Another think tank is calling for rent controls, based on a claim that many landlords are making what it calls ‘supernormal’ profits.
The Joseph Rowntree Foundation (JRF) says private rents will remain unaffordable for many until at least the end of this decade.
Therefore it believes capping rents could have a rapid and significant impact.
Specifically JRF claims that were rent increases capped at the Consumer Price Index (CPI) within tenancies, and CPI + 2% between tenancies, from 2025/26, renting households would be an average of almost £1,200 per year better off by 2030/31.
And JRF contends that rent controls need not reduce rental supply or lead to lower investment – as many claim – if landlords are making supernormal profits.
These are defined as profits that exceed the minimum needed for them to keep operating as landlords.
“If they are, returns could be reduced without significantly inducing a sell-off or rendering investment in the existing stock unviable” claims the foundation.
And it goes on to claim: “Analysis shows that the sector has generally been characterised by landlords making supernormal rates of return: even in the most recent period, a strong majority have made rates of return on their rental investments that exceed both economy-wide returns from comparable investments and rates of return in the broader real-estate sector.
“We argue that the high level of returns generally available to landlords warrant intervention on rents — both to make rents more affordable for renters, and to curb the excessive returns landlords are currently able to make and the distortive effects they have on the housing market and wider economy — at least while supply catches up.”
And it goes on to say: “Failure to charge National Insurance Contributions meanwhile means that rental income attracts a lower effective tax rate than earned income, meaning that some landlords making large returns are relatively lightly taxed.”
Instead JRF calls for a tweak – reinstating mortgage interest relief while applying National Insurance Contributions (NICs) to rental income.
“Our tax reforms would also have the added benefit of rebalancing the tax burden away from landlords making slimmer profits, and towards those making larger ones” it concludes.
This article is taken from Landlord Today