There is agreement across the political divide in Britain that there is a serious shortage of affordable housing. But the debate about the causes seldom goes beyond red herrings and side issues, such as immigration, a trend towards smaller households, reductions in the public housing stock, or cuts to Housing Benefit.
The latest example is the Economist’s praise for the local authority of Newham, a borough in East London, which has started to take action against ‘rogue landlords’. Newham authorities have uncovered a variety of cases where landlords rented out mouldy garages or dilapidated rooms for sky-high prices. The borough is now inspecting properties on a more regular basis, including through the use of aerial photographs. It will also use the planning system to curb the practice of breaking up family homes into several tiny residential units.
Strangely enough, the Economist does not mention the elephant in the room. If a landlord can find tenants who are willing to pay a lot of money to live in a mouldy garage, then this is a stark indication that something is going profoundly wrong in the housing market. Try offering a mouldy garage on the rental markets of other Western European capitals, and you will at best attract a few bewildered gazes. Given the extreme imbalance between supply and demand in London, it is weird to suggest that things can be sorted out by hiring a few inspectors and shooting a few photographs from the air.
Moving towards greater regulation of the rental market is not just a pointless symptom treatment; it is the wrong policy direction altogether. Heavy-handed regulation of rental contracts does not protect tenants from crooked landlords (any more than employment protection legislation protects employees, or mandatory licensing protects consumers). Rather, it deters property owners from supplying rental units, thus reducing competition among landlords and choice for tenants. A recent OECD report on housing policy finds: ‘An illustrative correlation shows that across countries, stricter rent control tends to be associated with lower quantity and quality of rental housing, as measured by the share of tenants who lack space and who have a leaking roof.’
It is not a deregulated rental market that causes the abuses described above. It is an over-restrictive planning system that causes a severe shortage of homes, and within these constraints, it is thanks to a lightly regulated rental market that things are not even worse. The fairly light level of rental regulation is one of the very few positive aspects of Britain’s housing market. If Britain had the intensely regulated rental market of the Netherlands or of Germany, there would be no point in even starting to look for a flat in London.
The problem in Newham, and many other places, is not a lack of inspectors and busybodies; it is a lack of housing supply. The Economist argues: ‘When demand outstrips supply against a background of profound housing need, tough action is required.’ But how about the following counterproposal: when demand outstrips supply against a background of severe supply restrictions, an easing of these restrictions is required. Make sure supply can catch up with demand, and landlords will find that the only ‘tenants’ interested in their mouldy garages are rats and pigeons.
One of the most pernicious regulations introduced by New Labour in this sector was the compulsory licensing of housing in multiple occupation. This significantly raised the costs facing landlords supplying cheap accommodation (many had to spend thousands altering their properties to pass council inspections). Thus it is unsurprising that a black market has developed to bypass such an imposition. It is also telling that the coalition has failed to rescind this legislation, despite its professed commitment to deregulation.
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