Rent stabilisation, rent controls and
rising political pressures in Europe
Christine Whitehead and Connie Tang
with particular thanks to Kath Scanlon
19-20 March, 2015
ENHR Private Rented Markets Seminar
London School of Economics
Rent control and rent stabilisation
• Rent control
o From much of the wartime period – rent freeze i.e., rents fixed
at their level on a particular date
o Nowadays – rent cap i.e., the maximum rents that can be
charged
• Rent stabilisation
o Index-linked rent increases either within and between
tenancies or within tenancy only
o Smooth rent changes, reduce turnover, steady revenue stream
if linked to inflation for landlords and institutional investors
• In practice, rent control and rent stabilisation co-exist
2
Changes in rent regulations – why?
• Before the Global Financial Crisis (GFC), most European countries
have relaxed their rent regulations, which did not necessary lead to
the growth of the private rental sector (PRS)
• From mid-2000s, especially after the GFC, credit crunch made
households unable to access mortgages and cuts in public
expenditure on social housing  increases in private renting
• Strong demand for private renting has pushed up private rents,
particularly in capital cities  political pressures to restrict rent
increases
3
Changes in rent regulations – why: France
• No initial rent control except rental units built prior to the 1948 Rent Act
• Since 2008, annual adjustment of rent based on Rent Reference Index
(IRL) which is based on the index of cost of daily living
• Rise of IRL after 2011  rapid increase of private rents especially in
Paris and other major French cities
Rent reference index (IRL), 2006–2014 (1998Q4 = 100)
130
125
120
115
110
105
100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006
2007
2008
2009
2010
2011
2012
Source: France’s National Institute of Statistics and Economic Studies
2013
2014
4
Changes in rent regulations – France
• 2012: rent control limited the rate of increase in several cities
• ALUR Act enforced in March 2014: new rules on initial rents in a
few high pressure areas; initial rents must refer to an “observatory
of rents” and limited to 20% per m2 above the local median rent
• But in September 2014: withdrew plans to impose controls on
private rent fearing that rent control will deter investment
• Rent control only introduced experimentally in Paris
5
Changes in rent regulations – why: Germany
• Initial rents may not in general exceed the rents for comparable
dwellings in the same area by more than 20%. Rents can be
increased during a tenancy if they are demonstrably below the local
rent levels for comparable dwellings: rent can be adjusted every two
years but not by more than 20% within a three-year period
• Rent stabilisation
o Stepped rent: rent is fixed in varying amounts for specific
periods of time
o Indexed rent: rent linked to a price index (yearly reported by
the Federal Statistical Office)
• Increase rent after modernisation: a maximum of 11% of
modernisation costs
• Rapid rise of rents and house prices in some cities  strong
pressure to tighten rent regulations
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The differences between initial rents and local reference rents in Germany, 2010.
Source: Kofner(2014) Table 4.
Changes in rent regulations – Germany
• 2011: capping limit of annual rent increase from 20% to 15%
within three years
• 2015: rent cannot be raised more than 15% within four years;
maximum 11% of increase after modernisation reduced to 10%
• Mid-2015 rent brake: initial rent cannot exceed 10% of local
reference rent
• New rent cap and new limit of rent increase are imposed in Berlin,
Hamburg and many cities in Bavaria; about 4 millions rental
dwellings
8
Changes in rent regulations: the Netherlands
• Rent control on initial rent based on points system; controlled
maximum rent increases related to these points: determined by
the Parliament, cover both private and social renting
• Since 2010, government has started to shift the Dutch housing
system to ‘more market’ and aimed to reduce the size of the
social rental sector move towards families in need
• 2013: higher rent for higher income households both in private
and social rental sectors
• April 2014: proposed a rent freeze on the regulated rental
sectors for a three year period which will start in 2016; in part
aiming to shift more low-quality rental units further up-market
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Rent regulations – Republic of Ireland
• No rent control and rent stabilisation, but in 2004 introduced 4-year
cyclical tenancies and established the Private Residential Tenancies
Board to resolve disputes between landlords and tenants
• The Board against any rent regulation fearing regulation will make the
private rental market worse
• Proposals to link rent increases to CPI and other forms of control under
discussion
The PRTB rent index, 2007Q3 – 2014Q4
Source: PRTB (2014) The PRTB Rent Index: Quarter 3 – 2014
.
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Changes in rent regulations after the Global Financial Crisis
France
% of total
dwelling
stock
19% (2013)
Germany
53% (2010)
Country
Netherlands 10% (2010)
Republic of 19% (2011)
Ireland
Changes in rent regulation
Rent control
Rent stabilisation
Increase - rent cap on initial Increase - introduce the
rent only in Paris
maximum limit on rent
increase only in Paris
Increase - rent cap on initial Increase - reduce the
rent in high pressure areas maximum limit on rent
increase and extend the
period for rent increase in
high pressure areas
Decrease - higher rent for Decrease - larger rent
high income households;
increase for high income
Increase - rent freeze at the households
lower end of the regulated
sector
No change - but pressure No change - but pressure
increasing
increasing
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Rent regulations – England
• No rent control or rent stabilisation, but indirect rent control at the
lower end of the PRS – linking rent with the Local Housing Allowance
• Rapid growth in private renting – 11% in 2003 to 19% (4.4 million) in
2013/14 ; since 2011, private renting higher than social renting
Private rents and CPI All items (January 2011 = 100).
Source: ONS – MM23 Consumer Price Indices and Experimental Index of Private Housing Rental Prices
.
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Debate on rent regulations: England
• Conservative, Ukip and Liberal Democrats – no rent control
• Labour – rent stabilisation to limit rent increase within tenancies,
using benchmarks such as average market rents together with a
standard three-year tenancy and removal of no fault eviction
• Many commentators do not favour regulations on rent and length
of tenancies fearing reduced investment in the PRS
• However, institutional investors generally happy with free initial
rents plus index-linked rent increase within tenancy
• Scanlon & Whitehead (2014) study for Camden council in London
– index-linked rent stabilisation to produce stable and low-risk
return for institutional investors
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Conclusions
• Tight rent controls (e.g. in the Netherlands) where private rents below
market rents, deter investment in the PRS
• Germany, the Netherlands (strong regulatory frameworks) have
increased regulation after the GFC; France has drawn back from
strong controls, while England and the Republic of Ireland (weak
regulatory frameworks) there has been no regulatory change as yet
• Considerable concerns have been voiced in all these countries that
additional controls will harm the sector
• But political pressures are building for increasing regulation across
countries of all types.
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Christine Whitehead (LSE) and Connie P.Y. Tang (CCHPR)
C.M.E.Whitehead@lse.ac.uk, pyt20@cam.ac.uk