5 Policies That Could Improve Housing for the Renting Generation

Yves here. I’m surprised that this article doesn’t put more emphasis on tenants’ rights. I am not familiar with tenants’ legal status in Germany, but as a matter of policy, Germany has supported affordable housing costs (in the real sense, not the US fake policy branding sense) in part to enable manufacturers to pay more moderate pay and keep their goods competitive. In other words, Germany put its finger on the dial so the property rentiers didn’t hurt industrialists. And historically, most people have rented and rents have been modest by advanced economy standards. But I am totally in the dark as to the particulars of the relevant policies and laws work. Can knowledgeable readers pipe up in comments?

In communist New York City, we have rent stabilization (which is NOT the same as rent control) in which owners of regulated apartments can increase rentals only as determined. The philosophy is that the rent increases are meant to reflect rises in landlords’ costs. In reality, they tend to lag inflation when inflation is high, and then landlords are allowed to catch up when inflation is low. One feature is that if a tenant is current on his rent, a landlord cannot refuse to offer a lease renewal. My building has a lot of rent stabilized tenants (and trust me, even with regulated rent increases, these are not screaming bargains, but they are somewhat lower than market rents), and there are many long-term tenants, including ones who’ve made significant improvements. So rent stabilized tenants do have property rights. And there is a specialized housing court which is pretty pro-tenant (as in they have seen lots of landlord bad tricks). Mind you, while this is good as far as tenants’ rights go in the US, I have no doubt readers can offer other suggestions.

By Jo Richardson. Originally published at The Conversation

Research by the Resolution Foundation has confirmed what many young people already sensed; that for them, the private rented sector in Britain is less a stepping stone, and more of a trap. The research predicts that up to a third of millennials will live in private rented housing from the day they’re born, until the day they die.

Many aspire to own their own home, pay off the mortgage and have an asset against which they can leverage the support they may need in their old age, or pass on to their children. But this traditional dream is becoming increasingly distant, as more of the UK’s housing stock is owned by organisations or landlords with multiple properties.

What Went Wrong?

Home ownership is increasingly the preserve of those with wealth, or older people who bought at a time when housing was cheaper. Some of the wealthy don’t just own their own home, but also others, which they collect the rent on to buy more properties.

While owner occupation, as a proportion of market share, has not changed dramatically, very recently (it has been around 62% for a couple of years) the private rented sector has grown at the expense of the social housing sector.

Social housing – that’s homes owned by local councils or housing associations, rented out at significantly less than the market rate – has become rarer. And there’s more so-called “affordable” housing – usually a set proportion of up to 80% of the market rate – which in many cases just isn’t affordable for those on lower incomes.

In continental Europe – especially countries such as Sweden – there is a different approach. The level of owner occupation is much lower, while the private rented sector is better quality, more affordable and more secure for renters.

What Could Work?

There are plenty of policies which could improve the situation for “generation rent”:

1. Cap rents in the private rented sector and regulate landlords, so that properties must meet quality standards; this is the case in countries such as Sweden, but the differences between markets means comparisons are nuanced and complex.

2. Reform tenancy law and enforce better protection for tenants against “rogue” landlords. There are stories about landlords undertaking “revenge” evictions against tenants who have complained. There are examples of poor or no repairs, hazardous and unhealthy conditions to live in, but the legal redress for tenants is slow, costly and limited.

3. Invest government money to build more social housing, and keep it in public ownership for those who can’t access the private market. At the moment, “personal subsidies” do not provide long-term assets of bricks and mortar, but instead go into welfare payments which, through rental payments, can ultimately boost profits for private landlords.

4. Disrupt the flow of public housing into private hands by halting the Right to Buy, which allows eligible social housing tenants to buy their home with a discount of up to £108,000 (£80,900 outside London). The Local Government Association refers to a “firesale” of social housing, with over 55,000 homes sold under RTB in the last six years.

5. Put more housing into the hands of communities by establishing co-operatives and community land trusts (CLTs), which have the power to decouple housing cost from market value, and link rent cost to earnings, with the uplift in value retained by the community co-operative – not wealthy private individuals. There are over 200 examples of small scale urban and rural schemes in England – such as East London CLT – learning from embedded projects, such as Champlain Housing Trust in Vermont, US. The relaunched Community Housing Fund will go some way to boosting activity here.

Why Things Won’t Change Tomorrow

The UK can’t just set out tomorrow and become Sweden by placing more stringent regulations on rent levels, tenancy security and quality of housing. The UK’s political and economic systems are materially different, and this manifests in the flavour of its housing markets.

In his 1995 book, Jim Kemeny highlighted how, in England, the housing private market is protected from competition through the suppression of social renting. Neo-liberal policies which promoted private commercial interests over social ones were the bedrock of this paradox, and this remains the case now more than ever.

