Yahoo Finance Wales plans German-style rent controls in crackdown on landlords
The Welsh Government is considering German-style rent controls as part of a crackdown on landlords.
Julie James, the Minister for Climate Change in Wales, has launched a call for evidence to help establish rent controls in the private rental market “so they are affordable for local people on local incomes”.
In a consultation document, the Welsh Government outlined the evidence it has gathered on rent control systems already in use in Germany, Scotland and Ireland, which is being used to inform its proposals.
Landlords and estate agents warned the measures, set to be outlined next summer, would be a “disaster for tenants” and worsen a housing shortage.
Ms James said: “The Welsh Government recognises the pressure the rising cost-of-living is placing on already struggling household budgets.
“This includes rental costs for tenants. We are committed to helping tenants; committed to ensuring that we strive to deliver adequate housing and that access to private renting is fair: one main aspect of this is affordability.”
Landlords in Wales already face onerous reforms aimed at second homeowners, including council tax premiums of up to 300pc.
Under consideration is a German model for rent “brakes” which would allow rent rises on new tenancies to be limited to 10pc above market levels in areas where affordability is a problem.
Rents would also be barred from increasing by more than 20pc over three years.
A Scottish system would result in a percentage limit for rent increases on existing tenancies, but the Welsh Government said “it may not be appropriate to introduce a uniform, nationwide rent control scheme” because of regional variations in the housing market.
The Scottish Government initially set its own percentage limit to 0 – resulting in a rent freeze – but this rose to 3pc in April. New tenancies are not affected, which has led to huge price jumps for people moving.
Ben Beadle, chief executive of the National Residential Landlords Association, a trade body, warned that rent controls could push landlords to exit the market and exacerbate a housing shortage.
He said: “Rent controls would serve only to decimate the sector further and would be a disaster for tenants, when so many are already struggling to find a place to rent.”
Tim Thomas, policy and campaigns officer at Propertymark, a trade body for estate agents, said: “We’ve got to learn from Scotland. They have very vigorous rules, and with the exponential rise in costs for landlords, a lot of them are exiting the market.”
Another idea outlined in the paper is for a certain proportion of new builds to be secured for affordable rent.
Rents could also be linked to energy performance ratings. In an example given, the most efficient homes with an A rating could allow landlords to raise rents by 8pc, compared with 1pc for E ratings.
Also suggested is an Irish model whereby rents are “reset” at or around market levels between tenancies.
In Ireland, rents on new tenancies cannot exceed levels decided by a public body.
The ratio of local incomes to rents could be used to determine areas where affordability is an issue and allow for a “targeted intervention of rent control measures in a specific geographical location”.
In its paper, the Welsh Government pointed out that rent caps could also be based on the value of the home.
For example, this could mean that if rents were capped at a 10pc annual yield, on a property purchased for £100,000 the maximum monthly rent would be £833 a month (£10,000 a year).
Variations of this would allow landlords’ costs such as mortgage interest and repairs to be added on, or in a cost-based model they would be allowed to charge a percentage profit on top of their costs.
