PUBLIC POLICY AND THE PRIVATE RENTED SECTOR OF THE HOUSING MARKET

Abstract

Recent months have seen increasing public concern with the state of the housing stock in Britain. Symptoms of the malaise include physical decay, empty property, homelessness, geographical immobility of households, overcrowding, and large numbers of people in bed and breakfast accommodation. In the search for causes and cures, attention has been directed at the structure of tenures in the UK and in particular at the inefficient operation of the rented sector of the housing market. The UK is characterised by a relatively large municipally‐controlled rented sector, and a relatively small sector of private lettings, compared with many other advanced countries. Neither the public nor the private sector of the rented housing market seems at present capable of meeting the demand placed upon it. In particular, public policy over 70 years has systematically undermined the privately rented sector. From housing around 90 per cent of households in 1915, the sector has declined to a mere ten per cent in 1985. Two forces explain this extra‐ordinary collapse of private renting. Firstly, as more and more people have become taxpayers during the course of the 20th century, the advantages of receiving lightly taxed income ‘in kind’ by investing in owner‐occupied housing have become increasingly pronounced. Landlords pay tax on the income (including capital gains) derived from housing, owner‐occupiers do not. Secondly, some form of rent control or regulation has been in force for most privately‐rented property continuously since the early years of the First World War. The restriction of prices below market clearing levels in the private rented sector has inevitably discouraged supply, reduced repair and maintenance expenditures, hastened sales of hitherto rented property to owner‐occupiers, gravely impeded geographical mobility of households, distorted the allocation of available housing space, and exacerbated housing shortages (homelessness). As a long term component of social policy, rent control has almost nothing to commend it. Its predicted consequences can all be derived from the simplest application of microeconomic analysis, and many elementary textbooks use rent control as an outstanding example of the effects on markets of intervention in the process of price formation. However, in spite of the widely perceived disadvantages of rent control, it is a policy which it is very difficult to reverse. The purpose of this paper is to discuss briefly the main features of a scheme which was recently advocated by the present writer in a paper published by the Centre for Policy Studies.

Citation

Ricketts, M. (1987), "PUBLIC POLICY AND THE PRIVATE RENTED SECTOR OF THE HOUSING MARKET", Property Management, Vol. 5 No. 2, pp. 108-113. https://doi.org/10.1108/eb006649