Landlords should be tenants’ servants, not their monarchs

How does the thought of renting your home for your entire life sound? For many Britons, it probably evokes a horror show of chronic insecurity and broken homeownership dreams. But for the typical German, lifelong renting isn’t a nightmare; it’s just normal life.

The UK home ownership rate has slumped from 73 per cent a decade ago, to just 63 per cent today. For those born after 1980 – the millennial generation – the ownership rate has, of course, collapsed even more dramatically, mainly thanks to fast rising house prices and pitifully meagre wage growth since the financial crisis.

Politicians of every stripe – from Theresa May to Jeremy Corbyn, to whoever leads Ukip these days – agree that the British aspiration of home ownership ought not to be snuffed out, and that this worrying trend must be put into reverse.

But must it? In Germany, the proportion of the population who own their own home is just 52 per cent.

The rest, of course, rent. And, for the most part, they rent happily too.

While most private renters in the UK aspire to buy, their German counterparts mostly do not. Why the difference? The answer largely lies in Germany’s extensive guarantees of tenants’ rights.

Indeterminate tenancy leases in the German private rental sector are the norm. That means that those who wish to stay in their rented house or apartment for their whole life usually can. And since 2015 German local authorities can now also cap rent increases on new lettings in their area if they see the market overheating.

Compare that with the standard rental contract in the UK of “assured shorthold tenancy”, which gives landlords the right to remove tenants at just two months’ notice. And think of the avalanche of opposition when Ed Miliband suggested a modest rent increase cap a few years ago – an idea since taken up by Jeremy Corbyn.

Basic economic theory suggests caution over any kind of price cap, with the warning that they can create damaging distortions. But there are grounds for looking at housing – especially the British market, where housing is regarded as a high-returning store of wealth, but which is historically prone to disruptive boom and bust cycles – as a special case.

Some form of mild, sensitively designed rent control could disincentive people from ploughing their savings into property, and curb the tendency for people to look on their rented-out properties as an excellent pension plan.

But the German divergence on housing is not just about different regulations; it’s a divergence of political philosophy. It’s said an Englishman’s home is his castle. And that has come to apply to the various other “castles” owned by landlords too. The Thatcher government, in particular, was determined to enhance the power of landlords.

But in Germany, a different philosophy prevails. Article 14 of the Federal Republic’s constitution states: “Property entails obligations. Its use shall also serve the public good.” The upshot is that in Germany the landlord is not the tenant’s monarch, but the tenant’s servant.

In some respects, though, we are already becoming more like Germany here in Britain. A new report by the Resolution Foundation think tank estimates that, if current trends of declining home ownership continue, up to a third of millennials will be “cradle to grave” renters.

The social implications of that are stark. It is already exerting stress on families in their thirties who are starting to have children, but who often cannot find suitable accommodation – or who fear being asked to leave at a landlord’s whim, potentially disrupting their children’s schooling.

Resolution also estimates that current trends could ultimately lead to a near-doubling of the pensioner housing benefit bill, as low-income millennial renters need more support to pay their rent in their old age.

German-style renting levels and UK-style renting regulations will make for a toxic combination. 

With housing comprising a huge chunk of total wealth in the UK, the impact on wealth inequality of falling home-ownership rates are also likely to be profound.

Perhaps Theresa May’s latest homebuilding drive will deliver such an expansion in the supply of new homes that the home ownership rate will return to the heights of a decade ago. But the recent history of politicians’ promises to crank up construction rates is not encouraging.

And in an era of relatively low interest rates and tighter financial controls on how much people can borrow from banks to purchase homes, there are grounds to be sceptical about how much difference even a significant increase in supply would make.

Which leaves us with a simple question: if we are destined for German-style renting levels, don’t we need German-style tenant protections too?

#AssuredShortholdTenancy #Germany #housing #renting