The Lead Untangles: Rent controls

With Andy Burnham almost certain to become the next Prime Minister, campaigners are demanding rent controls

With Andy Burnham firmly likely to become Prime Minister, campaigners are calling for rent controls.

While the previous government shut down any potential rent freeze in April, the former Greater Manchester mayor has made no secret of his support for capping rents.

In 2023, he called on the government to freeze private sector rents. The move would “immediately relieve pressure on millions of people and halt an eviction crisis that would have a devastating social impact”, the letter – also signed by the mayors of Liverpool and London – argued. And in his speech at the People’s History Museum last week, Burnham said the government is “forced to chase rents in the private-rented sector through the benefits system”.

Clara Collingwood, director at the Renters Reform Coalition, said any attempts by the next Prime Minister to address the cost-of-living crisis without regulating rent “will be like trying to fill a leaking bucket”.

Even before the leadership chaos, there was growing support from politicians, campaigners and trade unions for rent controls to address the crisis, with think tank reports from both the IPPR and the Joseph Rowntree Foundation released in May and a fresh call for rent controls by campaign group Generation Rent.

But critics say controlling rents has perverse consequences, reducing housing supply and making it more expensive.

Context

The new Renters’ Rights Act, which came into force in May, addresses housing insecurity but does little on affordability.

Rents in the private sector as a proportion of income soared after the financial crash and have continued to rise sharply since – meaning 2.4 million private renting households live in unaffordable housing, according to the think tank IPPR.

Although private sector rent rises have levelled off in recent months, they have grown by nearly 8 per cent in the two years since the general election from an already high base.

For many of the 12.9 million people living in the private rented sector (PRS) in the UK – who pay more for their housing than those holding mortgages or in social housing – that’s an intensification of an affordability crisis. According to the Joseph Rowntree Foundation (JRF), rent as a share of income in the PRS was around 11 per cent in the late 1970s but reached 29 per cent in 1993 after rent controls were ended. It’s now 34 per cent of income – 46 per cent in London. But 30 per cent is widely considered to be unaffordable.

“Millions of renters are being pushed to the brink by a housing market that simply isn’t working for them,” says Dr Maya Singer Hobbs, senior research fellow at IPPR.

“This is no longer a marginal issue affecting a small group – it is a mainstream cost-of-living crisis hitting working households across the country. Without action, things will get worse.”

Rent controls are in force in many areas across the world, including Ireland, France, Germany and Spain. In New York, Zohran Mamdani’s promise to freeze rents was a key pledge in his successful mayoral election campaign.

In the UK, the new Renters’ Rights Act prevents landlords from raising rents more than once a year. Landlords must give tenants two months notice of an increase and rises must be in line with market rents. Tenants can challenge “unreasonable” rent increases at the First-Tier Tribunal. But there is no set limit on increases beyond what an already inflated market indicates.

The government opposes further measures, saying it “does not support the introduction of rent controls, and nothing in the Act restricts landlords raising rents in line with market prices”.

How do rent controls work?

There are many forms of rent control, ranging from outright caps to temporary freezes and limits on increases.

Rent rise limits can apply only to existing tenants, or in between tenancies, to prevent landlords evicting tenants in order to boost their profits.

They may apply only to specific areas, such as in Ireland, or nationally, as is the case in Sweden.

Who is in favour?

Mayors Sadiq Khan and Andy Burnham and Greens leader Zack Polanski are among UK politicians who have called for rent controls. As well as JRF and IPPR, think tanks and charities in support include the New Economics Foundation (NEF) and Shelter.

Campaign groups across the country including the London Renters Union, Bristol Fair Renting Campaign, Lancashire-based Tenants and Community Union and Greater Manchester Tenants Union are backing the national Resist Rent Rises campaign.

Who is against?

Not only Labour but the Conservatives. The Lib Dems call instead for rises to be limited to a “fair” amount annually. Reform is firmly against, and would even repeal the Renters’ Rights Act.

Right wing think tank the Institute of Economic Affairs argues rent controls are harmful. Property industry and landlord organisations in opposition include Propertymark and the National Residential Landlords Association.

Why do they disagree?

Those against rent controls often claim they are not just protecting landlords’ profits but furthering the interests of society as a whole. Controlling rents would push landlords out of the sector, they say, reducing overall housing supply and making matters worse for tenants. The impact on supply of rent controls would “inevitably drive new rents still higher”, according to Ben Beadle, chief executive of the National Residential Landlords’ Association.

Critics point overseas for examples supporting them: a widely quoted study in San Francisco finding a 15 per cent drop in supply and higher rents; a “wide range of adverse effects” in Berlin, including reduced supply, reduced mobility for those seeking to move, and higher rents in unregulated homes; and longer waiting times for flats in Sweden. The counter-argument is that these adverse effects can be designed out with cannier policies, and there are examples from elsewhere in the world the UK can draw from.

NEF says controls in Paris that cap rents at a maximum determined by property size and age have seen rents decrease by 3.7 per cent to 4.2 per cent on average, “with no evidence of negative impacts on rental market supply”. It also points to new rent regulations in Ireland and Spain as “directly relevant models for an English housing system under comparable structural strain”.

JRF has now put forward a model it says would benefit tenants without harming landlords. It calls for a cap on rent increases in-tenancy at the Consumer Price Index (CPI) measure of inflation, and between tenancies at CPI plus 2 per cent. That could save renters almost £1,200 per year on average within six years.

To balance that, it calls for the restoration of full mortgage interest relief to protect landlords. To pay for it, applying national insurance contributions to rental income would capture “inordinate profits”.

Even with these measures, JRF says its policy would lead to fewer landlords making a loss by 2030.

“Targeted tax reforms would capture the extraordinary profits landlords have experienced and tax all income from rents more fairly, while also protecting the most exposed landlords,” says Rosie Worsdale, senior policy adviser at JRF.

“Together this would create the conditions where rents could be capped, easing the squeeze on renters, without detrimental consequences.”

What happens now?

Burnham would put housing higher up the agenda if he were to seek the Labour leadership — even if he waters down his previous commitment to a rent freeze. But the landlord lobby remains strong, and its ostensibly “grown up” arguments against rent controls will be hard to break down. ■

About the author: Kevin Gopal is a Manchester-based journalist who has returned to freelancing after editing Big Issue North from 2007 until its closure in 2023.

About The Lead Untangles: In an era where misinformation is actively and deliberately used by elected politicians and where advocates and opposers of beliefs state their point of view as fact, sometimes the most useful tool reporters have is to help readers make sense of the world. If there is something you’d like us to untangle, email ella@thelead.uk.

👫Found this edition of The Lead Untangles useful? Share it with your friends, family and colleagues to help us reach more people with our independent journalism, always with a focus on people, policy and place.

Plus take advantage of our special offer and get 30 per cent off an annual subscription (usually £49, use this link to get it for £34.30 instead) to help us combat misinformation.