Sadiq Khan plots rent controls in London

Landlords face huge hit to incomes if Mayor granted power to regulate prices

Source - Daily Telegraph - 14/08/24

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Sadiq Khan is plotting to impose rent controls in London in a move that could slash landlords’ incomes by thousands of pounds a year.

The Mayor is poised to ask the Government for powers that will allow him to regulate the capital’s rental market, The Telegraph understands.

It comes as competition for private rented housing in London remains fierce with the average tenant paying £2,086 per month, according to official figures.

Parliament would be required to pass laws to give the Mayor the necessary powers to regulate prices set by private landlords.

Mr Khan has been pushing for greater powers since 2016, a move rejected by the Conservative government.

However, Labour has signalled that it would be open to introducing some rent controls.

Prime Minister Keir Starmer told voters during an election debate in May: “We have to stop the landlords ripping off tenants who are doing this bidding war. We can pass legislation to say you can’t do it because it’s driving rents through the roof. We have to have a scheme in place to stop them driving rent up and up.”

The Chancellor has also suggested she would be in favour of rent caps for local authorities.

It was reported in May that during an interview with BBC Radio Essex, Rachel Reeves was asked if she would commit to “introducing some kind of cap on rents”.

Ms Reeves replied: “Where that has happened, it’s not always delivered the results that people might want.

“I think that should be up to local areas to decide, there may be the case for that in some local areas, but as a blanket approach, I’m not convinced by that.”

There is a range of potential options that could be on the table to make rent more affordable should Mr Khan be granted the powers, such as freezing rental increases above a certain rate.

However a similar measure introduced by former first minister Nicola Sturgeon in Scotland last April backfired and drove up rents instead. Under the 3pc cap, rents surged 11pc - the highest annual rent growth of any UK nation.

If given the green light, the Mayor plans to establish a commission to develop rent control plans that are tailored to London.

However, a government spokesman said there were “no plans whatsoever” to devolve rent control powers.

In 2023, Mr Khan proposed freezing rents for two years in the capital and pledged to lobby ministers for rent controls during his latest reelection campaign.

He has previously defined “affordable” rent as no more than one third of a local household’s income and has used this criteria in affordable housing schemes in London.

Were prices across the capital to be capped at this level as part of a rent control regime, it would result in many Londoners saving thousands of pounds every year, but landlords would lose out on income.

The median rent paid by tenants in one bedroom accommodation in London was £1,450 per month in March and the overall average is £2,086, figures from the Office for National Statistics show.

A one-bed property costs almost half of the average after-tax salary of £2,933 earned by workers in the city last year. If the rental prices reflected a third of salaries, landlords would stand to lose £472 a month and £5,672 a year on average.

Tenants would make considerable savings in contrast, rising for more expensive two or more bedrooms, though landlords’ losses would rise accordingly.

Ben Twomey, of Generation Rent, a tenants’ rights pressure group, said: “The Mayor of London and other Metro Mayors should demand powers both to regulate rents in their city. We need a fair and common sense system which would stop rents above either wage growth or inflation, whichever is lower.

However, property experts warned a cap on costs could drive more landlords out of the sector, in turn piling more pressure on the already stretched rental market. The number of new landlords instructing estate agents across the country fell 16pc in the three months to July, according to The Royal Institution of Chartered Surveyors’ (RICS).

Ian Fletcher, of the British Property Federation, a property body, said: “I suspect the Mayor will continue to ask for rent control powers, but that does not change the fundamentals, that rent controls create lasting damage to the private rented sector, cutting supply, reducing investment, lowering the quality of homes, and worst of all, adversely impacting access to the sector for those who do not have a home.”

Neil Garratt, leader of City Hall Conservatives, added: “The most effective way to make renting and buying a home in London more affordable is by building more affordable homes.

“Given that Sadiq Khan only managed to build 71 affordable homes across the whole of London in the last quarter, his time would be far better spent building homes for Londoners - not wasting everyone’s time with populist nonsense like rent controls, which have been a disaster everywhere they have been tried.”

Figures released by City Hall last year suggested that if the Mayor’s proposed two-year rent freeze were implemented renters in London would save £3,374 on average over the period.

Reacting to research last year that suggested average rents in London could rise to £2,700 in 2024, Mr Khan said: “These figures reveal the clearest picture yet of why rent controls are so necessary.”

A spokesman for Mr Khan said: “There have been no discussions between Sadiq’s team and the new Government about introducing rent controls.”

A government spokesman said: “This government has no plans whatsoever to devolve rent control powers.

“Lack of supply is fuelling the housing crisis, and we are taking action to boost housebuilding. We will work closely with the Mayor and Boroughs so we can increase housing delivery in London.”