Housing nerds who watched ‘Friends’ (ie, me and other millennials who read CapX) will probably remember that Monica’s apartment, and others in the series, are subject to rent controls.
Ross (David Schwimmer) learns about the downsides of rent controls the hard way. After going through a messy breakup, Ross was unceremoniously turfed out of his new apartment by his almost-in-law landlord. While this was probably an at-fault eviction, Ross struggles to find a suitable place to live.
During his stint of post-breakup homelessness and while battling a series of mental health difficulties from the trauma, Ross stayed on his friends’ sofa and viewed a series of sub-par homes including one with a ‘kitchen-slash-bathroom’.
Fortunately, however, Ross then finds the perfect apartment. The location is ideal: close to his sister and friends, a nice building and centrally located. As with any sitcom, however, there are catches.
First, the apartment is rented by an ‘unattractive nude man’ with a penchant for naturism whom the ‘Friends’ often spy from Monica’s apartment, aka Ugly Naked Guy.
Second, there’s a huge demand for this incredible steal of an apartment. Ugly Naked Guy can’t just raise the price, so it seems the flat is subject to rent controls. To tip the scales in his favour, Ross tries to bribe Ugly Naked Guy with a basket of mini-muffins. The problem? Everyone else has the same idea and bribes him with far more extravagant bungs.
Ross eventually rents the flat after appealing to Ugly Naked Guy’s human side by spending an afternoon with him, au naturel.
Which takes me to Angela Rayner.
Our Deputy Prime Minister has published her plans to give renters greater rights. These include a ban on ‘no-fault evictions’ (ie, stopping landlords from being able to require tenants to leave at the end of their lease), a limit on in-tenancy rent rises and a ban on landlords accepting bids above asking price.
I have written elsewhere that we already have something like the effects of rent controls in the UK. Rayner’s reforms will give us actual rent controls, by not allowing landlords to increase their prices when their costs rise (like mortgages, taxes or service charges).
While there are some good proposals, such as outlawing blanket bans on children in properties and introducing an ombudsman to deal with disputes, the overall weight of these proposals risks catastrophe for the private rented sector.
Any CapX reader will know that rent controls increase rents. Some landlords are directly threatening to do this. Others are selling, thus cutting supply.
The way you decrease rents is to increase supply. This can be by building homes. But governments can also increase supply by cutting taxes so that landlords don’t lose money by providing tenants with a place to live.
Two tax cuts that would help are, first, ensuring that borrowing costs are fully tax deductible for landlords and, second, giving landlords tax incentives to improve the quality of homes, rather than bring them up to an arbitrary prior standard.
As for banning bidding wars for today’s limited supply of rental properties, this is as unrealistic an idea as the Government’s promises to police the cost of Oasis tickets. When too many people are chasing too few properties, the results are frustrating. But a ban would be hard to police: how many people would take someone to court, even with a streamlined Ombudsman service? Won’t landlords simply start by demanding a higher rent? And if bidders are banned from competing on rent offers, the contest will just happen in a less transparent way.
Without increasing supply and allowing parties to agree prices, the Ugly Naked Guys of the world win. Instead of directly paying a higher rent, competing renters will have to provide other inducements to increase their odds.
‘Friends’ shows how fixing the cost of rent doesn’t eliminate bidding wars – it amplifies them. Ross is bid up from a basket of mini-muffins to a naked cup of coffee. In the real world, non-negotiable rents open the door on far shadier options: from tacit discrimination to under-the-table or in-kind payments, and perhaps even to sexual favours or other exploitative demands.
It would be so much better, and less sinister, to just increase housing supply.
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