How to deal with Rental Crisis

A report from Halifax stated that in most parts of UK, people are preferring to buy a house on mortgage rather than renting.  The simple reason being, interest rate for mortgage loan is much lesser than the monthly rate of rent.

The reason of this unusual trend is based on the infrequent yet fast growth of the mortgage market in UK.  The banks in UK are providing mortgage finance at the lowest interest rate. However, there are reports that sate about the changing of this trend soon, where the rate of rent would decrease and lending rates for mortgage loans will increase.  To support that, a report from "The Resolution Foundation's Essential Guide to Squeezed Britain" stated that despite of the fact that mortgage rates are much lower than the rate of rent, still, the monthly mortgage payment consumes more than 25% of monthly incomes of quarter of UK's middle and lower-middle class families.

The solution to this ever increasing rent crisis is the proposed policy of rent control. The real problem faced by the renting market in UK is that the there is a lack of supply , so proposing a rent control would only lead to a further lack in supply.  Hence, there needs to be some other options to deal with the problem.

One of the suggested solutions lies in by making investments in purpose built rental accommodations by pension funds and insurance companies.  This would help meet the needs of ordinary people of UK.  But investors won't invest in rental accommodations if they rental caps are proposed.

That aside, the other solution lies in public –private partnership in terms of investment. This will help bring new rental schemes.

These are some of the possible solutions to deal with the UK rent crisis, in absence of the option of "rent controls".  Since rent controls will have a negative effect on supply, it would be wise if not implemented, and since supply of homes cannot be increased that quickly, the stated solutions, at present are feasible way to deal with the problem.

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UK tenants net salary goes on rent payments

and East Midlands and 33% in South-West and Wales, to a severe upswing of 36% in the south-East.

The Rightmove, had warned 61% of tenants to expect their rent to be higher in 12 moths’ time. "This is unique evidence of a rental squeeze that may be leaving some tenants with little, or no, headroom left to pay more," says Rightmove director Miles Shipside.

The report further noted the presence of trapped renters who are forced to pay rents to their landlords as they are not able to access a mortgage loan.

The reasons that can be attributed to this effect are certainly the inequilibrium between the supply and demand for rented properties and higher standard of living.  The demand is seen exceeding the supply, thereby, making rental payment double and therefore this situation.

This could lead to situations like allowing more people to stay as tenants in one house, more grown-up kids to live with their parents, etc.

Calls for rent controls have been going on in UK but landlords and property think tanks are of the view that tapping the rental rent would further accelerate the demand, leading to excessive rental prices. This situation, however, unreasonable and rude, is seen to bring the demand supply equilibrium in the rental market.

The National Landlords Association is in stiff opposition with regards to capping the rents. Chris Norris, head of policy, at the NLA says: "Government intervention through rent controls would be counter-productive to encouraging supply at a time when it is so badly needed.

"Past experience shows that imposing artificial controls on the market deters investment, which is the last thing anyone wants. Previous rent controls resulted in the shrinking of the private rented sector to just 8% in the late 1980s.

"Rent control, or the artificial suppression of rents, may also serve as a barrier to further investment in the stock of private rented properties, as the rent generated was historically often too low to allow the landlord to operate a proper maintenance regime without making a financial loss."

We have already seen the negative impacts of rent rise on peoples income. The figures we see paint a worrying picture of rented households in UK, who are doing all that they can just to keep a safe roof over their heads amidst this down trending economy.

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