Pendulum politics, resulting from our democratic process, means short-termism is the only political game in town. Reforming the housing market, fixing the private rented sector and building more genuinely affordable housing need a longer term approach.

Then there are voter dynamics to consider: for example, Right To Buy appeals to people already in the social housing sector who wish to own. The policy is often leveraged as a political at election time. But it benefits the few, rather than the many, and it disproportionately disadvantages young people who are in the private rented sector and cannot benefit from Right To Buy.

Older people, those who own their own homes, or wish to buy their council or housing association home, are more likely to engage with the current democratic system and vote. Until more and more young people use their ballot card, their voices will be marginalised.

There are too many vested interests in the political system to maintain the status quo. The people who can change the system – British MPs – have too much to lose. Just over 120 MPs – that’s almost one in five – declared on the register of interests that they rent out one or more homes or private properties. There is too much at stake for them to seek more regulation and fewer profits – turkeys won’t vote for Christmas.

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  1. kevin

    I can’t help thinking a lot of these proposed solutions could easily backfire. Capping rents in the private rented sector may work short term but is going to dissuade developers from building new apartments.

    Providing minimum standards for safety and hygiene to tenants, while a good idea on its own, is a different issue than affordability. Well.. different except that it increases the cost for rentiers and once again dissuades potential landlords (the largest cost being another bureaucratic layer to deal with, not so much the fixes themselves). Here in Washington DC the amount of well intended regulations and enforcement intended to help “affordability” stymies bringing new housing on line. Its just not worth it

    If affordability is all we care about the answer is simply remove density restrictions and let the market do its work. Sure this will remove much of a cities character as 100+ year old historic districts get uprooted for large-scale apartment buildings but thats really the only answer I see for increasing affordability. In reality we usually see a middle-ground where smaller areas and projects are approved for increased density allowing some degree of affordability but retaining much of a cities charm.

    1. armchair

      If your considering being a landlord in the rental game and, “[p]roviding minimum standards for safety and hygiene to tenants,” is something that “dissuades,” you, I’d call that a good thing.

  2. PlutoniumKun

    Getting to grips with how to encourage and protect renters is surprisingly complex and often is only tangentially related to laws and regulations. I can’t find the link right now, but a while back I read a report comparing the German and Irish legal systems for renting and there were surprisingly few differences, despite Germany being acknowledged as having an excellent system, and Ireland as having one just as dysfunctional as those in the UK and the USA. Researchers have found that a key issue is renters have low expectations of their rights and often accept rent increases or notices to quit when the law is actually on their side. There is also the key issue of how courts enforce the rules. In short, its as much a cultural as a legal issue. In northern Europe there is a deep long lasting culture of people from all aspects of society renting for the long term. This just doesn’t exist in the Anglosphere, and changing requires a lot more than just giving tenants more rights.

    A key difference, it must be said, is that in general in northern Europe you have far more co-operatives and professional landlord investors (as opposed to the more common model in the Anglosphere of the landlord class being made up of numerous small investors). This makes it easier to regulate, and the incentives are often very different. Institutional investors tend to take a much more long term view of how to manage (for example) apartment blocks in single ownership, and so are much more likely to accept longer term renters and to have more legally secure contracts. I think there is evidence that things are shifting this way far more in the US and UK and Ireland. Certainly in Ireland many apartment complexes caught up in the 2007 financial collapse which were built for individual purchasers (to live in and rent) were instead sold to institutional investors who manage them entirely for renting. So far, this seems to be a successful way of managing the housing stock – most of the blocks are well run and popular and you don’t have the problems when a block is divided into numerous ownerships.

    Co-operatives are also the other obvious models, a necessary bridge IMO between public and private housing. They can avoid the stigma attached to public housing which made it so easy for Thatcher and others to sell it all off (to a very enthusiastic public, it must be said). But from what I know of co-ops, they can be very difficult to set up and run if there isn’t a firm legislative context – this usually exists in northern European countries, but its much more ad-hoc elsewhere.

  3. Heraclitus

    The average value of housing in London is 485,500 pounds. The inheritance tax kicks in at a forty percent rate at 325,000 pounds. Why would you not rent?

    The exclusion for the main family residential property is going up to 1 million pounds by 2020 (500,000 pounds for singles), but who can inherit is limited to immediate family.

    I would expect wealthy Britons to be making tracks for the US and other locales.

      1. Flo

        More than 100% of nothing! If youre paying £1200 a month in rent (the average in London), from 25 to 80 years old, not accounting for any inflation, you’d be about £300,000 worse off. Then that money goes to your landlords kids, instead of yours, assuming having an insecure tenancy and paying that much money for housing hasn’t put you off having any.

