Could rent control be the answer to England’s housing crisis?

Scotland’s government has taken a radical leap towards making rent regulation (aka rent control) permanent after its emergency rent freeze trial.

If the legislation, being proposed by the SNP government in its Housing (Scotland) Bill, passes, it will cap the amount by which landlords can increase rents for existing tenants.

Housing campaigners such as Living Rent Scotland have long argued that rent control is necessary. In England, the renters’ rights and advocacy group Generation Rent celebrated the move.

Its chief executive Ben Twomey said: “Scotland continues to lead the UK in protecting tenants from unfair and unaffordable rent rises.”

The bill proposes to build on legislation introduced in 2016 which allowed local authorities in Scotland to designate “rent pressure zones” and regulate rents accordingly. These were not widely used.

This bill goes further by limiting the amount landlords can hike rent – by 0 per cent – once a council has identified a problem area. In 2016, the limit was RPI plus 1 per cent.

According to recent figures from the Office for National Statistics (ONS), Scotland is experiencing the greatest rent hikes of any UK region.

The data showed that average private rents increased by 10.9 per cent in Scotland last year, compared to 8.8 per cent in England and 9 per cent in Wales.

However, landlords have argued that these rent rises are a consequence of the emergency rent freeze in response to the cost-of-living crisis. They say it limits the supply of properties because some landlords choose to sell up.

The Scottish Association of Landlords (SAL) has criticised the SNP government, saying a move to permanent rent regulation will result in “landlords leaving” the private rental sector” and lead to “higher costs for tenants”.

So, who’s right? Does rent regulation work or not?

The evidence about how effective rent controls are is mixed and this is, in part, because there are no recent long-term studies.

This report from the left-leaning think tank the New Economic Foundation (NEF) illustrates that well. The NEF concluded that new models of rent control, which work for the modern era, need to be developed and that to decide how those models should work – for instance, whether they should be linked to incomes or local rents – more data needs to be collected.

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The truth is that, like cutting stamp duty temporarily, a short-term temporary ban on landlords putting up rents for their tenants can cause a frenzy in the housing market.

Think of how people rushed to take advantage of the temporary stamp duty cuts imposed by then-Chancellor Rishi Sunak during the pandemic.

Similarly, if landlords know rents are being frozen, they are likely to put them up to maximise what they can charge.

So, it’s not completely incorrect to say that Scotland’s rent freeze could have caused rents for new tenancies to rise.

However, that doesn’t mean that those who argue that rent control always makes things worse are right, either. It was a short-term rent freeze, not a comprehensive rent regulation policy.

If rent regulation is properly considered and put in place long term, it would have a different and possibly more stable impact.

Prior to the 1988 Housing Act, introduced by Margaret Thatcher’s government, Britain had national rent controls which were established during the First World War to stop landlords from taking advantage of renters during a national emergency.

That system required “fair rents” to be set by a national rent office and meant that landlords could not increase rents beyond what people could afford.

But Thatcher’s administration wanted to encourage more people to become landlords and banks to lend buy-to-let mortgages, so they scrapped these controls.

In England, the result has been the growth of the private rented sector over the past three decades, which was Thatcher’s intention. But we also have historically high rents which continually outpace both the state support available for low-income renters and wage growth and, therefore, what people who need to rent a home can afford to pay.

Rising rents eat up people’s pay packets, locking hundreds of thousands, possibly even millions of households, out of homeownership because they can’t afford deposits.

Another knock-on effect of this has been rising homelessness as more and more people are evicted and placed in temporary accommodation (costing £1.7bn a year) because there is nowhere they can afford to rent and a growing housing benefit bill (consistently around £20bn a year).

These statistics, alongside Scotland’s embrace of capping what landlords can charge, beg an important question: is rent regulation now one of our only options?

Rent regulation, if properly implemented, could rebalance Britain’s housing market and make renting more affordable and secure. But it wouldn’t come without its downsides. In a world where mortgage rates are volatile and living costs remain higher than before the cost-of-living crisis, landlords could be hard hit.

No harder hit, the likes of Generation Rent would argue, than renters have been in recent years, though.

If landlords leave the rental market because of rent regulation, the homes they own will not disappear. They could be bought by first-time buyers or, even, brought back into state ownership. This has been trialled successfully in some London boroughs with Right to Buy-back schemes.

It’s undoubtedly true that the UK now relies on private landlords to provide housing because homeownership remains unaffordable and there isn’t enough housing to go around.

But whether rent control stifles the housing market is a subjective point. Your opinion on this will depend on whether your economic beliefs are right or left-wing.

As we’ve seen in recent years, a lack of rent regulation stifles private renters who spend more on rent than ever before and, therefore, have less to spend elsewhere in the economy.

When Theresa May was prime minister, it was widely discussed in Westminster that she was warm to the idea of rent regulation if it tackled what she saw as the “burning injustice” of Britain’s housing crisis. So, some Conservatives have also come around to the idea.

Rent regulation is not currently a Labour policy in England and Wales or Scotland.

We don’t yet know exactly how Scotland’s experiment will affect the renting crisis.

Similar measures could still be considered in Westminster to tackle rising homelessness and the associated costs to the state. Because, aside from a rapid programme of social and affordable housebuilding or a government mortgage and homeownership support scheme like Help to Buy 2.0, there aren’t many other levers politicians can pull to give renters a reprieve.

What we do know is this: the current status quo in which rents rise beyond what people can afford is unsustainable.