Rents in London are rocketing but a leading market commentator says this is no reason to give in to a “Marxist dystopia” of rent controls.
According to property website Home there were just 18,700 newly advertised properties to let in Greater London last month, compared to 28,800 in June 2017 - that’s a drop of 35 per cent over two years.
With demand for rented accommodation in the capital still strong, this decline in supply has led to a marked increase in rents.
Home calculates that rents across Greater London are up 7.3 per cent over the last year, based on growth in the mix-adjusted average.
But in certain central London boroughs, the rent hikes are “shocking” according to the website.
In Wandsworth, rents over the last 12 months have increased by 22.1 per cent; by 14.6 per cent in Southwark; by 12.1 per cent in Camden; and Hammersmith and Fulham has seen an annualised rise of 10.8 per cent.
London Mayor Sadiq Khan and several other leading figures in the Labour party have called for rent controls.
But Home director Doug Shephard says such a move would be treating the symptom and not the cause and would hinder the recovery of the property sales market in London.
“Lack of rental supply is the problem. Rent caps will just make the situation worse. I’m not convinced that London landlords will want to be participants in this Marxist dystopia, and the likely consequences for future supply are obvious” says Shepherd.
“Price controls in communist Russia kept bread very affordable but the shelves were bare and many went hungry unless you had friends in the Politburo.
“In addition, the folly of rent capping would likely postpone the recovery in the London sales market indefinitely. Not an attractive proposition (or a vote winner) for the many new homeowners who managed to escape the rent-trap but are now trapped in negative equity.”
But Shepherd acknowledges that “Generation Rent are not going to be happy” with escalating rents.
A key factor in the lack of supply and corresponding rise in rents has been increased regulation and taxation, which has forced many existing landlords to sell up. It has also put off many of those looking to enter the capital’s buy to let market.
He says that investors are now unable to offset their mortgage interest against their profits and within two years none of this interest will be tax deductable; in addition, increased red tape includes additional licensing for HMOs as well as discretionary additional and selective licensing.
“Over the last few years, the increased taxation and regulation of the private rental sector by a revenue-hungry government has been like shooting fish in a barrel. For many landlords, their secure revenue-generating asset has been transformed, through legislation, into a loss-making liability. Many have chosen to exit the sector or at least trim their portfolios of all but the profitable properties and pay down some or all of their debt.”