Labour leader Ed Miliband has announced plans for sweeping reforms of the private rented sector, including actual price controls, which the party says "will help millions of households caught in the cost-of-living crisis".

Speaking in Redbridge, London, at the party's campaign launch for local and European elections on 22 May, Miliband set out detailed plans for three-year tenancies and setting rents which preventexcessive rises.

Miliband said: "The insecurity and instability of the private rental market is bad for tenants, bad for families and even bad for landlords. We must act. Most other countries don’t work like this. They have longer tenancies which provide greater protection."

Grainia Long, chief executive of the Chartered Institute of Housing (CIH), welcomed "an interesting set of proposals" which "appears to be trying to strike a balance between the need for greater certainty and security and the ability of both parties to end the agreement if they need to".

Long added: "However, there are still some questions that need to be answered about the detail of these proposals, including how the mortgage market would respond if, as suggested, landlords would be allowed to enter into shorter contracts where they are contractually obliged to do so as part of a buy-to-let mortgage entered into before the start of the new legislation."

Miliband's speech

"Today I can announce, if we win the general election, we will legislate to make three-year tenancies, not short-term tenancies, the standard for those who rent their homes in the private sector, giving people who rent the greater certainty they need," Miliband said.

"And we’ll act on unpredictable rent rises too. Because these new longer-term tenancies will limit the amount by which rents can rise each year. So landlords know what they can expect. And tenants won’t face the shock of rents that go through the roof. So it will be cheaper to find a home to rent as we ban charges for tenants. There will be greater security with three-year tenancies and we will tackle the cost-of-living crisis by putting a ceiling on excessive rent rises."

Rattled

The government appeared rattled by the potential mass vote winner with the Daily Telegraph reporting that the Conservatives had described the pledge as an attempt to "introduce Venezuelan-style rent controls".

Tory chairman and former housing minister Grant Shapps said: "Evidence from Britain and around the world conclusively demonstrates that rent controls lead to poorer quality accommodation, fewer homes being rented and ultimately higher rents – hurting those most in need."

The most impassioned response came from Sam Bowman of the Adam Smith Institute, who called rent control "a stunningly bad idea that could devastate Britain’s cities and clobber renters. To paraphrase the socialist economist Assar Lindbeck: the only thing worse for cities than rent control is bombing them."

Key issue

It's a sign of the likely role that housing will play in next year's general election that Labour has chosen rent controls to dominate its launch of both local and European elections. 

However, it was not immediately clear how Labour will determine the level of rent rises to be allowed.

Miliband said: "One of the biggest causes of the cost of living crisis in our country is the price of renting or buying a home. People simply can’t afford it, they’re priced out, saving for a deposit year after year, decade after decade, or having to look for somewhere to live further and further away from where they go to work or where the kids have always gone to school.

"A Labour government will make sure that Britain builds 200,000 more homes a year by the end of the next parliament so that more families can fulfil their dream of home ownership.

"But generation rent is a generation that has been ignored for too long. Nine million people are living in rented homes today, over a million families, and over two million children. That is why a Labour government will take action to deliver fairer deal for them too.

"If you buy your home, most estate agents will not charge you fees, but those who rent are given no protection and they get charged up to £500 just for signing a tenancy agreement. We will legislate to ban these charges by letting agents."

London

The electoral implications are clearly far bigger for London than anywhere else.

Tom Copley, Labour's housing spokesperson in the London Assembly, said: "This announcement is particularly good news for Londoners, more of whom rent privately than in any other part of the country. Many of these Londoners would have been able to buy their own home 10 years ago but have been forced to rent because of London's exorbitant house prices, fuelled in part by the growth in the buy-to-let market."

Small print

Tenancies would start with a six-month probation period at the end of which the landlord would be able to terminate the contract if the tenant failed the probation (for reasons such as rent arrears or anti-social behaviour). After the six months, the tenancy would automatically run for a further 2.5 years

Tenants would be able to terminate contracts after the first six months with one month notice as they can now. Landlords would be able to terminate contracts with two months’ notice due to rent arrears, anti-social behaviour or wanting to sell the property or use for their own or family use.

Landlords would not be able to terminate tenancies simply to put rents up.

Labour says there would be a provision that allowed landlords to enter into shorter contracts where they are contractually obliged to do so as part of a buy to let mortgage entered into before the start of this new legislation.

