Why rent controls are the wrong answer to a housing shortage

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Why rent controls are the wrong answer to a housing shortage

Oh, dear, another week and another call for rent controls.

This time it’s the turn of Generation Rent, which has published an article asking what rent control in England could look like.

We’ve already had three prominent think tanks, including the New Economics Foundation, the Institute for Public Policy Research (IPPR) and the Joseph Rowntree Foundation (JRF), release blueprints for capping rents in England in the last few weeks.

Let’s not forget that in April, the Treasury was reportedly considering a 12-month rent freeze.

All landlords should read the article, not because it offers a sensible solution to the rent crisis, but because it reveals the central flaw in the rent control argument.

Cap tenant rents

The pitch to the public sounds simple and compassionate: cap rents to protect tenants from soaring costs.

But as anyone running a property portfolio knows, capping the price of a commodity without fixing the underlying shortage is an economic delusion.

To understand why rent controls are nonsense, you only need to look at basic supply and demand.

The reason rents have risen across England is a historic failure to build homes to meet rocketing demand.

Nobody serious about housing policy should pretend that affordability is not a problem.

But that’s not the fault of landlords – it would take a very big pair of rose-tinted glasses to suggest otherwise.

Here is the big problem for landlords.

The ‘between-tenancy’ caps favoured by all three think tanks mean that when a tenant moves out, the landlord is forbidden from adjusting the rent to market value.

It must remain locked to an arbitrary index like CPI or wage growth.

That sounds great if you ignore institutional builders and individual landlords who would see the financial viability of investing in new housing stock disappear.

Why risk capital on building a block of flats or upgrading a terrace house when your long-term yield is artificially suppressed below the true cost of maintenance, mortgage interest and inflation?

You wouldn’t. And, I suspect, neither would the charlatans in the think tanks if they had to spend their own cash.

Don’t look to Scotland

The Generation Rent article points to Scotland as a model, but Scotland should be treated as a warning, not a blueprint.

When emergency rent caps were introduced in 2022, there was a dramatic reduction in available rental properties.

It also forced major build-to-rent developers to pull out of schemes in Glasgow and Edinburgh.

When landlords face capped revenues alongside rising regulatory costs, higher interest rates, and the removal of mortgage interest tax relief, the rational response is simple: they sell up.

Once the government begins interfering with prices, landlords adapt.

Some raise rents more regularly up to the permitted limit and some will leave the sector.

Other landlords will become more cautious about who they accept as tenants.

The people most likely to lose out are often those already facing the greatest difficulty finding a home.

Rent control problem

Before Labour ministers reach for another PRS intervention, they should allow the Renters’ Rights Act to bed in because the private rented sector needs confidence.

The country cannot afford to drive out responsible landlords while still failing to build enough homes.

A serious answer to high rents would focus on supply, planning, tax, court capacity and keeping good landlords in the market.

It would target help at tenants who need support without pretending that price controls can magic new homes into existence.

Renters are right to be angry about unaffordable housing.

Put simply, rent control will not solve the housing shortage; it will simply make the shortage cheaper for some and much worse for everyone else.

Until next time,

The Landlord Crusader

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Councils to fine landlords £7,000 per hazard under new health and safety rules

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Councils to fine landlords £7,000 per hazard under new health and safety rules

Landlords could face on-the-spot fines of £7,000 for each hazard found in a property and a £40,000 civil penalty for failing to remedy the issue and continuing to breach the new health and safety standards.

The government has announced changes to the Housing Health and Safety Rating System (HHSRS), which will come into force on 23 June.

The National Residential Landlords Association (NRLA) has urged landlords to carry out regular inspections of their properties to make sure they are hazard-free.

Health and safety risks

The HHSRS system is used by local authorities in England and Wales to assess potential health and safety risks in homes.

The National Residential Landlords Association (NRLA) explains on its website that, under new rules introduced through the Renters’ Rights Act, any hazard identified during a local authority inspection will now be categorised as high, medium or low risk, replacing the more complex A–J rating system.

High-risk hazards, known as Category 1 hazards, will continue to trigger a council’s duty to take enforcement action against landlords, although councils will retain discretion over how they deal with medium- and low-risk hazards, known as Category 2 hazards.

The NRLA says that while the list of hazards is not changing, some categories are being merged. These include Falls on the Level, which covers falls associated with toilets, baths and showers, as well as trip hazards and falls on level surfaces, and Fire and Explosions, which covers exposure to uncontrolled fire, smoke and fumes, and explosions.