  4. lyman alpha blob

    Invest government money to build more social housing, and keep it in public ownership for those who can’t access the private market.

    Yes! Our local government has been wringing it hands over how to deliver affordable housing even as it promotes policy and projects that benefit the rentier class. This idea that you can let private developers build pretty much what they want as long as they include a handful of ‘affordable’ units in the mix simply doesn’t work.

    You can’t and shouldn’t expect the private sector to serve the public good. If governments want affordable housing for their constituencies, they need to do it themselves.

  5. Steve Ruis

    Renters increase rents for one reason … because they can. Initially all of the parameters are established. The renter acquires a property he intends to rent. The rent charged is determined to some extent with what the market at that time will allow. Whether the deal makes economic sense is whether the rent can cover the owners costs: debt service, maintenance, repair, upgrading, insurance, accounting, etc. Any rental scheme in which the rent doesn’t cover these costs is a speculative effort in which the future value of the rental unit will pay the dividends.

    On, this basis, why would rents ever be changed? Obviously things like maintenance and repair and insurance can increase in cost over time. Property taxes can increase. These I understand. I also understand that in most areas rents increase at a much faster rate that those costs do. When the market goes up, all rentals seem to go up with it, even though the basic deal made was still good. Renters increase rents because they can.

    There is a societal interest, though, in setting rules for this process. Housing is a basic human need and allowing unfettered rentier extraction doesn’t serve. This is why most places have some regulations regarding rents. I think there is a moral dimension, a dimension capitalism doesn’t have but we faked it fairly well for a while, to thinks like health care, housing, and food. For a society to be stable, some consideration must be made to those on the poor end of the “pay as you go” culture of ours. Not every aspect of an economy has to be wide open to wealth extractors. In the past we recognized this with public schools, services like the post office and military, and many other things. Currently, with the wealthy resetting the rules, it seems as if everything is open to greater wealth extraction. And I do not see good ends to this trend. There is no bound on greed that we do not set. A recent episode of the show “Billions” portrayed two wealthy characters talking about the fall of one. His future looked as if his wealth was to be reduced to “only” $400 million. This appalling future lead that character to make a deal that could restore his wealth to its former heights. The key point was “How could you live on $400 million?” with the answer being “You can’t.” (I could find a way!)

  6. Vickie

    Much easier to create affordable housing by zoning for owner-occupied homes only. Row houses,which are attached townhouse units, filled block after block in Philadelphia. They were built on alleys with garage in rear of lot opening to the alley which opened onto the street at either end of the alley. Prohibit rental units by zoning owner-occupied only.

  7. a different chris

    Barely even tangentially related, but it always amazes me that housing, renting or otherwise, is so messed up in the US. Ok, it doesn’t actually amaze me but we are so simultaneously rained on with both the “move, chase your dreams, that’s America!” and “build your enormous American dream house” messages and with no acknowledgement that the two are completely incompatable.

    Completely, I say, because renters are stuck with tough contracts to break and homeowners see 10% of their topline, at least in Pennsylvania, vaporize in Realtor and other fees everytime they move. So what do you do? Drive ridiculous distances for everything, apparently.

    1. JohnnyGL

      “So what do you do? Drive ridiculous distances for everything, apparently.” – because the power of the oil/gas and auto industry compels you!!!

      At some point, we’re going to have to recognize, as a society, that the suburbs were a failed social experiment. The environmental consequences are devastating, but so are the infrastructural maintenance requirements, as well as the energy requirements.

  8. johnnygl

    It’s worth digging up the old Henry George ideas of taxing land (not the property) with the idea that you’re taxing ‘dead’ capital. Taxing property means a disincentive to invest in improvements, but taxes on the value of land are a great way to reclaim the private gains that accrue from nothing more than location, location, location, as the old saying goes.

    Land value is created by community wealth and should be clawed back for the benefit of the community, instead of letting rentiers eat a free lunch.

    Keep in mind, squeezing landlords’ margins mean it becomes less attractive to be a landlord.

  9. Sid Finster

    What on earth makes you think that anyone of influence and authority wants to do anything substantive for the renting generation?

  10. Steve from CT

    I developed more than 1100 units of affordable housing in CT since 1972 using every federal, state and local housing program that was available to me: sect 236 interest subsidy reantal, section 8 mod rental, lihtc(tax credits), sect 312 rehab, housing authority turnkey, predevelopment loans, project based section 8, housing finance authority construction and end loans, lihprha program to rehab older 236 projects and neighborhood strategy area.

    In the US, the fact remains that the feds do not allocate nearly enough subsidies to make enough new and rehab affordable housing units for people in need. Housing Authorities which were supposed to be the housers of last resort are now in serious financial trouble and the feds are washing their hands and backing away.There are many reasons for the problems of not having enough quality housing,including the fact that HUD itself since the days of Bill “Clit…on” and Andy Cuomo has become a cess pool of incompetance and neoliberal ideas. Before them, HUD had a mission and some really smart knowledgable people on their staff both nationally and in local offices.

