Comment: The Labour Party is at odds with itself over rent controls, just how effective are they?
Speaking on a radio interview last week, Rachel Reeves (our prospective Chancellor of the Exchequer), came out with a telling remark about rent controls:
“I think that should be up to local areas to decide. There may be the case for that in some local areas, but as a blanket approach, I’m not convinced by that.”
But, Lisa Nandy, shadow secretary of state for international development, went on record calling them [Rent Controls] a “sticking plaster” solution. Then she was demoted from her role as shadow housing secretary after making that comment.
It is well known that the recently re-elected Mayor of London has been energetically calling for rent controls for some time, repeatedly appealing to the government to give him the power to control rents in the capital.
Official Labour policy is said to be against rent controls: Sir Kier Starmer recently told the The Guardian:
“While we do believe action needs to be taken to protect renters and rebalance power, rent controls are not Labour party policy as we remain mindful of the risk they could pose to the availability of rental properties and the harmful impacts any reduction in supply would have on renters.”
And despite Rachel Reeves’ apparent wavering, a Labour Party spokesperson responded to her comments with:
“As Rachel Reeves said, she does not believe rent controls are the right approach.”
“In government, Labour would act where the Conservatives have failed to ensure fairness and security for renters, immediately abolishing Section 21, ending tenant bidding wars and extending Awaab’s law to the private rented sector.”
But, a recently commissioned report for Labour has again recommended controls, a ‘third-generation rent stabilisation’ scheme, meaning rent caps and restrictions on increases.
Which path would Labour take?
Rent controls involve the government in regulating private rents, controlling or limiting rises in rent prices of residential properties, either country-wide or restricted to certain key locations. These are the various guises of rent control, ranging from a blanket country-wide system that would impose rent setting and control, policed by an army of Rent Officers, as was the case with the so called “Rent Acts”, pre-1980.
Or, they could be what are known as focussed “rent stabilisation zones” schemes where, in the highest rental demand locations, (pressure zones in large cities) restrictions are imposed. Whatever you do, most rent control regimes consist of caps on price increases within the duration of a tenancy, and sometimes beyond, as well as restrictions on evictions.
Proponents of the policy argue that they make rents more affordable and tenants less likely to be ‘priced out’ of their accommodation because landlords are putting up prices.
However, there is much evidence to demonstrate the exact opposite applies. An American study by the Brookings institute states that: “While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighbourhood.”
The International Foundation reports on the effects of rent control introduced in The Irish Republic:
“Rent controls were introduced in Ireland at the beginning of 2017. The Irish government has attempted to stabilise rents in high-pressure areas by setting limits on the rent increases landlords may demand. To say the success of these measures has been limited is an understatement. In the first quarter of this year, rent prices had risen by 7% in Dublin, despite the annual limit being set at 2%. And some student accommodation providers were able to hike rents up by as much as 27%.”
Martin Devine of Pinsent Masons, a leading Scottish agency says:
“For tenants, while at a superficial level a control on rent may seem beneficial, over the medium to long term these measures are likely to continue to deter much needed investment into the private residential market, which leads to an even greater undersupply of good quality housing stock. This will result in rents being driven even higher, which defeats the aims of the measures.”
While the Scotsman reports:
“While rent control aims to protect tenants from rising costs, it often inadvertently contributes to housing inequality. With limited rental options, those who are more financially disadvantaged struggle to secure suitable housing, limiting their opportunities for social mobility and affecting access to education and work opportunities.
“Draconian rent control policies will have economic consequences for communities and businesses. By reducing investors’ appetite and viability, the recent rent freeze legislation has discouraged investment and can only lead to a decline in the overall quality of housing.
“For Scotland… Average rents on new tenancies have soared by nearly 14 per cent in the last year as rents on existing tenancies have been frozen and then capped. The average time to let a new tenancy is now down to around 15 days in both Edinburgh and Glasgow, when 25-30 days used to be the norm. Evidence from the rental portals also shows a gradual reduction in the availability of private rented properties in Scotland, down by around 20 per cent over the last year.”
