Can London accommodate a fairer, more affordable rental market as one of the fastest growing cities in the world? Eastlondonlines looks at how private renting is managed and limited in other metropolitan cities .
The rental market has been extensively grim for London tenants. In recent years the regeneration of entire areas in the ELL boroughs has gone hand in hand with soaring rent costs which have increased by 11 per cent since June 2013.
The Woodberry Down Estate in Hackney was demolished and replaced with 5,500 new units by Berkeley Homes, London’s biggest housing developer. In Lewisham , 3,500 new homes are planned for the Convoys Wharf development, which is owned by Hong Kong-based investment holding company Hutchinson Whampoa. The most recent controversy however, has been over the New Era Estate, bought this year by US investment company Westbrook Partners, who are trying to increase rent prices three-fold.
While foreign investors buy up large parts of London and build thousands of “luxury” flats, council or social housing – with prices set to 50 per cent of local market rents – has been replaced by affordable housing, priced at 80 per cent of market rents.
One in four Londoners live in the 725,000 privately rented dwellings in London and the sector has been growing steadily since 2000. The Valuation Office Agency published its latest recording of market rents in June 2014. The figures show that the average market rent for a two-bedroom property in Hackney is £1,589 per month. If “affordable” rent was charged on such a property, tenants would still have to pay a staggering £1,271 per month (£318 per week). With the average salary in Hackney totaling an estimated £600 a week, the cost of rent takes up more than 50 per cent of the average pay, putting a two-bedroom property in Hackney way beyond the reach of people on minimum wage.
The average “affordable” rent for a similar property in Lewisham is £229 per week, £313 in Tower Hamlets and £200 in Croydon. These prices are hardly “affordable” when compared to average salaries, but even these properties are in short supply. In Convoys Wharf for example, only 15 per cent of the flats will fall in this price range.
So how is Singapore keeping buy-to-let foreign investors away? How is rent in Berlin half the price of London? Are there better rights for tenants and landlords there than the de-regulated system here?
At £1000, a three-bedroom apartment in Berlin’s city centre can cost less than two thirds of the average market price for a two-bedroom in Hackney.
Berlin’s state government has introduced a new law to tighten rent caps, making it illegal to raise rent prices by more than 15 per cent in three years. A new law to be passed in 2015, will make it illegal for landlords in densely populated areas to raise rents more than 10 per cent above the local average when taking on new tenants.
Another proposal would see real estate agent fees charged to the landlord. They would consist of a percentage of the flat’s price and can be as expensive as up to six weeks of rent in some cases.
Currently, tenants who rent a flat through an agency have to pay the full amount of the agency fees. The new law proposes that the landlord who commissioned the agency to find tenants should pay the fees, relieving tenants of some of the costs of moving.
Moreover, tenants in Berlin only pay 100 per cent rent if the property is 100 per cent in order, otherwise the rent is reduced until the issue is resolved, which arguably makes the relationship between tenant and landlord more equal.
In Singapore rent control was repealed in 2001 and the government has recently introduced new measures to limit the number of foreign investors, allowing more properties to be let to locals.
In 2011, the Singapore government first introduced an Additional Buyer’s Stamp Duty for foreigners and corporations to be paid on top of standard stamp duty rates if they want to buy residential property or land in the city. The ABSD was set to 10 per cent and has been raised to 15 per cent in 2013 to stop the rise of property prices. A 7 per cent ABSD was also introduced for Singaporeans buying their second home to curb property speculation.
The move was aimed at avoiding a housing market bubble and keeping rents affordable for Singaporeans. Renting a three-bed apartment in the city centre in Singapore is likely to cost around £3,190 per month, compared to £5,076 in central London (£1,269 per week).
Dubai, a city of over 2 million, has also suffered from soaring rent prices in the last few years, with a three-bedroom flat in the city centre costing up to £2,370 per month.
The government has been dealing with this by capping rents. Until December last year, rent increases could only be applied if rent for a property was 26 per cent below the average market rental rate. Last December this changed so that all rents are still controlled but the rate of increase is dependent on the average rental rate in a specific market.
In short, if the existing rent is:
- Less than 10% below the average market rental rate, no rent increase is permitted;
- Between 11% and 20% below the average market rental rate, maximum 5% rent increase is permitted;
- Between 21% and 30% below the average market rental rate, maximum 10% rent increase is permitted;
- Between 31% and 40% below the average market rental rate, maximum 15% rent increase is permitted;
- More than 40% below the average market rental rate, maximum 20% rent increase is permitted.
If such a regulation was applied in the case of the New Era Estate residents, it would make it impossible for Westbrook Partners to simply raise the rent three-fold to match market prices, as the increase would be limited to a maximum 20 per cent at renewal of the lease and a 90 days’ notice would have to be issued for the increase to be enforced.
New York is the city with the longest running rent control policy, established in 1943. Nevertheless, a three-bedroom apartment in the city centre can cost up to £3,290 per month, three times the cost of the same apartment in Berlin.
New York’s system of rent regulation consists of rent control and rent stabilisation. The first can only be applied to units built before 1947 and occupied by the same family since 1971. That makes up only 2 per cent of the dwellings. However, rent stabilisation is applied to almost 50 per cent of private accommodation.
The apartments are sustained by the government and, when they get this status, rent can only be increased by the landlord by a very small percentage, for instance, 1 per cent for a one-year lease or 2.75 per cent for a two-year lease. Rent-stabilised apartments in Manhattan are priced on average £765 cheaper per month than market rates. The status of the apartment can only be changed once the monthly rent exceeds £1,600 or the household income exceeds £128,000 a year.
London’s need for a solution to its housing crisis has been widely acknowledged and many hope to see this debated in the 2016 London Mayor elections. The Intergenerational Foundation, a thinktank promoting fairness between generations, highlights this point but also the fact that national comment fails to focus on “what really matters”.
If supporter Tim Lund argues that the real problem of the supply of housing is often evaded: “Politicians of all parties are happy to go along with the interests of local property owners – who want continuously rising prices – and older social housing tenants who benefit from rents rather less than the 80 per cent of market rents which social housing providers can charge new tenants… Both these groups… like how things are, and [do] not especially want newcomers. So their politicians resist any worthwhile expansion of the housing supply.”
Christian Wolmar, running to be Labour candidate for Mayor of London in 2016, calls it the “Walrus and Carpenter approach to London housing”. With reference to Through the Looking Glass by Lewis Carroll, he said: “For decades boroughs have acted as either Walruses or Carpenters when it comes to housing. The Walruses have mourned and decried the loss of social housing in public, while continuing to sell off housing stock; the Carpenters, on the other hand, have silently sold off whatever they can get their hands on.”
Wolmar has a number of ideas to solve the London housing crisis. He proposes to let councils and housing associations build new houses on the land owned by the NHS in London, while also easing the borrowing restrictions that councils face. He stresses that London Mayor Boris Johnson has failed to meet his pledge to build 42,000 new homes a year, with only 16,800 built in 2013.
In the ‘Renter’s Manifesto’ launched this year, Generation Rent (a campaign group for private renters) also set out some measures that challenge politicians to “fix the housing crisis”. They proposed the right to five-year tenancies instead of the typical 12-month contracts. Moreover, they challenged the government to start building properties that can only be sold for a limited increase in price, which could be bought by owner-occupiers or by landlords on the condition that rent would be controlled. Finally, they proposed to introduce a Secretary of the State for Housing, a new department to fix the housing crisis and “save the taxpayer billions”.