    HUD Programs have slowly changed from trying to provide good affordable housing for tenants and homeowners to programs that give money and focus on developers and lenders. Cuomo was a stalwart supporter of Al Gore’s effort to “reform gov’t” and tried to remake HUD into the model agency for that BS concept including reducing staffto a ridiculously low level which also eliminated those who had organizational knowledge, understood housing and knew how to implement programs.

    As I look back at my career I am not sure what was really achieved by the units I produced. One 215 unit rehab of 60 structures in a 4 block area became a drug haven within 3 years because HUD choose a national management agent instead of the local non-profit management company. It was too complicated to manage from Boston. The local manager wasa drugie and taking bribes and was ultimately convicted.

    I think the solutions mentioned inthis article will do almost nothing to solve the problem. Not sure what will at this point. Forget coops and land trusts. Monitoring rent increases by local staff does not work. Feds want to greatly reduce the section 8 subsidies which will make things even worse.

  11. Adam Eran

    Missing from this discussion is the effect of the 1986 tax law–a Reagan-era income tax revision. This eliminated a tax break for wealthy apartment owners, and literally bankrupted apartment-building limited partnerships by retroactively removing a tax break budgeted to be part of their income and profits. This also occurred in the era of the S&L crisis that prefigured the sub-prime/derivatives meltdown. I’m guessing all those bankrupt apartments didn’t help the S&Ls either.

    The tax break allowed limited partners to take passive losses (e.g. depreciation) even though they weren’t liable for the losses of a project. As I say, all apartment-building limited partnership failed. The fortunate ones deeded the apartments to the banks rather than go through the pain of foreclosure. The rate of rental building also declined after this (everything declined after the S&Ls), sabotaging transit-friendly projects that require density to work.

    The socialists will tell you giving tax breaks to the wealthy is a second-rate housing solution since those taking them remove some money from the apartment’s income, whereas simple government ownership of affordable housing means 100% of the money spent / earned builds apartments. Nevertheless, the tiny subsidy eliminated by the Reagan administration’s tax law revision was devastating.

    Section 8 (rental subsidies) is another solution that works when it’s implemented. Since its inception, it’s been underfunded so there’s an enormous queue of poor people waiting for those Section 8 vouchers. Recent administrations have cut funding further, too. Section 8 is also something ex-felons can’t get, so the pressure on the incarcerated doesn’t let up just because they’re turned loose.

    The bottom line, at least to me, is that Americans believe that poverty is really morally reprehensible. The poor deserve their poverty, and must be punished. This is perverse fallout from that “Protestant ethic,” IMHO.

  12. PKMKII

    One of the biggest problems with pushing up rent prices, more so in high-demand urban areas, is that the market of the property and building itself distort the rent market. Owners stand to make much more from selling the building/property than they do from rents, so their actions center around driving up the property value. Which leads to things like luxury over affordable apartments, dedicating space to amenities that could be used as housing, and most perversely, creating the illusion of exclusivity by keeping up vacancies. All of which leads to higher prices and less stock for renters.

    Yet, public housing is fraught with problems. So perhaps a public property, private enterprise approach in which the building is public property and ergo cannot be sold, but private building management handles the maintenance, door men, utilities, etc.

  13. Irrational

    Re. your question about German law: There are rules on how much you can raise the rent within a given time period and to what level. In recent years, there have been stories about foreign investors entering the market and raising rents, sometimes in the context of energy efficiency improvements which are allowed to be reflected in rent increases.

  14. Jean

    Here’s a policy suggestion.
    Stop promoting, allowing and defending the ongoing importation of Central America and Mexico’s poor who occupy housing and take jobs that lessor educated Americans could perform to be able to possibly pay rent?

    One of the houses our family of four lived in when I was a child now has at least fifteen ‘immigrants’, status unknown, living in it. The landlord was heard in a bar boasting of how he’s collecting twelve thousand dollars a month collectively from them. That’s not illegal, but it’s wrong and puts the house out of the reach of any young family that might want to rent it.

    1. Darius

      Then let’s stop imposing forced impoverishment and terror on these countries through NAFTA, the drug war, and right wing juntas.

  15. NT

    The millennials are all going to vote for Jeremy Corbyn and he we take the country to the left which will probably be bad in the long run.

    The Conservatives only had a majority on people over 44 years old and its going up each election.

    These poor housing policies of the last 10 years will doom the conservatives.

  16. sd

    Cautionary note. Anything called live-work is not an apartment. Consequently they do not have the same tenant protections that apartments have.

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