Renting a home is a really emotional issue for a lot of people. If you asked them on the street, most would probably say rents are too high, landlords exploit short tenancies, that it’s insecure, and that it does not suit families.
But there’s a lot that most of us don’t understand about the housing market, and the specifics of how renting works. We spoke to Kenneth Gibb, a professor in housing economics at the University of Glasgow, and asked him what things he wished people understood better about it all.
More and more people are renting their homes
More and more people are renting, and less and less are owning their own homes. Some people, referred to as ‘rental investors’, are buying up lots of properties to rent, which pushes prices up for the people who do want to buy a home for themselves. But on the other hand, it can be a good thing to have a large renting sector: it’s a flexible way of managing housing, giving people quick access to a roof over their head – as long as you know how it all works.
A house is not (always) a home
This is the first thing people need to think about: a house might be a home to you, but to a landlord or an investor, it’s a ‘commodity’ - essentially just a valuable item. Which means that from the off, the interests of both parties are very different. If house prices go up, that’s great for the landlord, but not so much for the tenant. You’re basically coming at the transaction from different angles.
In economics speak, you’re putting ‘consumers’ and ‘investors’ into the same market - they’re both customers of those who own the property, but they’re in it for very different reasons. One key difference is that an investor likes a housing market where they can really easily sell or buy property, so they’d be keen on very little regulation on landlords - but a consumer wants a stable home.
Know your rights
It seems like an obvious one, but it’s vital people don’t go into the rental market uninformed.
One of the core problems of the way the rental market works is what economists call ‘information asymmetry’ - a fancy way of saying that some people know more than others, where ‘some people’ usually means landlords, and ‘others’ usually means tenants. The party with the information advantage can exploit that fact.
A good example is what’s called ‘price discrimination’, where a landlord could tell one person a property is worth a certain price, and another person a different price, in the hopes that neither of the two knows enough about the market to tell whether the prices they’re being named are fair. And once you’ve agreed, the house becomes your home and you may be willing to pay slightly more to stay there – another fact that landlords could take advantage of.
Being conscious of those ‘information asymmetries’ can help tenants be aware of what they might not know in conversation with a landlord. It’s important to make sure you’re informed by talking to impartial third parties or citizen advice organizations.
You don’t have to buy on your own
There’s this idea that everyone needs to be aiming towards buying a house at some point. But there are other plenty of other models out there: if you do want property, you could look into shared ownership, shared equity, or something like mid-market rent, where the price is somewhere in between social housing at the private market - all sorts.
All these ideas need to be properly researched in terms of your obligations and responsibilities. The choices open to you depend on your preferences but also where you want to live. But it’s important to remember you’ve got more options than you might think.
A lot of it is just ‘supply and demand’
Just like a lot of other things in economics, the idea of ‘supply and demand’ is at the heart of the way the rental market works. People tend to want more housing (demand) faster than houses can be built (supply), which is what causes big shifts in price.
Learning how to gauge when that’s going to happen, and how house prices and rents are moving around will help you make sense of the rental market even if you’re not looking to buy (not that it’s always predictable - humans aren’t, so it isn’t. But there are definitely signs you can watch out for, even if they’re not 100% reliable.)
Rent controls aren’t always as bad as you might think
Rent controls are government-set rules which limit what landlords are allowed to charge tenants.
Some systems are relatively lightweight – they only apply to a particular area, rather than putting blanket controls over a whole country. For example, Scotland is introducing something called ‘local rent pressure zones’, where the local authority can set a limit on rent increases specific to that area. Scotland is also introducing open-ended tenancies where landlords will only have limited powers to take back the property from a tenant.
Private renting and the benefits system are linked
A lot of private tenants depend on benefits to make their rents affordable. But there’s a tension between needing to help people with housing costs, and the effect that spending money on benefits for housing costs will have on rent prices. Since 2010, the government has set pretty strict upper limits on how much housing benefit people can get, and reduced benefit amounts across the board. But that might price a lot of people who are living on benefits in the private sector out of their homes.
Renting isn’t all bad
Private renting has lots of positive effects people don’t usually think about. If it’s done right, it can be a really accessible way of giving people the flexibility to move from home to home, if they’ve got short-term needs in a certain place.
A house involves what economists call a ‘joint good’ - when you live in a house, you’re not just choosing it; you’re choosing the neighbourhood, the location, the amenities close by. For some people, it makes more sense to rent in an urban setting with lots to do and see, than to own in a suburb.
Fundamentally, our views on renting are the product of our experience and direct knowledge – the rigorous evidence on what is a diffuse and complex combination of different sub-sectors is patchy, uneven and often unsystematic.
At the end of the day, our views on renting are the product of our experiences, which makes it such a hard sector to concretely evaluate and assess.