There would also be provision for new tenants like students or business people on temporary contracts to request shorter-term tenancies subject to the landlord’s agreement.

Landlords would continue to pay charges just as people selling houses pay fees to estate agents. But letting agents would be banned from charging fees of up to £500 to tenants.

Positive reactions

Len McCluskey, head of the country’s largest union Unite which has often clashed with Miliband, welcomed the announcement. 
 
McCluskey said: "We are pleased that the Labour party is making further moves to address housing failure in the country. People need to know that the house they rent is their home and that they will have the peace of mind that comes with three-year security of tenure. These moves coupled with Labour’s pledge to build 200,000 houses a year, with a strong emphasis on council and social housing, should raise the quality of housing available and bring down the punishing cost of renting."

Alex Hilton, director of Generation Rent, said: "Short tenancies and eviction-on-demand give landlords a brutal grip over their tenants’ lives. Renters will finally be able to make the building they live in their home and the street they live in their community, which will radically change how it feels to rent privately. Tenants will also, for the first time in generations, be able to assert their rights over repairs and maintenance without fear of eviction."

Leslie Morphy, chief executive of homelessness charity Crisis, said: "At a time when the ending of a private tenancy is a leading cause of homelessness, reform of the private rented sector is long overdue. With increasing numbers of people renting privately, it is all the more important that tenants are given the stability to make a real home and put down roots in their community. And for homeless people, for whom a private tenancy is often their only option, this stability is particularly important.

"Longer tenancies are something we have long called for. Recent research for Crisis highlights the damage done to tenants on short contracts who face being thrown out when they request repairs or their landlord wants to put the rent up."

Negative reactions

National Landlords Association (NLA), which has 23,600 paying members.

NLA chief executive officer Richard Lambert said: "The proposal for a three-year default tenancy is unnecessary, poorly thought through and likely to be completely unworkable. Private individuals put in the region of £20 billion into providing housing for rent last year.

"Fundamentally changing the structure of tenancies will create uncertainty amongst these landlords and the lenders which provide the finances underpinning housing in the UK. Were these proposals to become government policy it would strike a devastating blow to investment in housing of all tenures and further constrain supply at a time of real housing crisis. We are concerned that the proposals will actually increase the insecurity of tenure for renters."

The Residential Landlords Association (readers might spot a theme emerging here) was equally distraught, claiming that Miliband's remarks "fail to recognise the reality of the private rented sector and serve only to exaggerate people’s fears". It said the most recent English Housing Survey shows that the average length of tenancies under the current tenancy model is now 3.8 years with those staying on longer in their properties enjoying considerable savings on their rents.

RLA vice chairman Chris Town said: "Whilst it is good to see a debate being held on the role that the private rented sector has to play in meeting the country’s housing needs, it is vital that it is based on fact and not populism. The RLA will study Labour’s proposals carefully, but all the evidence clearly shows that rent controls of the kind being proposed would critically undermine investment in new homes to rent and are not needed given that official statistics show that rents are increasing by much less than inflation."

Ian Fletcher, director of policy at the British Property Federation, warned that investment could be hit.

Fletcher said: "There are many institutions investing in UK housing, or on the cusp of it, that will be feeling extremely nervous this morning. Those who are investing already are very receptive to offering longer tenancies and many are doing so and the Labour Party’s aspiration on that in itself is not objectionable, but the rent control aspect of this announcement makes no sense.

"Good landlords will be getting a perverse message that if you are providing a premium product the most you can expect is the ‘average’, whilst bad landlords with sub-standard accommodation can find another justification for charging over the odds. There are already mechanisms to deal with dodgy rents on longer tenancies via rent tribunals and unfair contract terms."

The UK Association of Letting Agents welcomed the proposal for annual indexation of rents during longer tenancies. It said this would make agents’ lives easier and "potentially more profitable", adding that most rent rises occurred for new tenancies.

However, UKALA executive director Richard Price said: "Letting agents provide a valuable service to both landlords and tenants, but it is a commercial service which incurs costs and will only remain viable if there is a reasonable prospect of profit.

"It is undeniable that tenants and landlords want clarity and there is a real need for greater transparency about charges, who is responsible and for what they are paying. However, a blanket ban will not achieve this. Rather, it will make it less clear by forcing agents and landlords to incorporate their numerous costs into rental demands. Far from reducing the ultimate cost to tenants, the likely outcome will be a long-term levy on the cost of rented housing."