Rent control battle comes to Britain - but do they work?

When Craig, 42, from Falmouth, was told his rent was rising by nearly 20%, his first thought was his mother.

The 77-year-old no longer recognises him, but since her dementia diagnosis three years ago, Craig has spent his free time driving back and forth to her home in Penzance to provide care.

Now, the only way he can find another £1,200 a year to pay the rent hike is by selling the car he needs to look after her.

"Everybody is just shocked. It's just really unfair," he told the Money blog, choosing not to give his last name for fear of retribution by the landlord in the form of a no-fault eviction.

"I either pay the rent or I'm on the street."

The landlord bought his block of 15 flats in March and increased his monthly rent from £550 to £650 for a single, cramped room in October, Craig said. The kitchen has no room for a fridge. His bed almost touches the sofa.

Craig, who has rented his whole life, called the industry "parasitic", comparing most landlords to ticket scalpers.

"They want to sit on their arses, I go to work, and they just take my money."

As a shop assistant in a department store, his small budget was already cut to the bone before the rent increase, spending 40% of his income just to keep a roof over his head.

30% is considered affordable. The median price of rent is higher in almost a third of local authorities in England and Wales, according to the Office for National Statistics.

Craig had already stopped socialising to afford essentials and the rest of his money was spent on running his car to collect his mother's shopping, take her to medical appointments and visit her to provide personal care.

"It's just shocking what they're getting away with and I think it needs to be rent-controlled and much more regulated," he said.

He's not the only one who thinks so.

Activists like Generation Rent are calling for rent controls in the UK that ensure rent rises are no higher than either inflation (measured by the Consumer Price Index) or wage growth - whichever is lower in any given year.

But landlord and estate agent associations have campaigned against any limits, arguing they undermine property owners' human rights and will create a more difficult market for most tenants.

A dividing line between the two sides of this debate has been drawn on England's northern border.

The Scottish government has introduced the Housing (Scottish) Bill to create long-term, localised rent controls after its experiments in the post-COVID era.

To the south, the Labour government has confirmed rent controls will not be part of its Renters' Rights Bill, nor will it grant London mayor Sadiq Khan his request to control rent increases in the capital.

Who has the right idea?

James Wood, head of policy at the National Residential Landlords Association, is firmly against rent controls, arguing they would reduce the number of properties available to rent.

With inflation pushing up maintenance costs and mortgages, landlords would sell up if they couldn't increase rents enough to cover them, while investors would be discouraged from the build-to-rent sector.

"Landlord groups often say that anything that may affect their bottom line will reduce the amount of supply," said Ben Twomey, chief executive at Generation Rent.

"The fact is, most private landlords in the UK do not build at all."

Build-to-rent properties make up just 2% of homes in the private rental sector, according to Savills.

Approximately 57% of landlords in England pay a buy-to-let mortgage, while 38% have no debt, according to the latest figures from the Department for Levelling Up, Housing and Communities released in 2021.

If landlords "obsessed with raising the rent to unaffordable levels want to leave the market", continued Mr Twomey, "then that's absolutely fine by us".

Asked if Generation Rent's inflation-linked rent control proposal would mitigate concerns over rising costs and mortgages, Mr Wood said that "it's not tested" and by setting a yearly cap, it would encourage landlords to raise rents every year.

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Against greed and against vilification

Keith Rowe, 56, a Sunderland landlord for 33 years, isn't opposed to rent controls and isn't interested in increasing rent every year.

"I really, really, really feel for the young people at the moment because they don't have the opportunities, through inflation," said Mr Rowe, former chairman of the Sunderland Private Landlords' Association.

His first home cost 3.5 times his salary, whereas his daughter faced prices 10 times hers - a hurdle leaving many young people stuck in the rental market.

"I think anybody doing a rent rise beyond inflation, that's what falls into the rhetoric of the whole... greedy landlord headlines," he said.

But Mr Rowe, who owns 14 properties rented to 20 tenants, was also frustrated by landlords being "absolutely vilified in the media" when they do raise rents.

"It's not all about 'I charge extra money because I want to make more money' - it's because the costs are through the roof."

He said any viable rent control would have to take into account the pricing behaviour of insurers and banks, the impacts of inflation on maintenance costs and the cost of government regulations, like improving energy efficiency ratings.

What do the experts say?

Mr Rowe's concerns were borne out in a survey of 200 studies on the impacts of rent controls undertaken by Konstantin Kholodilin, a senior researcher at the German economic research institute DIW Berlin.

The quality of housing tended to reduce because, while rental income was capped, the effect of inflation on the cost of maintenance and repairs was not.

This was one finding in a study with mixed, but important, results.

"It's not very clear whether the side effects outweigh the intended effects or not," said Dr Kholodilin.

Rent controls always reduced the cost of rent, but private housing construction tended to decline, forcing the government to take on expensive building projects.