Range of factors to decide fines

Under draft guidance published by the government, councils will be able to fine landlords £7,000 per Category One hazard identified, or opt to impose a single £7,000 civil penalty for multiple breaches.

In the guidance, it explains that councils can decide the level of fines by assessing a range of factors, but that decisions will be made on a case-by-case basis.

The guidance says: “Local housing authorities need to have a policy basis to guide their decisions on when to issue a civil penalty.

“Each decision is to be considered on a case-by-case basis in line with that policy. Civil penalties under section 6A of the Act can only be imposed when, in the opinion of the local housing authority, it would have been reasonably practicable for the responsible person to secure the removal of the hazard.

Factors that a local housing authority should take into account when determining whether removal would have been reasonably practicable include:

• how long the responsible person has known about the existence of the hazard;
• whether practical steps could have been taken to remedy the hazard without disproportionate expense or disruption;
• what steps the responsible person has taken to remove the hazard or reduce its impact, including any efforts made to secure the services of specialist tradespeople;
• whether permission from other parties is needed to remove the hazard and the steps the responsible person has taken to secure that permission; and
• whether tenants have provided access to the property in order for remedial works to be carried out.

Landlords must carry out inspections

The NRLA is urging landlords to document safety checks and inspect properties regularly to comply with the new health and safety regulations.

The industry body says on its website: “If landlords are complying with all current health and safety guidance under the HHSRS, landlords don’t need to do anything fundamentally different.

“However, landlords must continue to carry out regular inspections of their properties to make sure they are hazard-free and safe for tenants to live in.

“Documenting these, and other safety checks, is also essential when it comes to proving landlords are taking their health and safety responsibilities seriously.

“Landlords should also be sure to log and action any reports or complaints from tenants when it comes to potential hazards and keep a record of any remedial work carried out by themselves or tradespeople.”

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The RRA’s ‘unintended consequences’ for landlords and tenants

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The RRA’s ‘unintended consequences’ for landlords and tenants

Landlords watching the unfolding impact of the Renters’ Rights Act, now have another reason to look closely at London, where falling supply is already being linked to higher rents.

Tom Bill, the head of UK research at Knight Frank, says the reforms should act as ‘a cautionary tale for policymakers’ because economic policy can create consequences ministers did not intend.

He argues that the Act was brought in to shift the balance of power towards tenants, covering rent-setting, repossession, restrictions on selling and pets.

However, Mr Bill says the risk is that ministers have gone too far after landlords became ‘a useful target for politicians in recent years due to the unscrupulous actions of a small minority’.

More landlords have sold

Mr Bill said: “There were no votes in also stating that a small minority of tenants were problematic.”

Knight Frank says more landlords have sold up since the Act’s introduction, cutting supply and adding pressure to rents in many parts of London.

The property consultancy says that average rents in prime outer London rose by 3.2% in the year to May.

That’s the strongest annual increase since June 2024, when rents were still easing back from pandemic-era highs.

Month-on-month growth in prime outer London reached 0.5%, the highest figure since September 2023.

Rents go up

Prime central London saw a smaller annual rise of 1%, with supply less constrained in higher-value markets.

The firm says that’s down to owners letting homes while the sales market remains weak.

Rightmove data highlighted by Knight Frank shows new rent listings in prime central and prime outer London were 13% below the five-year average in May.

They are also 11% lower than the same month last year.

Tenant demand rises

Knight Frank says there were six new prospective tenants for every new rent property coming onto the market last month, the highest ratio since September 2022.

The Act follows a series of changes affecting landlords, including higher stamp duty rates and the ending of tax breaks.

Mr Bill says a future requirement for homes to reach EPC C could become another deterrent for buy to let investors.

He points to political pressure around tax as another issue for landlords.

Don’t squeeze landlord margins

Mr Bill says politicians wanting to increase CGT would squeeze landlords’ margins further and put rents up.

He also notes that HMRC believes a 10-percentage point increase in CGT would cost the exchequer £6 billion over three years, according to a recent Bloomberg report.

Mr Bill says other areas of the economy are also being drawn into political arguments as Labour figures jostle for position.

He cites calls for supermarkets to cap food prices and accusations of petrol retailers ‘price gouging’ during energy price spikes as examples of policies shaped by vote-winning pressure rather than economic argument.

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