UK rental market
Image: © Yui Mok/PA Wire/PA Images

One in seven people in the UK spend more than half their income on rent

Here are five ways we could make renting a bit more affordable

Almost one in seven of people who rent privately (from a landlord, rather than a housing authority or the council) pay more than 50 per cent of what they earn each month back out in rent.

In London, that number is a lot higher. The average person spends 60 per cent of their income on rent. That’s well over half your time at work going just on making sure you’ve got a roof over your head.

The government talks a lot about housing. But it's usually talking about how to make it easier for people to buy houses, rather than rent them. That’s slowly started to change, and the government has made some tentative movements to make life a bit better for renters, like making it illegal for landlords to charge fees just for even trying to rent their house.

Some people argue that if you make the rental market better, it will take the pressure of the house buying market – if renting was cheaper, safer and more comfortable then we could all just stay like this forever, rather than desperately trying and failing to save to buy somewhere.

So what's the solution? Just like pretty much everything to do with economics (eye-rolling emojis all round) how to fix the housing market is something people can’t seem to agree on. Here are five ideas that people talk about, and why not everyone's 100 per cent sold on them:

Put a limit on how much landlords can charge in rent

Friends – Rent control

 

One idea: rent control, i.e. placing some kind of upper limit on the amount landlords are allowed to charge their tenants. It's a pretty divisive issue in the UK. One suggestion is that there would be limits on how much rents could increase in the future, ‘stabilizing’ how quickly they’re rising.

Rent controls are in place in lots of European countries – in Sweden for example, private landlords are not allowed to charge more than 5 per cent more than the cost of ‘social rents’ (housing authority or housing association properties). And it's done okay – renting tends to be more secure and more popular in places that have controls on rents. 60 per cent of people in Germany, and 90 per cent of people in the capital (read: hipsters fleeing London prices) rent their homes.

But some people say that although controls might seem great on the customer side, they're less exciting for the person renting the place. If you make it less profitable for landlords, you might discourage people from renting their properties in the first place – which means less properties available to rent, with just as much competition over them.

Make renting more secure

Vice London Rental Opportunity Of The Week
There are so many bad flats in London, Vice has a whole series dedicated to them

One of the big problems with renting is that the quality of housing is often pretty low. Although there are minimum standards that landlords have to stick to, there are always some pretty crazy stories about the places people rent for huge prices. Almost everyone's got a horror story: Vice does a good London Rental Opportunity Of The Week (please note the sarcasm) series highlighting the worst offenders.

When there are lots of renters and too few houses, there isn’t really any incentive for landlords to make conditions better for their tenants (or keep the rents affordable) because they know there’s probably someone else desperate for a house who’ll take it anyway.

Shelter, the housing charity, is calling for tenancies to last a minimum of five years, for example. That would give the tenant more stability and security, and limit rent increases in that period so they’re not rising any more than the level – which is how much all prices rise.

Build more affordable houses

Housebuilding

We need more houses – that’s something almost everyone’s agreed on. What’s less certain is just what an “affordable” home is. Most definitions put a genuinely affordable rent at 30 per cent of income, but without rent control (see above) even if you build loads of houses, how can you determine what price the house would be rented for once it’s been built?

According to the LGA, only 30,000 genuinely affordable homes were built in the UK last year – the lowest number in 24 years. The government has proposed a ‘Build to Rent’ scheme which would encourage property developers to build new, “high quality” housing for private rents. The idea is that the more houses there are, the less demand there would be for houses, so average rents would go down.

But to make sure there are affordable houses being built, the LGA argues that councils themselves should be given more money for housebuilding. They would build the houses, which would then be available for ‘social housing’ and ‘social rents’, which are cheaper.

Increase the amount of support people have so they can pay higher rents

'Social housing' is when a council, or housing authority owns properties which it then rents to people, without getting any profit, for lower rents. At the moment, there aren't enough social housing properties for the number of people who want them. The government gives housing benefit to help people who don't get a social housing place cover the cost of renting privately, but it's a pretty expensive solution.

The Local Housing Allowance, which is what housing benefit for private tenants is called, is frozen at the moment (which means it won’t rise any more, even as renting gets more expensive). Bringing the housing benefit bill down is one reason people are so keen to sort the whole rental market out – it currently stands at around £25 billion.

But, Shelter argues, even if the government builds loads of new houses and fixes the whole rental problem, it will take a long time for rents to fall on their own and for everyone in society to feel the benefits. In the meantime, Shelter says, the freeze should be lifted, which will stop the gap between the support people are given and the amount they have to pay in rent from rising.

Just pay people more money

The cost of renting in England has risen an average of 14.6 per cent from May 2011 to May 2017. Wages have only risen by 10 per cent.

One way of making sure renting isn’t totally unaffordable is by making sure people have enough money to pay the going rents. In the UK at the moment economists and politicians keep talking about a “squeeze” on wages – basically they aren’t increasing as much as the cost of living is increasing. By making sure there are enough good paying jobs for people to do, the gap between what people earn and what they pay out in rent becomes smaller. Simples.

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Reader Comments

  • Macrocompassion

    If land were not being speculated in then it would be more easily available and its price would become less. This would have the effect on allowing more building to take place which in turn would reduce the cost of homes and allow more people to both purchase and to rent homes at lower cost to themselves. How to stop speculation in land values is by taxing land values whilst stopping tax on everything else. The following essay explains more exactly how and why.

    Socially Just Taxation and Its Effects (17 listed)

    Our present complicated system for taxation is unfair and has many faults. The biggest problem is to arrange it on a socially just basis. Many companies employ their workers in various ways and pay them diversely. Since these companies are registered in different countries for a number of categories, the determination the criterion for a just tax system becomes
    impossible, particularly if based on a fair measure of human work-activity. So why try when there is a better means available, which is really a true and socially just method?

