Evicting Private Landlords – clever politics but terrible economics

• Owner-Occupied: 64%,
• Private Rented: 18%,
• Social Rented 17% (roughly 50/50 between local councils and Housing Associations

Only about 1% of housing is owned by large corporations. So the mix of landlords is about 50% private, 25% council and 25% Housing Association(link).

We can note that the position in large cities is slightly different, with more rental and less owner occupiers. But we will assume the policy would be implemented nationally rather than just in particular cities.

There are an estimated 4.6 million households renting privately in the UK, with 2.5 million landlords. Many private landlords own just a handful of properties, or just one.

Abolish all landlords? All private landlords?

When the Green Party say they want to abolish landlords, do they really mean all landlords, including local councils? We assume not, as policy F is about enabling local councils to buy more properties, to rent out.

Do the Green Party just want to abolish private landlords? Strictly speaking, the Housing Associations are privately owned, as they are not owned by public authorities like government or councils. Yet they mostly aim to provide affordable housing rather than maximise profits. I have not been able to find a solid reference for whether the Housing Associations are included or excluded in the landlord abolishment plan. Ignoring a quarter of the rental market does not build confidence in their plan, but for now, we will assume the Housing Associations survive the cull of private landlords.

Making being a landlord unprofitable

The objective of the first three policies (A, B, C) I highlighted to the top, appears to be to make being a private landlord unprofitable. Rent controls (which we assume means rent freezes, or prevention of rent increases) would reduce the income to the landlord from renting. Preventing landlords from evicting tenants they don’t want any more, removes the landlord’s ability to evict tenants who don’t pay their rent, or who damage the property. Taxing private landlords redirects part of the rental income to the government instead of to the landlord.

The combined effect of these policies will be to make being a landlord unprofitable for an increasing number of landlords. Those landlords might reasonably be expected to then sell their property, thus forcing the tenants to leave. If the rental income was unprofitable for the current landlord, then the same is likely to be true for any future owner, so no one is going to buy the property in order to continue the tenancy. Thus the tenants will be evicted. So the first effect of the GP policy is that more tenants will get evicted, and there will be less properties available to rent.

Basic market economics says that if less of a product is available, then the remaining ones get more expensive, as only the people prepared to pay more will still be able to buy that product. So reducing the number of rental properties would normally cause rents to rise, not fall. In the face of this, we can assume that the rent controls policy would need to be extended to more and more areas, thus forcing more landlords into unprofitability, with the consequence of even more properties leaving the rental market.

Blocking the addition of more private rental properties

Preventing the creation of more Buy-to-Let mortgages (policy D), would prevent many new entrants to the market for offering properties to let. We assume this is by design, as the intent is for the private rental market to decrease towards zero.

It’s unclear what would happen to existing Buy-to-Let mortgages. Do they become illegal and need to be repaid immediately, contrary to their contract terms? Or is this just about preventing any new Buy-to-let mortgages, and thus preventing individuals from being landlords, while having little effect on large corporate landlords who have access to other methods of finance?

The Housing Market Crash

Let us suppose that the above policies are successful and being a private landlord becomes unprofitable or impossible, and thus all those previously rented properties get put up for sale. Basic market economics tells us that if more of a product becomes available, then the price of all of them gets cheaper, as potential buyers can offer less money and still succeed in buying, because there are so many ex-landlords desperate to sell. So there is a crash in the housing market.

Buyers are happy, because they can now afford a better property, but current property owners are really upset, because their houses are now worth less. Given that 65% of households own their homes, there are likely to be far more upset homeowners, than ex-renters now able to buy.

Even though a housing price crash is an inevitable consequence of ending private rentals, this could be part of the plan from those proposing it: the idea being that if all properties are now cheaper, then more people can now afford to buy, instead of having to rent. Rich property owners losing tens of thousands of pounds might be seen as an acceptable price to pay for poorer ex-renters now having a chance to buy.

The role of deposits for mortgages

House prices are always moving. When a mortgage lender (like a bank) is going to lend money to a homebuyer, one of the most important things they care about is getting repaid. Specifically, they want to avoid the situation where the homebuyer owes more money on their mortgage than the property is worth; this is called negative equity. The reason why they want to avoid this, is that if the homebuyer just gives up and walks away, the bank cannot just sell the property to get their money back: because the property is now worth less than the money the bank is owed.

So the reason a bank requires a homebuyer to have a deposit is to ensure there is a cushion to cover a potential fall in the value of the property. If the bank requires a 10% deposit, they are saying that in the worst case, the value of the property could fall by 10% and the bank still has a property worth more than the money they are owed.

For example, the median house price in England is around £300,000. MoneySuperMarket say “Most buyers need at least a 5% deposit, but saving 10–25% usually unlocks better mortgage rates, lower monthly payments and reduces the risk of negative equity. Average first‑time buyer deposits sit around 20%, with 2024 figures showing a typical £61,090 deposit on a £311,034 home.”

Now consider what happens during the housing market crash after private rentals end. No one can predict quite how far property prices would fall, if 18% of the entire UK property market came up for sale at the same time. The price crash would definitely be more than 10%, and could easily be 40% or more. Even a fall of 20% would force all recent homebuyers with a deposit of less than 20% into negative equity, where all the options are bad ones.

