Labour's rent control election pledge may curb new UK investment

Labour's promise worries pension funds and insurers that have bought up rental homes

PUBLISHED : Wednesday, 21 May, 2014, 6:00am
UPDATED : Wednesday, 21 May, 2014, 6:43am

A pledge to introduce rent controls by Britain's opposition Labour party could dissuade companies from investing in the construction of homes for rent, two big landlords have warned.

Labour leader Ed Milliband said last month he would bring in rent controls and longer tenancy agreements if he wins next year's election, which he said would help the rising number of Britons who don't own their homes.

"People get very nervous when the words 'rent control' get bandied around," said Andrew Cunningham, chief executive of Grainger, which owns and manages a £1 billion (HK$13 billion) portfolio of rental homes. "A lot of institutions take ... fright at hearing those words."

"[Labour] said the rents would go up by a reference to some sort of average figure in the market place, [which] we think would not get what they want which is an improvement in standards," Cunningham said. "If you were a very good landlord, why would you outperform just to get the average market rent?" He said that while the company supported longer tenancies, such as three-year leases, there needed to be more clarity over how rents could be regulated.

Rob Noel, chief executive of Land Securities Group, Britain's largest listed property firm, also said the upcoming election was causing uncertainty.

"It would absolutely put the brakes on residential development which we all know is desperately required," he said.

A rising number of pension funds and insurers have snapped up or built thousands of British homes to rent out over past two years, betting that a shortage of housing and mortgages will produce a generation of renters rather than owners.

Yet the rental sector remains highly fragmented, made up mainly of individual landlords who each own a small number of buy-to-let homes. Some analysts have argued that an influx of investment from larger institutions could improve tenant conditions, such as longer leases.