Exorbitant rents, intrusive prying, and unaccountable landlords are all symptoms of a larger problem – not enough new housing.
Everyone knows that landlords have significant power over their tenants. There are countless cases of landlords withholding deposits, failing to make vital repairs, jacking up rents, and engaging in other domineering and intrusive behaviour. Their message to the tenant-class is clear: ‘We have the power – you don’t’.
Their message isn’t wrong, either.
Why do they have this power? Why is it normal for landlords to request references, payslips, and contacts of employment from prospective tenants and yet a tenant asking for similar information – references from past tenants or proof of consistent mortgage repayments – would be seen as ‘cheeky’ (at best) or a dangerous troublemaker (at worst)? For most landlords, such a breach of etiquette would immediately disqualify an application; they’re safe in the knowledge that the can have their pick of the crop.
To be serious about creating a housing climate where tenants can enjoy affordable, decent housing in areas they want to live, we need to look at the root of the problem; why do landlords have this much power in the first place?
There are 14664 adverts from people seeking rooms in London on SpareRoom.co.uk. Meanwhile, there are only 7505 available rooms being offered. Any Londoner who has had to replace a flatmate knows firsthand that they can choose from almost unlimited numbers of prospective flatmates.
This is because, in vast swathes of the UK, rental housing is a scarce commodity. The available housing stock is fought over by those already priced-out of the home-ownership class. Millennials and Gen-Xers surrender increasingly large proportions of their salaries just to live in areas where jobs are disproportionately located in the first place.
It is hard to overstate the level of housing scarcity in the UK. The UK vacancy rate, about 0.8%, is the lowest in Europe. Low vacancy rates is the keystone of landlord power; when there are so few available homes, landlords have increased ‘market power’, meaning that prospective tenants have to meet landlord’s criteria, not the other way around.
If you’re unconvinced, you can listen to the landlords themselves.
About a year ago, there was significant concern, particularly on the left, that private equity firms were speculatively buying up housing in the US and having significant negative effects on the housing market. Whilst it’s true private equity did get involved, it didn’t have a significant impact. This fear has been debunked several times, most aptly by Jerusalem Demas. It is revealing, however, to see what these private equity firms said to their shareholders regarding the issue.
Blackstone, a major private equity company, wrote to their clients about the potential risks affecting the value of their housing portfolio:
“We could also be adversely affected by overbuilding or high vacancy rates of homes in our markets, which could result in an excess supply of homes and reduce occupancy and rental rates.
Continuing development of apartment buildings and condominium units in many of our markets will increase the supply of housing and exacerbate competition for residents.”
In plain speak: If too many homes are allowed to be built then landlords will face increased competition for tenants, reducing rental rates.
Blackstone’s investment in the housing sector was predicated on continued housing scarcity propagating the cycle of increasing house prices and rents. Their greatest concern – that construction of new apartments might be legalised – is the solution to the crisis we find ourselves in today.
New Zealand had a similar crisis to the one the UK now faces. Between 2011 and 2021, the median house increased in value by 130%, far outpacing wage growth. In response, the NZ government passed sweeping reforms to their permitting process, allowing for far more medium-density housing to be built, especially near public transport links.
The result was a construction boom, leading to increased housing affordability. In 2015, the country’s largest city, Auckland, issued 6000 building permits. In 2021, 14,300 were issued. For many young New Zealanders, rents becoming more affordable is the first step to a secure and successful future.
UK politicians and policy makers could learn a thing or two.
In a world where housing was abundant, landlords would be forced to compete for tenants. How do vendors compete for consumers? They lower prices. They advertise. The treat customers well. They invest in their product. In this world, housing quality would increase as landlords would be forced to ‘woo’ potential tenants with better deals than their competition.
To protect and empower renters, we need to reform our planning system, as happened in New Zealand, to allow more homes to be built. Every new home tilts the scales of power back towards renters. For too long, our planning system has favoured aesthetics and ever-increasing house prices at the expense of a generation of young Brits. It doesn’t have to be this way.