When rent controls applied to one urban area, uncontrolled rents in surrounding areas rose faster than usual. Tenants in cheaper properties were less likely to vacate but people still wanted to move to cities to work, increasing demand near their edges.

This was the case in Germany, which introduced rent controls in 2015 to tight housing markets like Berlin, but not to the capital's border settlements.

"Beware of glib comparisons from one jurisdiction to another," said Malcolm Combe, a senior law lecturer at the University of Strathclyde, who specialises in tenant-landlord relationships.

"It's not so much that rent controls are always a problem, it's more bad rent controls can lead to bad outputs."

He pointed to Canada as a counterpoint, where analysis of almost 50 years of rent controls by the Canada Mortgage and Housing Corporation (CMHC) in 2020 found that, contrary to expectations, rental supply was not lower in Canadian cities with rent controls than in those without.

Another CMHC study 16 years earlier concluded there was no evidence rent controls led to more accommodation being left in disrepair - but it also noted that in the long term, Canada's controls failed to reduce the rate of rent increases.

Rent controls in the UK

UK governments have "dabbled in rent control many times", said Mr Combe.

They were first introduced in 1915 due to a "perception of landlord profiteering" during the First World War, then relaxed in the interwar years, before being reintroduced in 1939 due to a housing shortage.

They were weakened in 1957, made the jurisdiction of independent rent officers in 1965 and abolished in 1989.

Labour intends to keep it that way.

"We do not support rent controls," said a spokesperson for the Ministry for Housing, Communities and Local Government.

"They always come at a cost, and international examples show they often lead to a reduction in housing supply and lower quality standards."

They said the Renters' Rights Bill will instead "end unfair bidding wars" and abolish no-fault evictions so tenants "will no longer be too frightened to challenge bad behaviour and excessive rent hikes".

Scotland's experiment is, then, the first venture of its kind for more than three decades, Mr Combe said.

The Scottish government started with an emergency freeze on rents for seven months until April 2023 in the post-COVID cost-of-living crisis, before capping rent rises at 3% until 31 March 2024.

The cap was then removed, with tenants since able to challenge rent rises via a tribunal, which calculates the maximum increase using a formula.

Depending on how much cheaper the current rent is than the market rate, increases are effectively capped at either 6% or 12%.

It is not yet clear what cap will be applied when these emergency limits are replaced by the Housing (Scottish) Bill.

"I'd bite a hand off for a 6% rent increase," Falmouth renter Craig said.

"For me, an extra £60 a month is lot of money... I know it's not the big bucks but for somebody on a low income, it is."

Scotland's emergency controls did not apply when landlords entered into a new tenancy contract, said Mr Combe, and they seized the opportunity to increase rents at those intervals.

The new Housing (Scottish) Bill will attempt to link new rent prices to the record of rents previously charged at the property.

"That might be seen as quite a neat way of dealing with that. Whether that works, we'll just have to wait and see," said Mr Combe.

Scotland's housing minister Paul McLennan said: "We are committed to introducing rent controls and the Housing Bill will ensure we can deliver important reforms to the rented sector.

"We will continue to work with tenants, landlords and investors as the bill progresses through parliament to ensure the measures will support the supply and affordability of high-quality rented housing in Scotland."

Amendments will "clearly set out" how rent increases will be capped in areas where rent controls apply, he said.

A distraction from bigger problems?

Timothy Douglas, heady of property and campaigns at estate agents association Propertymark, was less enthusiastic, calling rent controls a "distraction" from more important factors pushing up rents.

He said construction has been delayed and demand exacerbated by a lack of local authority officers and the practice of land banking, where developers don't build on the land they've bought.

Some 93% of small and medium-sized builders have cited delays in securing planning permission as a major barrier to growth, according to a House Builders Association report in January.

Nor is there enough social housing, Mr Douglas said, and tax changes have made letting less appealing.

Sunderland landlord Mr Rowe said one tax modification, Section 24, has "absolutely decimated the rental sector".

Previously, landlords could deduct mortgage interest from their income tax bill, but since 2017 all rental income has been made taxable, before allowing landlords to claim back 20% of mortgage interest costs.

This has pushed some landlords into higher income tax brackets, incentivising them to increase rents to make up the difference.

Back in Falmouth, Craig has written a letter to his landlord asking them to consider spreading the 18.3% hike over a few years, but they have "shown absolutely no remorse at all".

He said he has no chance of getting on the housing ladder and will always be stuck renting, footing the bill for wealthier people's debt.

"I dread to think how many people's mortgages I've paid off in my life," he said.

"People are desperate. They're not going to end up on the street, it's an outgoing they've got to pay... so they [landlords] know they can always put it up and put it up and they'll always have somebody that's going to take it.

"That's the cycle that's got to be broken."

(c) Sky News 2024: Rent control battle comes to Britain - but do they work?