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Rent controls – what are the pros and cons for the housing market?

Posted on 2018-05-09

With more people than ever now living in the Private Rented Sector (PRS), the focus on this growing housing tenure is understandably greater than ever.

One particularly hot topic is rent controls and whether they should be implemented in the UK. There are keen advocates and equally strong opponents to something that is much more common on the continent but hasn’t been in widespread use in Britain since the late 1980s.

A short history of rent controls in Britain

1915 – Designed to stop landlords ‘profiteering’ during the war years when housing demand outstripped supply, the first Government-backed rent control was introduced in the form of The Increase of Rent and Mortgage Interest (War Restrictions) Act 1915.

1920s and ‘30s – A number of complicated ‘decontrol’ rules were introduced during these decades, including new rights of landlords to repossess their properties and some specifications on the rent chargeable across different categories of homes.  

1939 – The slow but steady relaxation of rent controls came to an abrupt halt with the outbreak of World War II, when The Rent and Mortgage Interest Restrictions Act 1939 was implemented.

1957 – As a result of The Rent Act 1957, homes that had previously been subject to rent controls were based instead on gross property values.

1965 – To deal with a rise in ‘slum’ landlords (Peter Rachman being the most famous of these), Labour’s Rent Act 1965 introduced regulated tenancies and ‘fair rents’ established by independent rent officers.

1970s – Governments of this decade didn’t loosen rent controls, as the size of the private rented sector continued to decline, while home ownership increased.

Late 1980s and early ‘90s – It wasn’t until the latter stages of Margaret Thatcher’s time in power and the Governments led by John Major in the ‘90s that the deregulation of rent controls started in earnest. Where private renting made up only one-tenth of housing stock by 1991, a boom in buy-to-let and the introduction of assured shorthold tenancies led to growth in the PRS.

Present day – An increasing number of renters, whether for lifestyle reasons or priced out of buying a home, has led to the PRS becoming the second largest tenure in the UK – and the largest in London.  It also means the possible reintroduction of rent controls has come under the spotlight.

What is the current situation in the UK?

While there are rent controls or ‘guideline target rents’ on affordable and social rented housing, this is not the case for the PRS – where the market dictates how high or low rents are in a given area.

Concerns with the growth in rents in some areas – particularly in London and the South East – has led to calls from campaign groups, politicians and younger generations to consider rent controls.

It’s also become an increasingly political issue, with Jeremy Corbyn’s Labour committing itself to reintroducing rent controls if it comes to power.

Corbyn used his leader’s speech at last year’s Labour conference in Brighton to commit the party to controlling rents, an announcement that was met with a mixed reaction – condemnation from those in the property industry and political parties ideologically opposed to Government interference; far more positive noises from campaign groups.

The policy hasn’t really been elaborated on since, with only sketchy details on how the rent controls would be implemented. On Labour’s website, it says: “we will end insecurity for private renters by introducing controls on rent rises, more secure tenancies, landlord licensing and new consumer rights for renters”.

That doesn’t suggest strict rent controls, but rather controls on rent rises and a push for more security for tenants.

Where are rent controls currently a success?

Supporters of rent controls point to places like the German capital Berlin, which in 2015 became the first city in that country to introduce a cap on rent.

The law allowing rent controls on inner-city property came into effect on June 1 2015 and prevents landlords from charging new tenants more than 10% above the local average. In Germany as a whole, where around half the population rents, it is illegal to charge rent more than 20% above the level charged for a comparable property. Steps to regulate rents have also been introduced in Scandinavia and several US locations.

Supporters say rent controls could help to prevent middle and low-income households from being squeezed out of cities with high demand and increasing house prices, while critics say they have a number of damaging side-effects – not least less incentive for landlords to invest if their returns are reduced.

What’s more, landlords may choose to go it alone and drop their letting agent to save money and in some cases may quit the sector completely because it’s no longer financially viable. This could cause serious problems with supply at a time when demand for rental properties is high.

The arguments for and against rent controls in the housing market will continue, but in truth no-one knows for sure how well they would fare in 21st century Britain until they are actually introduced.

To find out what is happening in the rental market in your region, take a look at our latest HomeLet Rental Index.

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