Yesterday, we explored the fact that rent control already exists for assured and assured shorthold tenants i.e. those paying market rent. In this blog, we will discuss three potential reasons why this kind of rent control is under-used and little-known.
Market rents too high
Assured shorthold tenants are able to challenge their rent in a first tier tribunal if they think it is excessive. But ‘excessive’ is defined as significantly higher than the landlord might reasonably expect to receive based on rent levels in the area. Therefore, if you are living in an area where local rents have already risen well above your income, then this mechanism is of little use.* It is often unclear what constitutes a significantly higher rent compared with the local area. And even if you believe that your rent is significantly higher, this can be hard to prove because of the difficulty of getting accurate local data.
Under the German rental price brake (introduced in Berlin and several major cities), landlords must not re-let properties at rents more than 10% higher than the local comparative rent. The local reference rent index (Mietspiegel) sets out the definition of the local comparative rent so that everyone can objectively know what it is.
Bringing a case
Tenants have the burden of taking action against their landlord if they think their rent, or rent increase is excessively high. If assured shorthold tenancy (AST) tenants believe their rent is excessive, they must apply to the tribunal within the first six months of the tenancy. The first hurdle here is that tenants are unlikely to sign up to a tenancy in the first place if they think the rent is overpriced.
Challenging a landlord can put a tenant in an acrimonious position with their landlord so they might be unwilling to take this action – especially if there is a lot of competition for properties.
Eviction without cause
One of the most important reasons why private tenants do not challenge their rents or rent increases is the threat of eviction. England is unusual compared to many other European countries, as tenants have little security of tenure here. Contracts tend to be short term, often six to 12 months, after which landlords can evict their tenants without reason. Circling back to point two, if your relationship with your landlord becomes acrimonious, there is always a danger that your landlord can evict you at the end of the contract (or with two months’ notice if you have a periodic tenancy). This lack of bargaining power prevents tenants from doing many things they think will upset their landlord, such as asking for improvements.
Rent control in other countries also gives tenants the burden of taking action against their landlords. For example, in the Republic of Ireland, where the government has introduced ‘rent pressure zones’, the onus is on the tenant to bring their case. However, tenancies in Ireland last six years. This means that tenants have greater protection from eviction when they challenge their landlord.
So what does the existence of England’s forgotten rent control tell us? Firstly, rent regulation without greater security of tenure is very difficult to enforce. This is especially true if system place the burden on the tenant to appeal, as this can antagonise landlords.
Secondly, it shows us that not all forms of rent control will cause a mass exodus of the private rented sector. Indeed, this form has rattled along in the background largely unnoticed for 30 years.
Thirdly, it’s a reminder that not all forms of rent control are effective, particularly if they’re pushing against a market which is already unaffordable.
Regulating rents with reference to average market rates will not entirely solve affordability problems for low-income tenants if the market itself is already out of reach. The best way to help low-income tenants is by providing alternatives to the market in the form of genuinely affordable social housing, or ensuring that housing benefit acts as a sufficient brake on market pressure.
Rent controls can exist on paper, but having wider housing policies and functioning housing markets are vital in enabling these controls to have teeth.
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*That said, using the wider rental market to set maximum rents can work better depending on how you define what ‘average’ market rents are. The local average rent level can change significantly if you base your analysis on existing rents as opposed to advertised rents.