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Why rent control will halt house-building

Why rent control will halt house-building

An article posted on the National Landlords Association (NLA) website has suggested that rent controls would have a serious effect on the number of homes being built.

The article said that rent control is understandably considered part of an unholy trinity of public policy by private landlords; along with indefinite security of tenure and unwarranted licensing schemes.

There is good reason for landlords to fear the re-introduction of price intervention policies. They have a long history of market damage in the UK and abroad, never less than when private rents are concerned. However, little focus is given to the implications price control can have on other facets of the housing supply chain.

Delegates attending a recent housing conference in the City of London spent some time discussing the topic with a number of (very) large investors and building firms – and the conclusions were stark to say the least.

It seems the principle concern of institutional investors and their financial backers was not necessarily the impact on individual tenancy terms, or even their long-term income. They were far more interested in the impact the uncertainty and potential negative consequences of such a change would have on banks and builders’ ability to ‘de-risk’ new developments and in the worst instances break ground on new sites.

Few people, it would seem, realize that many house builders are only able to finance builds by the release of a primary phase to off-plan purchasers. i.e. those prepared to invest in a property before construction on the basis of developers’ literature and architects’ plans.

Understandably, this tends to be landlords making business decisions, rather than households buying a home.

In the uncertainty that would undoubtedly follow proposals to introduce rent limits, both landlords and risk-averse lenders will almost certainly focus their intentions on lower risk investments and decimating new-build demand. The consequence of which will be stalled sites and a further reduction in house building.

A far cry from the quarter of a million units many agree the UK needs to build year on year.