large, perverse incentive it creates, abolishing the wear and tear allowance and replacing it with a system where landlords have to apply for tax relief on the items they replace would surely make more sense.

A good deal for Generation Rent?

In theory, Labour’s proposed policies would do a lot to make life better for the members of “Generation Rent”. However, questions remain unanswered – not least how they would prevent landlords from charging very high rents at the beginning of new tenancies, and how they would make the new regulations flexible enough to serve the interests of groups like short-term student renters without diminishing their usefulness.

Critics, including the Conservatives, have attacked Labour’s plans on the grounds that they would be likely to limit investment in the private rented sector. Although this could happen to some extent, it seems likely that, as long as the overall supply of housing remains so constrained, property will always look like a good investment.

In any case, this ignores a much more significant point: given that it is now practically inevitable that millions of Britons will spend their entire adult lives living in the private rented sector – a situation which seemed virtually unthinkable only a generation ago – society needs to offer them a system which provides greater security and peace-of-mind than the one we have at the moment can offer.