While legislation to regulate rent increases has been in place in Scotland for more than a decade, Westminster governments have proven remarkably resilient in their opposition to going down this route. Private rents in England are, of course, indirectly influenced by the level of Local Housing Allowances and there is a declining subsector still subject to regulation under the 1977 Rent Act, but calls to (re)introduce direct rent regulation to restrain rapidly rising rents and improve affordability have so far been rebuffed. 

Yet, pressure to act directly on rents continues to build. A recent crop of think tank reports have all made the case for action, although the actions they advocate differ in their extent and focus. Reports from the Joseph Rowntree Foundation, Institute for Public Policy Research, New Economics Foundation, and the Institute for Innovation and Public Purpose have all made the case that affordability pressures in the private rented sector are so acute, and other policy options not sufficiently effective or expeditious, that direct intervention on rent levels and/or rent increases is necessary, if not already overdue.

What is being advocated? 

In the last few months, we have seen four substantive sets of proposals for rent control in England. There are, we believe, more to follow soon. Each is a significant document offering many arguments, details and forms of evidence. Here we simply highlight the key points we take from each. The reports share many similarities, but there are also key differences in the details. 

The Joseph Rowntree Foundation paper argues for a control on existing (CPI) and between tenancy (CPI & 2%) rent increases but also proposes to reform tax rates in a balanced way by both reinstating full mortgage interest tax relief for unincorporated landlords and NICs on rental income. The effect of rent control is estimated to be mitigated for those landlords with mortgages in such a way as to maintain, but restrain, profitability. Much of this turns on the JRF’s analysis of the level of supernormal profit being made by private landlords – a topic we believe needs further research and analysis. 

The Institute for Public Policy Research study identifies the critical role of the quality of rent control policy design, including identifying examples of what they see as bad and good practice. The lesson they draw from this for private rent reform in England is that the policy should be ‘double-locked’ by linking rents to both CPI and wage growth nationally both within and between tenancies. A key element will be the new private renter database, as well as greater regulation of short term lets, limited exemptions for major refurbishments and time-limited exemptions for new build housing. 

The New Economics Foundation propose a holistic set of policies to tackle high rents now and develop a longer-term approach as well, both of which complement housing policies already underway by the Labour government. They would introduce an immediate national ‘rent brake’ (the lower of CPI or 2%) for existing and vacant tenancies. In the longer term they wish to develop a new form of fair rents model, develop fair rent pilots, extend the national landlords register to collect relevant data, and would consider exemptions e.g. for new build homes. 

The Institute for Innovation and Public Purpose is the most recently published study. They would also freeze rents immediately and controls would apply to existing and between tenancies. They include a number of proposals for action on landlord exit including supporting tenants with first refusal to purchase and acquisition to move properties into social housing, while also increasing capital gains tax on those disposals. While they don’t provide a detailed model of long-term rent control they do estimate the consequences of reducing rents by 10% or 20%.   

How has policy design been approached? 

There is a vast critical literature on rent control policy, which is sceptical of its desirability on both theoretical and empirical grounds. We have argued previously that the received wisdom on rent control is too emphatically negative and that its effects are both highly contextual and depend on policy design. Nonetheless, it is a policy to be approached with caution. 

The authors of these recent reports are clearly aware that rent control regimes have historically tended to have a range of negative effects, and that the bulk of the economic literature is not supportive. As a consequence, anyone arguing in favour of rent regulation is starting on the back foot. The reports therefore refer to the need to avoid the poor design evident in previous regimes. This includes reference to the recent unfortunate experiences around the post-Covid temporary rent freeze in Scotland. The need to recognise policy effects are shaped by housing market context is also acknowledged. Similarly, policy to control rents needs to be understood in the context of the overall policy portfolio, including any complementary policy changes.  

Even then, it is important to differentiate short- and long-term effects and to consider whether policy design should be as a short-term emergency intervention, a longer-term regulatory structure, or both. Some of the reports explicitly draw this distinction and offer different prescriptions for the different time frames, albeit while rightly arguing the two elements need to be designed to integrate for an effective transition. Others are more focussed upon establishing new regulatory structures for the long-term. 

The reports draw the boundaries of their analysis in different places. While some of the analysis is relatively narrowly focused upon landlord business models, profitability, and the impact of regulation and tax upon landlord revenues and returns, elsewhere the boundary is drawn more expansively to consider broader policy adjustments and changes to mitigate the risk of unintended and undesirable secondary policy effects. This reflects the fact that some of the analytical approaches are more systemic than others. Consequently, authors are looking for leverage points to influence the housing system in different locations: while some focus on the details of design that will influence landlord decision-making directly, others draw attention to, for example, the effect of the liberalisation of the financial system in shaping the functioning of the market over the last forty years. 

There are also attempts to justify proposals by highlighting examples of similar policies already in operation elsewhere. This may be reference to broad regimes of rent regulation – for example, systems in Ireland, France, Germany, Spain and Scotland are discussed briefly by NEF. Or it could be to identify more specific policy instruments. This tactic is used most extensively by IIPP, who point to an eclectic mix of policies drawn from, among others, San Francisco, New York, France and Portugal. This certainly demonstrates that policies of the proposed type exist and hence refutes any unqualified argument that such policies are not feasible. But, quite apart from the question of whether they can be successfully translated to England, it leaves unexplored how well the policies sit within the institutional matrix of their original context and whether they are effective.  

The behavioural response 

The simplest version of rent control is a nominal rent freeze – so-called ‘first generation’ rent control. Any alternative policy design typically seeks to mitigate the perverse incentives created by first generation rent controls. But they do so at the cost of creating more complex and less easily understood regulatory mechanisms. 

