Thinktank paper seeks 'capitalist' solution to rental shortage

Thinktank paper seeks 'capitalist' solution to rental shortage (iStock)

Britain's housing crisis - including the challenges faced by the private rented sector - can best be solved by a good old-fashioned dose of free market capitalism, according to a new paper by the Adam Smith Institute. 

The thinktank - named after the famous free market economist - published a paper authored by top architect Patrik Schumacher. He argued that, far from helping matters as intended, restrictive regulations over planning and construction and stipulations concerning the number of 'affordable' properties developments should have are actually making matters worse. 

As an example, he said London mayor Sadiq Khan's imposition of a rule that 50 per cent of homes in developments in the capital must be classed as 'affordable' is deterring development and leading to higher prices elsewhere. 

Focusing in particular on the capital, he said that the lack of new homes in the metropolis has led to the typical property price rising from four times the average salary in the early years of this century to ten times earnings now. 

Rising prices have also spilled over into rental costs, with the rent-to-income ratio climbing from 1:5 to 1:3. 

As well as curbing restrictive practices in planning and development, the government should also avoid the temptation to introduce mandatory long-term tenancies or rent controls, Mr Schumacher argued, claiming these will cut the supply of properties and reduce labour mobility. 

Such ideas have been widely advocated recently; the Scottish Labour Party is seeking to introduce a new 'Mary Barbour law' - named after the 1915 Glasgow rent strike activist - as a means of controlling rents. Meanwhile, a Resolution Foundation Report published this month argued that millennials who have less chance of buying a home than the previous generation would be given more security through a system of long-term or indefinite rents, similar to the situation in Germany. 

Commenting on the report, research associate at the Adam Smith Institute Sophie Jarvis said: “Millennials already know that they are at a massive disadvantage to their parents in terms of getting on the housing ladder. What they don’t know is that rent caps and restrictive planning laws are holding them back, not helping them out.