Rent controls in the private rental sector: the answer or the problem?

The cost-of-living crisis remains a huge concern for many, with inflation and interest rates continuing to rise. While the government has taken action in some areas such as the Energy Price Guarantee, the question remains whether the Government should be doing more to tackle the rising housing costs many in the UK are struggling with.

In 2023, the London Renters Union addressed a letter to Michael Gove, the Secretary of State for Levelling Up, Housing and Communities stating that renters were “among the worst affected by the cost-of-living crisis". So, should the Government be doing more to help renters in the UK?

One regularly suggested way in which the Government could take action would be to implement rent control measures. In general terms, rent controls are a form of Government intervention in the housing market that aim to limit the amount that landlords can charge tenants for rent. The intention is to keep the cost of living affordable for tenants and decrease issues of unaffordable rent and homelessness. However, the implementation of rent control policies has been controversial and there are differing views as to whether they offer a solution or create a bigger problem.

Scotland leading the way?

The letter sent by the London Renters Union urged the Government to bring measures in line with those introduced in Scotland. So, what are those measures?

In September 2022, Nicola Sturgeon announced a rent freeze and an eviction ban, under the Cost of Living (Protection of Tenants) (Scotland) Act 2022. However only four months later, it was announced that this rent freeze would be scrapped and from 1 April 2023 landlords would be able to increase rents subject to a 3% cap (and provided they had not increased rents in the preceding 12 months), with a voluntary agreement that landlords keep any increases to below inflationary levels of 11.1%. This cap is expected to remain in place until September 2023.

So, have these measures worked? If you ask tenants, many may say it has provided an added degree of security during a period of economic difficulty, even if that respite may only be temporary. Meanwhile, the Scottish government has stood by the policy, with a spokesperson saying: ‘We are in the midst of a cost-of-living crisis, and our emergency legislation has been protecting tenants from significant rent rises and risk of eviction.’

Landlords, however, tend to offer a different view. They, together with a coalition of letting agencies are seeking to mount a legal challenge to the Scottish Government’s rent control legislation on the grounds that it places an unfair financial burden on landlords. Considering an investor's point of view, a spokesperson for the build to rent provider Get Living commented while the company remain big advocates of Glasgow as a thriving commercial hub, the ongoing policy on rent controls in Scotland, combined with current market challenges, has resulted in a shift in investor support, and ultimately meaning that the viability of developments are uncertain. The UK Apartments Association support this view and have stated that in their experience investor confidence has been affected as a result of the measures and they are disappointed that the Scottish government did not consult on the measures before implementing them. One thing is clear, a solution must be found that works for all.

Global comparisons

With the Scottish rent controls ongoing, it is difficult to objectively analyse the overall effectiveness of the rent control measures imposed there. So, what have been the experiences of other countries, and can they be objectively considered effective?

One example of a country where rent controls have been implemented in the private rental sector is Sweden. In Sweden, rent controls apply to newly constructed properties and older buildings, with regulated rents being set by local market conditions. The policy has meant that the gap between the highest and lowest rent rates is narrower, and 40% of renters pay less than the average. However, it has also led to a reduction in new rental properties being built, leading to a shortage of available housing and the average waiting time for a rent-controlled property in Stockholm is over nine years.

New York City is another interesting example with its much-debated rent stabilisation programme. The NYC Rent Guidelines Board, sets rent increases according to inflation and requires landlords to renew leases, leading to a lower frequency of evictions. However, the program has incentivised landlords to prioritise affluent renters over low-income renters, leading to complaints that it has failed those it was intended to help.

Are there lessons to be learned from Finland?

Finland, historically, implemented rent controls but always suffered with a lack of supply of rental stock. To bypass the rent control regime, a pseudo black market operated in the country with landlords charging higher rents and not declaring them to the tax office, while companies would explore loopholes by leasing whole buildings and subletting to their employees.

In response to the economic crisis in the early 1990s, the Finnish government deregulated the rental sector, lifting controls on all properties by 1995. According to the Guardian (quoting Statistics Finland) rental supply increased almost immediately, with the number of rental properties in Finland increasing by 45% between 1990 and 2000. Finland has also benefitted from a steady increase in house building.

Is supply the answer?

When the supply of housing increases, there is more competition among landlords, which can help keep prices down. This can particularly benefit lower-income households, as increased competition can result in more affordable options for them. Additionally, increased housing supply can also help reduce the overall demand for housing in a given area. This is because potential renters may be more likely to choose a more affordable option if it becomes available, rather than continuing to compete for the same limited supply of housing. This competition for housing can drive up prices, making it difficult for many people to find affordable options.

House building and housing supply has always been a cornerstone policy of UK Governments. A series of housing ministers have all expressed stated aims to increase supply of housing with a variety of different policies and incentives, yet there is still a shortage. There are myriad reasons why including cycles of economic recession, build cost inflation, land shortages and perceived issues with the planning process. There is also the concern amongst political parties that building new homes is often a "vote loser" for the constituents in the vicinity of that development. Too often we hear that people support greater new housing numbers but just so long as they are not built anywhere near them! A cynic might say that this dynamic means that whenever we approach local or national elections, any push to incentivise greater new housing numbers is frustrated.

Winds of change?

While rent controls have the potential to make housing more affordable for low-income renters, they can also have unintended consequences, such as discriminating against certain renters and adversely affecting an already strained housing supply pipeline. For the time being, the current UK government does not seem to have the appetite to introduce rent controls. However, with a national election due to take place by no later than January 2025, it is always possible that winds of change could blow our way.

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