Property Matters: Capped rent scheme looks unworkable


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London has a new mayor, Sadiq Khan, whose campaign placed great emphasis on addressing the shortage of rented accommodation in London. But now that the electioneering is over, political exhortations will have to be replaced with pragmatic, workable ideas on how to address the shortage.

The first priority, which doesn’t seem to be very far up the wish list, is to engage with existing landlords as a means of achieving a greater supply of rental accommodation. A proposal to place a cap on rents through imposing a London Living Rent based on rents being held to one-third of tenants’ income looks to be fraught with difficulties, both with regard to implementation and as a means of encouraging more landlords into the market.

At the moment, the government’s definition of affordable housing is for rent to be charged at up to 80 per cent of the market rate. Research by property services group TheHouseShop.com reveals the size of the gap between the existing level of rents and what is being proposed by the new mayor. Taking Islington as an example, the average monthly rent for a property with two bedrooms is £2,670 and the average monthly income is £2,805. But by limiting rent to one-third of average income, monthly rent comes down to £935. With the average flat priced at around £600,000, this implies a gross yield that goes from over 5 per cent to less than 2 per cent, and after tax and any mortgage payments many landlords would go out of business. Small wonder then that most interested parties view the scheme as unworkable.

Read more here. 


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