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Could Venezuela-style housing reforms work for Britain’s Generation Rent?

United Kingdom

Basing rents on market value means that housing is often unaffordable. Natesh Ramasamy under a Creative Commons Licence

Earlier this month, British minister for housing Grant Shapps called proposals to ban letting agents’ fees and cap increases in rent ‘Venezuela-style rent controls’.

Like Britain, Venezuela has a housing crisis. In 2011, 3.7 million people were registered as homeless or vulnerably housed. The 2012 presidential elections saw housing become a key issue, and incumbent President Hugo Chávez promised to tackle the problem.

Following the elections, the Chávez government launched the Great Venezuela Housing Mission (GMVV). The aim of the multi-billion dollar project is to build 3 million homes by 2019. The majority of new housing built through the GMVV is bought by people in need using state-subsidised loans. Existing bad housing is being addressed through a renovation scheme called Barrio Nuevo – Barrio Tricolor.

However, there are still many people living in private rented housing. In 2011 a new leasing law came to parliament from a 400,000 signature petition collected by tenant activists. The law aimed to improve conditions for 750,000 renters through expanded rent-controls and to allow tenants who had been living in the same home for 20 years the right to buy from their private landlord. If such a law were passed in Britain, only about 4.5 per cent of tenants would qualify because private renting is less secure.

The current set of rent controls in Venezuela were established in 2012 as part of price control measures to tackle inflation. Rents are now set by the Ministry of Housing based on construction costs, rather than property prices, and can be challenged through an inspection. Typically rents are set at between 3-5 per cent of the total value of the property, with landlords owning multiple properties being able to charge less rent.

The National Superintendency of Leased Housing, ‘Sunavi’, carries out inspections to determine the value of properties. Volunteer lay inspectors drawn from tenants’ and other civil society groups accompany the official inspectors. The final value and rent of the property is set out in a document signed by the inspector, the landlord, and the tenant.

There is debate in Venezuela as to what the effects of rent-control have been. On one side, the Chamber of Metropolitan Real Estate claims the supply of rental housing has declined by 72 per cent in two years. On the other, the Federation of Small and Medium Industries claim that the reduction in rent means people are able to spend more, boosting the economy. The government insists that all price-control policies are calculated to avoid affecting supply. In November 2013, rent controls were established for commercial properties as well, setting an upper limit of 250 bolivars (US$40) per square metre per month.

So, how does this compare to the policies being discussed in Britain? Labour’s proposals are that rents would be set based on market value at the start of a tenancy and that an upper limit would be placed on rises over the course of the tenancy. The problem with basing rents on market value is that it does not ensure that housing is affordable. If Venezuela’s policy of basing rents on construction costs rather than market value was adopted in Britain, then perhaps the number of homeless would not be rising year on year. 

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