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Rent stabilisation, rent controls and rising political pressures in Europe 19-20 March, 2015 ENHR Private Rented Markets Seminar London School of Economics.

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Presentation on theme: "Rent stabilisation, rent controls and rising political pressures in Europe 19-20 March, 2015 ENHR Private Rented Markets Seminar London School of Economics."— Presentation transcript:

1 Rent stabilisation, rent controls and rising political pressures in Europe 19-20 March, 2015 ENHR Private Rented Markets Seminar London School of Economics Christine Whitehead and Connie Tang with particular thanks to Kath Scanlon

2 Rent control o From much of the wartime period – rent freeze i.e., rents fixed at their level on a particular date o Nowadays – rent cap i.e., the maximum rents that can be charged Rent stabilisation o Index-linked rent increases either within and between tenancies or within tenancy only o Smooth rent changes, reduce turnover, steady revenue stream if linked to inflation for landlords and institutional investors In practice, rent control and rent stabilisation co-exist Rent control and rent stabilisation 2

3 Before the Global Financial Crisis (GFC), most European countries have relaxed their rent regulations, which did not necessary lead to the growth of the private rental sector (PRS) From mid-2000s, especially after the GFC, credit crunch made households unable to access mortgages and cuts in public expenditure on social housing  increases in private renting Strong demand for private renting has pushed up private rents, particularly in capital cities  political pressures to restrict rent increases Changes in rent regulations – why? 3

4 No initial rent control except rental units built prior to the 1948 Rent Act Since 2008, annual adjustment of rent based on Rent Reference Index (IRL) which is based on the index of cost of daily living Rise of IRL after 2011  rapid increase of private rents especially in Paris and other major French cities Rent reference index (IRL), 2006–2014 (1998Q4 = 100) Changes in rent regulations – why: France 4 Source: France’s National Institute of Statistics and Economic Studies

5 2012: rent control limited the rate of increase in several cities ALUR Act enforced in March 2014: new rules on initial rents in a few high pressure areas; initial rents must refer to an “observatory of rents” and limited to 20% per m 2 above the local median rent But in September 2014: withdrew plans to impose controls on private rent fearing that rent control will deter investment Rent control only introduced experimentally in Paris Changes in rent regulations – France 5

6 Initial rents may not in general exceed the rents for comparable dwellings in the same area by more than 20%. Rents can be increased during a tenancy if they are demonstrably below the local rent levels for comparable dwellings: rent can be adjusted every two years but not by more than 20% within a three-year period Rent stabilisation o Stepped rent: rent is fixed in varying amounts for specific periods of time o Indexed rent: rent linked to a price index (yearly reported by the Federal Statistical Office) Increase rent after modernisation: a maximum of 11% of modernisation costs Rapid rise of rents and house prices in some cities  strong pressure to tighten rent regulations Changes in rent regulations – why: Germany 6

7 The differences between initial rents and local reference rents in Germany, 2010. Source: Kofner(2014) Table 4.

8 2011: capping limit of annual rent increase from 20% to 15% within three years 2015: rent cannot be raised more than 15% within four years; maximum 11% of increase after modernisation reduced to 10% Mid-2015 rent brake: initial rent cannot exceed 10% of local reference rent New rent cap and new limit of rent increase are imposed in Berlin, Hamburg and many cities in Bavaria; about 4 millions rental dwellings Changes in rent regulations – Germany 8

9 Rent control on initial rent based on points system; controlled maximum rent increases related to these points: determined by the Parliament, cover both private and social renting Since 2010, government has started to shift the Dutch housing system to ‘more market’ and aimed to reduce the size of the social rental sector move towards families in need 2013: higher rent for higher income households both in private and social rental sectors April 2014: proposed a rent freeze on the regulated rental sectors for a three year period which will start in 2016; in part aiming to shift more low-quality rental units further up-market Changes in rent regulations: the Netherlands 9

10 No rent control and rent stabilisation, but in 2004 introduced 4-year cyclical tenancies and established the Private Residential Tenancies Board to resolve disputes between landlords and tenants The Board against any rent regulation fearing regulation will make the private rental market worse Proposals to link rent increases to CPI and other forms of control under discussion The PRTB rent index, 2007Q3 – 2014Q4 Rent regulations – Republic of Ireland 10 Source: PRTB (2014) The PRTB Rent Index: Quarter 3 – 2014.

11 Changes in rent regulations after the Global Financial Crisis 11 Country % of total dwelling stock Changes in rent regulation Rent controlRent stabilisation France19% (2013)Increase - rent cap on initial rent only in Paris Increase - introduce the maximum limit on rent increase only in Paris Germany53% (2010)Increase - rent cap on initial rent in high pressure areas Increase - reduce the maximum limit on rent increase and extend the period for rent increase in high pressure areas Netherlands10% (2010)Decrease - higher rent for high income households; Increase - rent freeze at the lower end of the regulated sector Decrease - larger rent increase for high income households Republic of Ireland 19% (2011)No change - but pressure increasing

12 No rent control or rent stabilisation, but indirect rent control at the lower end of the PRS – linking rent with the Local Housing Allowance Rapid growth in private renting – 11% in 2003 to 19% (4.4 million) in 2013/14 ; since 2011, private renting higher than social renting Private rents and CPI All items (January 2011 = 100). Rent regulations – England 12 Source: ONS – MM23 Consumer Price Indices and Experimental Index of Private Housing Rental Prices.

13 Conservative, Ukip and Liberal Democrats – no rent control Labour – rent stabilisation to limit rent increase within tenancies, using benchmarks such as average market rents together with a standard three-year tenancy and removal of no fault eviction Many commentators do not favour regulations on rent and length of tenancies fearing reduced investment in the PRS However, institutional investors generally happy with free initial rents plus index-linked rent increase within tenancy Scanlon & Whitehead (2014) study for Camden council in London – index-linked rent stabilisation to produce stable and low-risk return for institutional investors Debate on rent regulations: England 13

14 Tight rent controls (e.g. in the Netherlands) where private rents below market rents, deter investment in the PRS Germany, the Netherlands (strong regulatory frameworks) have increased regulation after the GFC; France has drawn back from strong controls, while England and the Republic of Ireland (weak regulatory frameworks) there has been no regulatory change as yet Considerable concerns have been voiced in all these countries that additional controls will harm the sector But political pressures are building for increasing regulation across countries of all types. Conclusions 14

15 Christine Whitehead (LSE) and Connie P.Y. Tang (CCHPR),

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