Regardless of past experience, and abundant evidence to the contrary, once rents start to rise, as they have done, in many of the UK’s largest cities, the debate about re-introducing rent controls re-ignites. People with little or no past experience or theoretical knowledge of these control regimes, it seems to me, want to replay the whole experiment all over again.
ONS data shows that the average UK rent increase for new and existing tenancies combined, in the 12 months to March 2024 by 9.2%. Rents increased to an average of £1,285 (9.1%) in England, £723 (9.0%) in Wales and £944 (10.9%) in Scotland.
The Centre for Policy Studies data (2023) shows that “Since 2010, the cost of renting has gone up by 44.5%” that’s based on Halifax’s statistics. During the same period, wages rose by 30.4% and inflation by 24%.
No wonder there is talk about bringing rents under government control in England once again, why not, it’s happened in Scotland, Ireland and likely in Wales? The alternative is to continue allowing rents to reach their own level, a result of market forces and the interplay between supply and demand.
If you believe in government regulation and more government intervention in the economy, then you are more likely to come down on the side of rent controls, whereas if you are a free marketeer, believing that the market should decide, that governments generally should stay out of markets, and that prices naturally find their own level, then you will come down against controlling rents.
It’s a constant dilemma that has played out in many countries across the western world throughout much of the last century. In Britain, following the deregulation of the rental market around 1980, with the introduction of the shorthold tenancy, the residential rental market, apart from a small overhang of legacy regulated tenancies, has been left to its own devices, rents have been set by market forces. This has worked relatively well until quite recently.
Prices have an important informational role to play in any market. For example, if demand for something such as rental accommodation exceeds supply, the price (rents) will rise and incentivise suppliers (landlords) to provide more, and as more is provided the price will eventually stabilise.
Unfortunately, with a housing market, things are not so straightforward: it takes a long time to provide more supply, even if the planning system allows copious new building. Also, landlords may have their reasons for not investing, or divesting: like high taxes, stringent regulations and the threat of even more, this coupled with an intense administrative bureaucracy that goes with letting property.
The current government appears to have done pretty much everything in its power to dissuade residential landlords from investing, while at the same time claiming to value their services. They refuse to take their opportunities to incentivise landlords to invest, through the tax system in consecutive budgets, and they constantly introduce new regulations, without ensuring that existing ones are properly enforced.
Is it any wonder that landlords are disillusioned, and exiting the private rental sector in droves? According to property consultant Hamptons, cited in the Daily Telegraph recently:
“The number of properties available to rent in Britain has plummeted by almost half due to landlords selling up. There were 40pc fewer rental homes on the market last year compared to April 2019... In total, 163,000 privately rented properties disappeared from the market between 2019 and the end of 2023 as the number of landlords selling up outstripped purchases.”
“More than 2,000 households a month are facing homelessness in England because private landlords say they are selling up… Official figures show that more than four in 10 families who have asked councils for temporary housing after a private landlord ended their tenancy are in the predicament because the owner told them they were putting the property on the market, says a recent Guardian article.
“Meanwhile, almost a third of landlords plan to reduce their rental portfolios and only 9% say they are likely to grow them, a survey by the National Residential Landlords Association (NRLA) found.”
In my view the housing crisis won’t abate until landlords are incentivised to invest in the market. The private rented sector is more important than ever to provide housing across much of the population - 20% of households now need to rent. The government has few resources to invest in housing, so why not encourage landlords to do so.
As long as I have been in the industry, responsible landlords have been complaining that existing laws – which generally are adequate to control bad landlords – are not enforced properly, but the government simply keeps churning out more legislation, bringing in new rules and regulations that in many cases make managing rentals a nightmare.
Rent controls are anathema to a functioning housing market as evidenced by much past experience, the government needs to find a better way.
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