Fifteen years ago, in London, a one-bedroom apartment in Waterloo, right on the south bank of the Thames, could be found for around 1,000 to 1,200 pounds (between 1,200 and 1,400 euros). Today, that is the cost of a room in a shared flat in the same area.
With that data, it is clear that renting in London deserves its expensive reputation. However, in today's world of skyrocketing housing prices, "expensive" is not the same as it was fifteen years ago. During the 'cool Britannia' era of the nineties and the early 2000s, London was consistently the most expensive European city to live in for rent (and in general, to live), while globally it usually ranked between the third and sixth place, only behind cities like Tokyo, Hong Kong, and the Moscow of the oil boom that ended in 2014.
Today, London has dropped a bit, and ranks between the eighth and eleventh most expensive capital in the world for rentals, on par with cities like Washington, according to specialized websites comparing the cost of living such as Expatistan, Numbeo, and MyLifeElsewhere. Nevertheless, 1,400 euros for a room in a good area like Waterloo, though not in the city center, makes it clear that London's concepts of "expensive and cheap" are quite unique.
This year, England - and with it, London - introduces a new rental regulation. On May 1, the Tenants' Rights Act came into force, which cuts back on landlords' previously almost unlimited ability to not renew contracts, increase rental prices, demand payment of up to six months' rent in advance, and organize informal auctions among potential tenants where the property went to the highest bidder.
The results of the reform are still unclear. On one hand, the dramatic reduction in landlords' freedom seems to have accelerated the exit of small landlords from the market in favor of large companies. Difficulties in evictions may have led to increased demands for deposits and income and asset declarations when renting, in order to avoid default. All of this implies, in principle, less supply and higher prices.
In any case, 28% of London households rented by private individuals and companies have been on a monthly renewable lease since May. This may sound alarming. However, the reality is the opposite. Because if tenants do not leave, landlords cannot evict them, except in very limited cases, such as if the landlords plan to move - themselves or their close family - into the property, or if they intend to carry out structural work on the building. For the tenant to leave, they must have at least three months of rent arrears, a proven tendency to pay late (though this must be decided by a judge), have caused damage to the property, or violated the terms of the contract, for example, subletting it. If the tenant decides to leave, they only need to give two months' notice.
The new regulation also mandates that rent price reviews can only be done annually, although the amount of these reviews is not limited, unless the court rules otherwise in each specific case.
The new regulation has changed the terms of 86% of lease agreements in England, which were classified as Assured Shorthold Tenancy (AST), a system created by the Conservative Governments of Margaret Thatcher in 1988 and John Major in 1997. These types of rentals typically lasted for a year, with a deposit of one or two months, and a notice period, usually one month, for either the tenant or the landlord to communicate their intention not to renew the contract.
At the end of a lease, tenants and landlords had three options: terminate the contract; sign a new one with conditions unrelated to the previous one (for example, no limitations on rent increases); or do nothing.
In the latter case, the lease automatically became a "periodic tenancy" under the 1988 law, when the Conservative-Liberal Margaret Thatcher was in power. This meant it renewed monthly. If the tenant wanted to leave, they had to give one month's notice. If the landlord wanted to reclaim the property, they had to give two months' notice. The key was the now repealed Section 21, colloquially known as "no-fault evictions".
That rule allowed the landlord to terminate the monthly lease 'without providing any reason', as long as they informed the tenant within the two months prescribed by the law. Section 21 transformed the British economy by paving the way for a massive rental market, to the extent of creating a financial product in the nineties: buy-to-let mortgages. These loans financed 85% of the purchase of a property intended for rent as long as the rent exceeded the monthly mortgage cost by 25%.
The result was the creation of a wave of middle-class Londoners who rushed to buy houses to rent out. It's been a community of investors who have done really well over these 30 years. But now, that's over. Thatcher's system has been dismantled, but the results of the reform are still unclear.