Any of those people who choose to sell up in order to escape their mortgage just add to the cascade of property price falls.

What will the banks do?

In an environment where government policy is aiming to cause a housing market price crash, the only sensible response from the mortgage lenders, is to massively increase the size of required deposits. If lenders expect a 30% price drop, then they have to require a deposit of at least 30%.

In our example above, the deposit on the £300,000 house was £60,000. If that same house is now worth 30% less (£210,000), then the 30% deposit on that is now £63,000. Even though house prices have fallen, the required deposit does not get any smaller.

So buying the house is still out of reach of the same set of people who couldn’t afford it before the housing crash.
Is this just the banks being mean? Not really. A bank can tolerate a few of its loans not getting repaid, but if a huge proportion of their loans go bad at the same time, the bank itself can easily become insolvent. This is the exact cause of the 2008 Global Financial Crisis, where a cascade of US property loans going bad nearly caused the collapse of the western financial system. Green Party policy appears to be volunteering to have that happen again.

For the avoidance of doubt, I deplore the stranglehold that banks have on the financial security of everyone. No bank should be “too big to fail”. But deliberately causing a property market crash is not a good way to address that.

Financing Social Housing

According to their policy proposal, instead of enabling ex-renters to buy a property, the Green Party game plan is for the private rental properties to become part of the social housing sector. The policies around preventing Right-to-Buy for individuals (E) and enabling Right-to-Buy for councils (F) support that plan.

In this scenario, the people who used to pay rent to a private landlord would now pay rent to a local Council instead.

In many ways the Housing Associations face the same constraints as the private landlords. They are likely to be using borrowed money to build or purchase properties to rent out, and need to cover their loan repayments and maintenance costs by charging rents up to 80% of the market prices. A widespread property price crash is just as bad for them, as for homeowners and banks. Suddenly they might owe more money than the value of their properties, with loan default or bankruptcy as the consequence.

Local councils have slightly more choices if they want to exercise their new opportunities to buy and build more social housing: they can either behave like a housing association and borrow the money (with all the consequences already outlined) or they can look to the government to fund their property investments.

The value of all private rental properties is currently £1.4 trillion, which is larger than the yearly UK government budget, and about half of the entire UK national debt. So in order to provide the money to buy out the private rental sector, a Green Party government would need either need to take on massive new debt (from the banks they have just impoverished) or just create the money from nothing. For comparison, during Covid the UK government created £400billion and caused 10% inflation. Creating over three times as much money could cause 30% inflation.

So while rents might be held down by moving the private rental sector into the council housing sector, the price of everything else would be massively increased, hurting the same people this move was meant to help.

Is Social Housing the Answer?

Many Green Party voters are too young to remember what council housing estates were like before the Thatcher Government introduced Right to Buy in 1980. Where people own their own home, they are clearly incentivised to take good care of it. Where they don’t own their own home, they are rather less incentivised to take care of it: it’s the landlord’s problem.

Because the local councils are also the housing provider of last resort, and have a legal duty to house homeless people, it doesn’t really work for a council to evict a tenant who doesn’t pay the rent or who trashes the property or who annoys their neighbours. The council will still have to house them somewhere.

If we assume that the policy (B) about preventing eviction applies to social housing tenants as well, a local council appears to have zero options for dealing with bad tenants. Consequently, tenants have little incentive to pay their rent or take care of the property, thus pushing up the costs of providing the housing for the council.

Making local councils the monopoly provider of rental accommodation will incur the usual problems associated with monopolies: the provider has no incentive to provide a good service or innovate. Public authorities are always budget constrained as they trade off the quality of their services against the costs; renters will be a captive market at that point, and will have no option but to put up with whatever the council can afford to give them.

What’s the real problem here?

A cynic might suggest that a plan to convert 30% of the population to being tenants of the state could be about creating a compliant voting bloc, who can be relied on to continue supporting whoever will provide them with cheap housing.

However, let us charitably assume that the underlying objective is about making rents more affordable.

Basic economics says that if we want the market price of a thing to come down, then we need either lower demand or higher supply.

Demand for housing units is driven by two things: size of household and size of population. Smaller households (more divorces, more people living alone) means more homes are needed for the same number of people. More population means more people need to be housed somehow. According to Oxford University, most UK population growth is coming from net migration.

On the supply side, the price level of rents are tied to property prices, because of how many rental properties are funded: the owners need to repay a mortgage or loan on the property. Property prices have continued to outstrip the growth in incomes. On a small island with strict planning laws, building a lot of new housing (policy G) is not easy; however there seems to be a broad consensus that this should be done, regardless of ownership type. A larger supply of properties will put a downward pressure on both house prices and rental levels.

The other supply side measure to reduce rents would be for the government to make it easier to be a private landlord rather than harder. Tenancy rules could be implemented which incentivised good behaviour from both the landlord and the tenant; perhaps a mandatory rent discount where the rent is paid on time, no damage is done to the property, and landlord repairs are done promptly; an AirBnB style rating system so everyone can see who the good landlords and good tenants are; clear model clauses which adjust the rent based on the agreed notice period. Lots more people would rent out a room in their house, if they were confident they could get it back without having the sell the whole house.