At first sight, a key idea underpinning much of the recent discussion appears to be that any new rent regulation regime should attempt to improve affordability for tenants while, as far as possible, maintaining profitability for landlords. This is intended to mitigate the risk of landlord exit from the market. This is clearest in the proposals from JRF. 

The premise of this approach is that landlord decision-making is influenced by the detail of policy design: if we get the details right then we can improve affordability without disincentivising landlords’ market participation. Landlords’ business models will be able to absorb new regulations and continue to be profitable, albeit most likely less so than previously.  

Yet, we might pause to reflect on whether this premise is correct. 

An alternative possibility is that landlords’ behaviour is primarily influenced by principles rather than details. That is, if landlords object to rent control in principle then the proposal to introduce it will lead to landlord exit. The details don’t matter.  

It may also be that landlords’ apparent reaction to rent control could appear disproportionate because it is not simply a reaction to new price regulations but a reaction to new price regulation that closely follow on from an increase in non-price regulation as a result of the Renters’ Rights Act, and the knowledge that there is more non-price regulation to come in 2027. It would be the cumulative regulatory burden that is being judged as too great. 

There is also a question of trust in government. Even if careful design work leads to a rent control mechanism that does not impair landlords’ business models unduly, should landlords assume that the mechanism will continue to be so accommodating? Or do they assume that once a rent control mechanism has been established governments will be tempted to tighten the cap or strengthen the regulation? If so, then conceding the principle is “the thin end of the wedge” and will be resisted. Implementing the policy would trigger apparently “irrational” exit foregoing profitable opportunities. 

Another way to think about this is to ask whether landlords’ decisions are driven primarily by rationality or legitimacy. It would be unwise to conclude that the answer, across the heterogenous landlord population as a whole, is one or the other. But evidence that would allow us to say more than that is not as extensive as we might like. 

The conditions for policy success 

There is plenty to say about the conditions that will need to obtain for rent control policy to succeed. We will restrict ourselves to three observations.  

First, some of the proposals rest – implicitly or explicitly – on the implementation of the government’s national PRS database, which is due to become active in the coming months. Any system which relies upon average local contracted rents as an input into rent setting needs access to a high-quality source of current rent data. Appropriately configured, the national database could collect this information. While this appears a promising resource in principle, we must recognise that landlord compliance with the database is likely to be patchy at first and, if experience in other jurisdictions is anything to go by, also in the long-term. This will undermine data quality and, as a consequence, the legitimacy of the system. 

Second, some of the more elaborate proposed designs – for example, adjusting corporation tax discounts in order to shape incentives for landlords and thereby control the rate of outflow from the sector – rest on assumptions about government’s ability to calibrate the settings on policy instruments to deliver desired social outcomes. We would argue that there is limited evidence that government can exercise this type of fine-grained control over the housing market, at least in the UK. The scope for mitigating unwanted secondary effects may therefore be more constrained than implied. 

Third, rent control can appeal to politicians because it appears to be “cost free” in the short-term: it is a direct income transfer from landlord to tenant. It may even save public money in reduced housing allowances. Most proposals for complementary policy, in contrast, will require potentially significant public spending under different headings. It is a positive development, and represents more robust policy thinking, that the recent reports contain some careful and more holistic discussions of the changing balance and patterns of required expenditure. But that doesn’t mean government will be inclined to embrace the full package. Given the broader fiscal position, the temptation to introduce rent control without adequate mitigations could be considerable. 

The bigger picture 

One of the issues that has yet to come into clear focus in this discussion is the nature of the vision for the housing market, and its relation with the non-market sector: what does good look like? Is it a problem if, for example, small landlords leave the private rented sector because rent controls are proposed or implemented? If this leads to a marginal increase in industrial concentration and a genuine increase in professionalism among landlords then perhaps not. If landlords leave the market and the PRS shrinks, is that a problem? It depends on what we think the appropriate role for the PRS is in the contemporary market. The ‘right’ size for the sector might be considerably smaller than it currently is.

The recent reports on rent control try to tread a line between seeking to mitigate the risk of landlord exit and arguing that landlord exit isn’t necessarily a problem if the objective is genuine affordability. Indeed, there are proposals for complementary policy changes such as tenant or local authority first refusal on landlord sales that will have the effect of reducing the size of the PRS. Some are explicit that tenure conversion away from private renting is a desirable policy goal. Yet, the political imperative not unduly to upset landlords, the key stakeholder, is clear. But the absence of clarity makes evaluating the wisdom of policy proposals more difficult. This vagueness regarding the desired end state for the housing system is, we have argued elsewhere, a more general problem in English housing policy.

The issue of the moment 

For decades England has been treated as something of an exception in the discussion of rent control. Policy in many other countries or cities around the world has been moving in the direction of greater control of rents over the last decade. But the highly liberalised housing market in England seemed immune. That situation has changed dramatically. Rent control has moved, over a relatively short period, from being completely off the table to forming the centrepiece of the housing policy debate. We have recently seen several thoughtful contributions to that debate. And no doubt there are more to come.

There is clearly momentum behind the advocacy for greater rent regulation, but it would be unwise to ignore the challenges, uncertainties and risks inherent in pursuing this policy direction. That isn’t an argument against exploring the issues, or, indeed, against greater rent regulation. But it an argument against incautious advocacy of rent control as the solution to the problem of lack of rental affordability.

This article was originally published on the UK Collaborative Centre for Housing Evidence website.