The debate around addressing the UK's housing affordability crisis has intensified, with renewed calls for rent controls gaining traction among various organisations. Think tanks such as the New Economics Foundation, the Institute for Public Policy Research (IPPR), and the Joseph Rowntree Foundation (JRF) have recently outlined potential frameworks for capping rents in England. These proposals follow reports in April suggesting the Treasury was considering a 12-month rent freeze, reflecting a growing political appetite to intervene in the private rental market.
Proponents of rent controls argue that capping rents offers a compassionate solution to protect tenants from soaring costs, particularly given the significant increases seen in rental prices across the country. According to Rightmove data, average asking rents outside London rose by 9.6% in the last year, reaching a new record of £1,280 per calendar month. In London, average rents stand at £2,633 per calendar month, an increase of 10.1% annually. These figures highlight the acute pressure faced by many renters.
However, critics contend that such interventions fail to address the root cause of high rents: a chronic shortage of available housing. They argue that imposing rent caps, particularly 'between-tenancy' caps that restrict landlords from adjusting rents to market value when a tenant moves out, could significantly undermine the financial viability of investing in new and existing rental properties. This could deter individual landlords and institutional developers from building new homes or upgrading current stock, ultimately exacerbating the supply problem.
The experience in Scotland, where emergency rent caps were introduced in 2022, is often cited as a cautionary tale. Following these measures, reports indicated a dramatic reduction in available rental properties, with major build-to-rent developers reportedly pulling out of schemes in Glasgow and Edinburgh. This suggests that when faced with capped revenues, alongside rising regulatory costs, higher interest rates, and the removal of mortgage interest tax relief for landlords, many may choose to sell up or become more selective about tenants, potentially disadvantaging those most in need of housing.
Instead of price controls, a more effective approach, some argue, would be to focus on fundamental issues such as increasing housing supply, streamlining planning processes, and ensuring sufficient court capacity for landlord-tenant disputes. The emphasis, they suggest, should be on creating a stable environment that encourages responsible landlords to remain in the market, while also targeting direct financial assistance to tenants who genuinely require support, rather than implementing measures that could inadvertently shrink the overall rental market.
For first-time buyers, a reduced rental market could mean longer waits to save for a deposit as competition for available properties intensifies. Existing homeowners may see a slight easing in demand for purchases if some landlords exit the market, but the overall housing shortage remains a dominant factor. Landlords, meanwhile, face increasing uncertainty and potential pressure on their investment returns, which could lead to further consolidation or a shift away from the private rental sector.
Source: Property118, Rightmove