There’s no evidence that rent controls work successfully in the UK or in similar economies. They drive landlords out of the market.
Broadly speaking, rent controls come in two forms. The most punitive, from a landlord’s point of view, is a hard rent ceiling, or ‘first generation’ rent control, which sets a limit on how much landlords can charge based on the property. The second type is tenancy, or ‘second generation’ rent control, which limits how much landlords can put up rents while a tenant is in situ.
Either way, with rent controls in varying forms already in place in Scotland and Northern Ireland, and likely to come into play in Wales in the next year, landlords in England are nervous that they, too, could see similar intervention here.
There is also a widespread feeling, though – and evidence – that rent caps achieve precisely the opposite of what they set out to do. They end up pushing prices up and standards of housing down. They also potentially stifle investment in the buildto-rent market.
Freezing rent at current levels seems like an easy way to help renters, but some argue this simply distorts the market and will mean build-to-rent schemes are not brought forward
Many cities have tried rent controls. But few, have made them work.
Until it was scrapped earlier this year for being
unconstitutional, Barcelona’s rent cap in 2021 went for a one-size-fitsall approach to a ‘tense housing market’. New rental contracts were priced at whichever was lowest: the previous rental contract (as long as it was at least five years old) or the rent according to an
index produced by the Catalan housing office.
Rents have risen by 16 per cent year-on-year in Glasgow and 14 per cent in Edinburgh. But so cumbersome is the process that not a single local council so far has succeeded in having its patch
designated a Rent Pressure Zone, which limits how much landlords can put up a tenant’s rent (though doesn’t limit what they charge new tenants).
Scotland is now pushing a Fair Rents Bill through Parliament to control rent levels, with the Scottish
Green Party Parliamentary Group having agreed to work with the Scottish Government on creating
a ‘fairer country’, which will include rent controls to tackle Scotland’s housing crisis.
Berlin’s rent cap – passed in January 2020 – was declared unconstitutional and overturned in April 2022. Three-quarters of Berlin’s population rents, so a cap was welcomed, but landlords and institutional investors felt differently, of course. As Barcelona’s landlords learnt, it became possible – once the rent cap was scrapped – to claim back-payments
on frozen rents, leaving many tenants facing
arrears and eviction. But Berliners found a way
to increase the city’s rental stock last year, when they voted in favour of expropriating 240,000 corporate owned apartments and making them available at affordable rents.
Sweden has been experimenting with rent controls for some time, and its latest model allows rents to change between – but not during – tenancies. It has been met with widespread condemnation, though, as there’s now an 11-year waiting list for a lifelong contract in a rentcontrolled property in Stockholm, the holy grail.
As a result, a black market has emerged in which contracts are sold for hugely inflated prices, and illegal renting and bribery is on the rise, to secure the best homes.
New York has had rent controls in place since the 1940s, and there are currently around 16,400 rent-controlled apartments in buildings constructed before 1947. Landlords can only raise rents by an amount agreed by the state. Along with New York, rent controls exist in five other states – Washington DC, New Jersey, California, Oregon and Maryland – and a dozen states are considering new legislation to curb soaring rents while allowing landlords to boost monthly rents by 2–10 per cent. The most recent US city tobring in rent controls is Saint Paul, the capital of Minnesota, which passed a bill in November 2021 to cap annual rent increases at three per cent, including for newbuild properties. But the result has been to further widen the gap between demand and supply.
In the three months since the cap came into play, permits for new-build homes fell by 80 per cent. In neighbouring Minneapolis, where new construction is exempt, permits were, by contrast, up 70 per cent. America’s Multifamily Housing Council rejects rent controls. It instead recommends that lawmakers consider ‘voucherbased rental assistance’ to address the housing shortage crisis.
While rent controls are likely to be the next big area of campaigning for tenants’ groups now that Section 21 is no more, there is no suggestion they will be brought in, in England. Increasing the supply of rental properties is the obvious answer.
The best solution for all is to drive greater investment into the buy-to-let market. This creates greater choice for tenants, a reduced need for intervention and a calming of rent levels.