"It is ironic to think that those advocating rent controls may be doing more to push rents up than anyone else at the current time."
‘There is always a well-known solution to every human problem - neat, plausible and wrong.’ American satirist HL Mencken’s quip applies perfectly to rent controls as a solution to the affordability challenges in the UK’s Private Rented Sector.
Unfortunately, the Labour party has been sending mixed messages about rent controls of late. Chancellor Rachel Reeves stated in May this year that ‘rent controls are not a Labour Party policy’ but in the same month declared that she could see a case for introducing controls in some areas. Some prominent regional mayors and councillors, including Manchester’s Andy Burnham and London’s Sadiq Khan, are keen supporters of such controls. And Sir Keir Starmer is a keen supporter of devolving more power to regional mayors. Buy-to-let landlords can therefore be forgiven for feeling apprehensive. In fact, the latest quarterly landlord research carried out by Pegasus Insight found that rent controls would be the largest single driver of market exit/property divestment by landlords, with one in three saying they would sell up if such controls were introduced.
The concept of controlling prices for the good of the people is as old as the hills. In the third Century, Roman Emperor Diocletian, a reformist who introduced fairer taxes and a more accountable government, also placed price caps on around 1,000 retail goods across the Empire, to control the ‘frenzied avarice of unscrupulous traders’. The caps did not take into account supply, demand or transport costs. As a result, black markets flourished and the edict was quickly abolished.
If we fast forward 1,700 years or so, across the Atlantic, Franklin D Roosevelt introduced the Emergency Price Control Act to keep a lid on inflation caused by full employment during World War 2. The Act froze New York rents in 1943, and rent controls in the city exist to this day. The effect has been to keep a lid on rents for those in rent-controlled apartments, but pushed rents sky-high for everyone else, as landlords have withdrawn from the market and reduced the supply of rental property available over the decades. Some New York landlords also demand enormous signing-up fees from tenants, and many take payments under the table.
Of course, there is a more recent example of the failure of rent controls, much closer to home. In Scotland, the Green Party/SNP coalition introduced rent freezes and no-eviction policies in 2022 in an attempt to address the cost-of-living crisis. Rents were frozen until March 2023, at which point landlords could increase them by a maximum of 3%, or 6% if they appealed – and many did. In the past, they may have prioritised keeping good tenants happy in the knowledge that both parties had the ability to renegotiate terms if their financial positions changed. With the imposition of controls, landlords hiked rents whenever they could, fearful of future draconian regulation. The controls were abolished in March 2024. ONS figures show that during the year to March 2024, average monthly rents in Scotland went up by 10.5% to £947pcm - higher than the 9.1% rise in England and 9% rise in Wales.
Rent controls may seem a fair idea on the surface, but the unintended consequences undermine their own goal, by reducing supply and ultimately pushing up rents. As IMLA’s Landlord Survey published in December 2023 observed, even speculation about rent controls can be harmful: “With increased talk of rent controls, the risks associated with investment in the PRS are also increasing. Faced with higher risks, investors logically require higher returns and this could account for part of the recent sharp rise in rent levels. It is ironic to think that those advocating rent controls may be doing more to push rents up than anyone else at the current time.”
The new government would be wise to learn the lessons of history and promise not to introduce rent controls in any form, in order to reassure a nervous sector already struggling with the cost of borrowing, an onerous tax regime and heavy regulation. The only way to address the affordability issue in the PRS is to increase supply by building far more homes in both the private and social sectors, while encouraging landlords to remain in the market and invest more. The government has promised the former and must now deliver. We are still waiting for them to acknowledge the need for the latter.
