Share prices drop after rent details unveiled

Kieron Bassett.
Kieron Bassett.

British housebuilders saw their share prices tumble this week after Ed Miliband unveiled details to impose rent controls on landlords.

Almost £200 million was wiped off the sector with Barratts share price, as I write, having dropped 5 per cent.

In a move designed to appeal to younger voters and other people who have been priced out or excluded from the housing market, Mr Miliband has proposed three year secure tenancies. He is also looking to ensure that during the three years rents will not increase above the consumer price index. He proposes to introduce this legislation at the beginning of the new parliament, and he will also require landlords to disclose rents charged to the last tenants so that new tenants can negotiate the best deal at the beginning of the three year term.

In addition to this he will target rogue landlords who do not keep houses in good condition by slashing tax relief on their borrowing.

Some landlords particularly in this area may welcome these measures as a three year agreement with guaranteed rent rises each year can be quite tempting. However I suspect that this could be too good too be true, with not only the tenant having security of tenure but with little or no penalty if they decided to terminate the agreement early.

If this is the case I am not surprised that the market has reacted negatively to this news, because the last time rent controls were introduced after World War One the private rented sector dropped significantly.

Also rent controls were widely blamed for slum dwellings, and Swedish economist Assar Lindbeck even goes as far as saying that rent control is the best way of destroying cities apart from bombing them.

Although I think that the private housing sector needs to be policed, I believe that these measures could have some unintended consequences. For example, there are approximately eleven million people who rent privately, but if landlords sold up who would step in to fill the gap? Also if there is a mass exit there would be an advantage to new homebuyers who could snap these up at lower prices.