Rent controls
Can they work?
David Smith of Bishop & Sewell argues that rent control measures are unworkable in the current market.
There has been a recent surge of interest in rent controls within the private rented sector. This is undoubtedly connected to the fact that Andy Burnham, the new Prime Minister, has previously advocated for rent controls and, when he was the Mayor of Manchester, sought devolved powers to allow for local rent control in his area. While the new Secretary of State for Housing, Angela Rayner, has said that the government is not currently considering rent controls, the operative word here is currently, and it certainly remains an option they are considering.
The problem with rent controls is that it is hard to find studies of rent control that say positive things about it. In general, studies show that it leads to reduced housing supply, increased rents outside the boundaries of what is controlled, and a general reduction in standards. There are other studies which suggest that it is hard to disentangle rent control from the wider position on housing regulation, that the studies are based around relatively few countries, and that underlying assumptions about the housing market are very determinative of the outcome of any study.
There have been a range of proposals published on rent controls recently from several left-wing think tanks. These all start from the position that rents are increasingly unaffordable and that as much as 45% of private renters now live in unaffordable housing, using the government classification of spending more than 30% of household income on housing costs. They all propose controls by way of a rent increase restriction, either by linking to a metric such as the consumer price index (CPI), a paired metric such as the lower of CPI and average wage growth, or a complete freeze.
All the recent studies accept that rent control carries risks. They seek to design a model of rent control which will avoid those risks while still achieving the positive effect of reducing rents. This leaves aside that one of the key themes of the literature is that many of these risks are unpredictable and therefore cannot be easily mitigated.
The reports also highlight other jurisdictions that have rent control measures in place, arguing that is consequently untrue to say they cannot work. However, without considering those schemes within the wider housing policy in place in that jurisdiction and without considering the level of success of those schemes, this conclusion is problematic.
The Institute of Public Policy Research (IPPR), for example, attempts to mitigate a well-known problem identified with rent control models, which is that if you have in-tenancy rent control, you tend to get big jumps in rent between tenancies, by looking to restrict all rent increases, both in-tenancy and between tenancies. The IPPR also acknowledges the risks of housing standards reducing as landlords save costs by cutting back on repairs and maintenance. The Renters' Rights Act 2025 is expected to deal with this with its new standards ensuring that properties are of reasonable quality.
The various proposals propose exemptions for new-build property to encourage continued investment. They also generally propose bringing back mortgage interest tax deductibility for landlords who have mortgages, on the basis that landlords without mortgages do not have the same pressures and can better bear the reduced income caused by rent restrictions.
But all of this is based on a series of flawed premises. The IPPR suggests that rents have risen steeply due to wars and the decisions of the UK government. But this is not borne out by the data. Most studies show that rents have been relatively flat. Not least because economic stressors, such as increases in mortgage rates or extrinsic costs, do not hit all landlords at the same time and, in some cases, do not hit landlords at all. In fact, studies show that food prices have generally risen more than rents. That is not to say that rents are not high, but they are not conspicuously higher recently.
In practice, a rent control mechanism based on a single nationally applied figure is likely to do no more than ensure that all rents generally always rise by this figure in every area. In some areas that will mean a greater rise than there is now, not less. This has been seen before with Local Housing Allowance (LHA) rates, where some areas saw rents rise to the LHA rate as there were available funds in the market to pay those increased rents. It will also mean that landlords who might keep rents down in tenancy, as many do, will not do so, as any failure to increase a rent will lead to that property forever dropping behind the rest of the market with no ability to catch up.
All of this will also, of course, lead to a considerable tax reduction in received income for HMRC. Tenants will earn the same and be taxed on the same basis. The savings in rent payments that the various schemes suggest would accrue from their planned policies will represent a net reduction in landlord income and accordingly in landlord tax payments to HMRC. There will be a further reduction as landlords with mortgages regain the ability to deduct mortgage interest from their payments, and as VAT receipts fall due to reduced spending on property repair and maintenance.
Ultimately though, cost is, rightly or wrongly, a key means of allocation of housing in the private rented sector (PRS). If overall cost is reduced or limited, then on what basis is housing to be allocated? One of the problems of rent control is that corruption increases as people attempt to jump the queue.
It is hard to avoid the view that rent control is, to some degree, punishing landlords for an ongoing failure to build enough housing and a failure to find ways to keep wage growth in line with inflation. However, it is likely to keep being discussed while the cost of housing remains high.