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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