    Adam Smith (“Wealth of Nations”, 1776) says that land is one of the 3 factors of production (the other 2 being labor and durable capital goods). The usefulness of land is in the price that tenants pay as rent, for access rights to the particular site in question. Land is often considered as being a form of capital, since it is traded similarly to other durable capital goods items. However it is not actually man-made, so rightly it does not fall within this category.

    The land was originally a gift of nature (if not of God) for which all people should be free to share in its use. But its site-value greatly depends on location and is related to the community density in that region, as well as the natural resources such as rivers, minerals, animals or plants of specific use or beauty, when or after it is possible to reach them. Consequently, most of the land value is created by man within his society and therefore its advantage should logically and ethically be
    returned to the community for its general use, as explained by Martin Adams (in “LAND”, 2015).

    However, due to our existing laws, land is owned and formally registered and its value is traded, even though it can’t be moved to another place, like other kinds of capital goods. This right of ownership gives the landlord a big advantage over the rest of the community because he determines how it may be used, or if it is to be held out of use, until the city grows and the site becomes more valuable. Thus speculation in land values is encouraged by the law, in treating a site of land as personal or private property—as if it were an item of capital goods, although it is not (Mason Gaffney and Fred Harrison: “The Corruption of Economics”, 2005).

    Regarding taxation and local community spending, the municipal taxes we pay are partly used for improving the infrastructure. This means that the land becomes more useful and valuable without the landlord doing anything—he/she will always benefit from our present tax regime. This also applies when the status of unused land is upgraded and it becomes fit for community development. Then when this news is leaked, after landlords and banks corruptly pay for this information, speculation in land values is rife. There are many advantages if the land values were taxed instead of the many different kinds of production-based activities such as earnings, purchases, capital gains, home and foreign company investments, etc., (with all their regulations, complications and loop-holes). The only people due to lose from this are those who exploit the growing values of the land over the past years,when “mere” land ownership confers a financial benefit, without the owner doing a scrap of work. Consequently, for a truly socially just kind of taxation to apply there can only be one method–Land-Value Taxation.

    Consider how land becomes valuable. New settlers in a region begin to specialize and this improves their efficiency in producing specific goods. The central land is the most valuable due to easy availability and least transport needed. This distribution in land values is created by the community and (after an initial start), not by the natural resources. As the city expands,speculators in land values will deliberately hold potentially useful sites out of use, until planning and development have permitted their values to grow. Meanwhile there is fierce competition for access to the most suitable sites for housing,
    agriculture and manufacturing industries. The limited availability of useful land means that the high rents paid by tenants make their residence more costly and the provision of goods and services more expensive. It also creates unemployment,
    causing wages to be lowered by the monopolists, who control the big producing organizations, and whose land was already obtained when it was cheap. Consequently this basic structure of our current macroeconomics system, works to limit
    opportunity and to create poverty, see above reference.

    The most basic cause of our continuing poverty is the lack of properly paid work and the reason for this is the lack of opportunity of access to the land on which the work must be done. The useful land is monopolized by a landlord
    who either holds it out of use (for speculation in its rising value), or charges the tenant heavily for its right of access. In the case when the landlord is also the producer, he/she has a monopolistic control of the land and of the produce too, and can charge more for this access right than what an entrepreneur, who seeks greater opportunity, normally would be able to afford.

    A wise and sensible government would recognize that this problem derives from lack of opportunity to work and earn. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed 136 years ago by Henry George, a (North) American economist, but somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts.
    (I would guess that they don’t want to know, which is worse!) In “Progress and Poverty” 1879, Henry George proposed a single tax on land values without other kinds of tax on produce, services, capital gains etc. This regime of land value
    tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who/which do nothing productive and find that land dominance has its own reward.

    17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics

    Four Aspects for Government:

    1. LVT, adds to the national income as do other taxation systems, but it replaces them.

    2. The cost of collecting the LVT is less than for all of the production-related taxes–tax avoidance becomes impossible because the sites are visible to all.

    3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.

    4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below).

    Six Aspects Affecting Land Owners:

    5. LVT is progressive–owners of the most potentially productive sites pay the most tax.

    6. The land owner pays his LVT regardless of how his site is used. A large proportion of the ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not used).

    7. LVT stops speculation in land prices and the withholding of land from proper use is not worthwhile.

    8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.

    9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.

    10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below).

    Three Aspects Regarding Communities:

    11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.

    12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because
    they pay less ground-rent–demand grows, unemployment decreases.

    13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.

    Four Aspects About Ethics:

    14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks– LVT is a natural system of national income-gathering.

    15. Bribery and corruption on information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).

    16. The improved use of the more central land reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.

    17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs. Then earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly introduced itwill eliminate poverty and improve business ethics.

    TAX LAND NOT LABOR; TAX TAKINGS NOT MAKINGS!

  • Dan Sullivan

    This is worse than sophomoric. It totally ignores the question of why rent is so high in the first place. It proposes rent control, which has a disastrous track record, imposing quality standards on landlords which would actually raise rent, building “affordable” houses, meaning the taxpayer subsidizes the house even though he said 60% of the people would need these subsidies, giving people more tax money so the landlords can demand more rents (brilliant), and making employers pay more, as if those employers were raking in massive profits and people weren’t already outsourcing jobs to cut costs.

    Why not tax relax zoning laws, allowing for more density, and tax land values, making it less profitable to hold land out of use? No, no, we mustn’t get to root economic causes when fixing things by fiat has worked so marvelously in the past.