Bristol Mayor, Marvin Rees, recently launched an online summit along with Acorn, Bristol City Council and the Bristol Fair renting campaign to discuss rent caps in the city on the 2nd March. Rents for Bristol are now up 10.3% in a year, the third highest city rise in the UK with the average rent now standing at £1119 per calendar month.
However, before bringing in rent caps for the city, its important balanced analysis is completed on why this is happening. Is it greedy landlords just whacking up their rents? Are agents forcing people to compete for what is a basic human right? The answer to these questions, I believe, is no.
It’s actually very simple, the reason rents are going up everywhere, and not just in Bristol, is due to a simple supply and demand issue.
After lockdown 1 when agents were unleashed and people were allowed to view property again, applicants across the UK came out in their droves desperate to move area, county and change the type of property they were living in. However, at the same time, the long-term effects of various Government changes had finally started catching up with landlords. Changes to mortgage interest relief, introduction of mandatory EICRs, the tenant fee ban and more, all these put pressure on the profitability of being a landlord. Couple this with unprecedented house price growth in a short space of time and what you’ve got is landlords deciding they’ve had enough and selling up.
Whereas before the pandemic, you may have received 10 calls when a property went live on the portals, it’s fair to add another 0 to that number now as often over 100 enquiries will come in for the same property. From that 100, we do 10 viewings, then all 10 want to take it, and they then compete on price, usually with no encouragement from the agent or landlord at all. Sometimes we receive calls from people who haven’t even seen the property offering to take it without viewing for £100 per month over the asking rent (don’t worry, we don’t generally accept out of the blue inflated offers). This is why the rents are rising, because demand is not abating and supply is dwindling.
Bristol has a population of nearly 470,000 people and guess how many rental properties are available right now?
So, if all 470,000 people were looking at the same time for a rental property to live in, that would be 734 people per available property.
There have been various studies conducted in the US on the effects of rent caps, an article completed in 2018 by Rebecca Diamond, Associate Professor of Economics at Stanford university explained;
“Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighbourhood. These results highlight that forcing landlords to provide insurance to tenants against rent increases can ultimately be counterproductive. If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of a government subsidy or tax credit. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire.”
A further article by The Economics Observatory pulled together various studies in the US and Europe on rent controls and stated “In fact, few issues induce such unanimous agreement among economists as what we see concerning the detrimental effects of rent control. Although most of the empirical evidence focuses on US cities, there are studies looking at rent control in a European context, and these also tend to find negative results (Oust, 2018; Donner and Kopsch, 2021; Breidenbach et al, 2021). For example, Germany introduced a nationwide system of rent controls in 2015, but, according to recent research, this has had no persistent effect on rental prices, instead resulting in reduced housing quality.”
For the UK, as further changes to minimum EPC ratings and the added shadow of rental reforms loom, adding in rent caps in certain areas will surely be the final nail in the coffin and will force landlords to sell up and buy property elsewhere. And when those properties are then sold to owner occupiers and lost from our rental market completely, where are all the renters going to live?
I implore someone to listen that adding further restrictions to landlords will NOT help tenants. We should be incentivising landlords to buy in areas where rents are going up to balance the market. As in any supply and demand problem, when you increase the supply of something that is in high demand, the price will level out.
Managing Director – CGT Lettings Ltd