Britain's private rented sector is under scrutiny once again, with new research suggesting that rent controls may not have as severe an impact on landlords' profitability as previously thought. A joint report by the UCL Institute for Innovation and Public Purpose (IIPP) and the New Economics Foundation (NEF) has modelled various scenarios for rent reductions, revealing that even a 20% cut could leave landlords earning above-average profits.
According to the findings, introducing a 10% reduction in private rents - equivalent to freezing rents at May 2024 levels - would lead to average renting households saving around £1,300 each year. However, this measure would result in approximately 2.3% of individual landlords becoming unprofitable.
Contrastingly, the report highlights that 4.8% of landlords have already been affected by higher interest rates and tax changes enacted since 2021, indicating a greater existing strain from these broader economic shifts.
The study also explored the implications of a more substantial 20% rent reduction, with average renting households set to see annual savings of around £2,400. Landlords with mortgages would still achieve profits well above the average for UK businesses, while those without borrowing would continue to realise even higher returns.
Researchers contend that such a reduction could also have a significant impact on government housing benefit expenditure, potentially reducing it by at least £2 billion annually. Dr Beth Stratford, one of the report's authors, argued that well-designed rent controls integrated with fiscal and legal frameworks could facilitate a managed transition of homes from the private rented sector into more secure and affordable ownership models.
The research also challenges concerns about a mass exodus of landlords following interest rate increases in 2022. According to data cited by the Ministry of Housing, Communities and Local Government, there is estimated to be an increase of 96,000 homes in England's private rented sector between 2023 and 2025.
While acknowledging that rent controls might prompt some landlords to sell, the report frames this as an opportunity for councils, housing associations, and community-led organisations to acquire more properties. It suggests that housing benefit savings generated over a decade from a 20% rent reduction could fund the purchase of around 240,000 homes at current market prices.