This is part 1 of a two-post series concerning rent control. In this post, we will discuss what rent control is, why it is currently being discussed and explain England & Wales’s turbulent history with the policy and how it shaped the current housing sector.
What is Rent Control
Rent control is where the Government set a limit or cap on how much a landlord can charge for leasing a property. Rent controls are usually intended to keep rental prices affordable for tenants, especially in areas where property value and demand is high.
Large cities across Europe have rent control such as Paris, Amsterdam and Berlin, all with varying degrees of success. Rent control usually appears in the following ways:
- Capping annual rental increases so that they do not increase beyond a given figure.
- Preventing landlords from increasing rent during a tenancy.
- Creating a rent ceiling or upper limit which specifies the maximum amount the certain properties can be let for.
Why is rent control being discussed?
Rent Controls have become a hot topic within the private rented sector. Sadiq Khan, mayor of London, in the 2021 election pledged to bring in rent controls into London and also argued that this would create a blueprint which he believed would be enacted across the UK.
There is also a substantial call for rent control in Wales as well. Labour and Plaid Cymru in late 2021 have created an informal coalition to push forward on policies which they both agree on. These parties within the private housing sector agree on two crucial points of reform: increased limits on second homes is one such issue and rent control.
However, no plans or legislation as of November 2021 has been put in place in preparation for either policy
In addition, significant pro-tenant groups such as Generation Rent and Shelter have both supported calls for rent controls as a way to deal with the high rental prices in large urban cities such as London and Manchester.
What do Shelter and Generation Rent want?
Generation Rent is a pressure group aimed at championing tenant rights. In a recent article, they have called for rent control, which main features would include:
- Affordability – the maximum rent would be calculated along council tax bands, with a monthly maximum rent amounting to half of the annual council tax band for a home.
- Transparency – the cap would be based on understood property values and would be set by local authorities, accountable to residents who may want to argue for different limits.
- Flexibility – the calculation above would not be an absolute cap. Landlords would be free to charge rents over and above the limit set, but all rent charged above that level would be subject to a 50% surcharge;
- Fairness – all the proceeds from the surcharge would go into a ring-fenced fund for social house building, therefore ensuring the profits from private renting help alleviate the housing crisis.
In addition to this, Generation Rent would like to see rent frozen during tenancies also.
Shelter on the other hand as an organisation do not have a manifesto and have not openly called for rent control, but have supported and championed rent control campaigns such as in Bristol.
On the whole, Shelter see rent control as part of a larger package to target housing reforms in the UK. Shelter do call for rent control in areas of high demand, but admit that it will not fix the crisis by itself. Shelter are calling for rent control that sits alongside long-term investment in building more social homes and lifting Local Housing Allowance rates to make renting less expensive.
History of Rent Control
Rent control has had a long history with the UK. Rent control was first introduced as a necessity to help with the first world war in 1915.
At this point, around 90% of properties were privately rented, a much larger sector than it is today. Due to the war, the Government needed a way to create affordability in renting properties, as many people migrated to join the war effort, working in large factories in urban hubs such as Birmingham and Liverpool. The Government introduced rent caps as they did not want anyone profiteering during the war. This led to the introduction of the Rent and Mortgage Interest Act 1915.
The rent control policy continued and was a factor in the decline of the rental market up until the 1980s. Between the 1920s, up until the 1970s, social housing became much more prevalent, as people who could not afford to rent were given homes built by the council at a low rent. Social housing overtook private rented accommodation in a variety of different ways.
Firstly, the rent caps naturally reduced house prices, making it a less attractive proposition to investors. This led to a lack of external investments meaning the supply to build these houses became less. In addition, the demand for private rented accommodation also became less as more people moved into social housing. From around 90% of all properties being privately rented at the start of the 20th century, this dropped to around 10% by 1991.
Then entered Margaret Thatcher.
Mrs Thatcher attempted to rejuvenate the private rented sector. The introduction of the Housing Act 1980, which brought about assured shorthold tenancies as well as the ‘right to buy’ policy completely transformed the sector. One of the notable policies within the act was that it took away rent control.
Put simply, the buy to let policy allowed roughly five million council house tenants from England and Wales the opportunity to buy their council house from their local authorities. This was supported by tax incentives and low mortgage rates meaning that it was relatively easy for people to buy their own homes.
This changed the landscape of the English and Welsh housing sector overnight. This was later combined with the 1988 Housing Act, which shifted the power dynamic between landlords and tenants. The act made it easier to remove tenants (with section 8 and 21 notices which are still used today) as well as the introduction of assured shorthold tenancies.
This created economic advantages to buying and letting out a property, which was far greater than previous legislation allowed. While other factors, such as a declining supply of social housing being built, led to more properties within the private rented sector than in social housing.
During this period, home-ownership grew from 55% of the population in 1980 to 64% in 1987. By the time Margaret Thatcher left office in 1990, it was 67%. One and a half million council houses had been sold by 1990, by 1995 it was 2.1 million.
This leads us to the present day situation within the private rented sector. Save for limited control over rents which are increased by notice (s13 Housing Act 1988) the only tenancies that still have any real rental control are Rent Act 1977 tenancies. Rent Act tenancies or protected tenancies are tenancies that first started before 15th January 1989. With these tenancies, the tenant has the right to apply for a ‘fair rent’ which is set by a ‘rent officer’.
The current system of (in the main) no control has led to landlords in areas of high demand, such as London being able to demand increasing sums of money.
Homelet performs a report called the average rental index which shows the average rental price for a new tenancy in the UK. In October 2021, the average rental price for the UK excluding London was £888. London is currently priced at £1,759. ONS figures reveal that typical Londoners are spending 38% of their income on rent, compared to the national average of 23%.
Despite Sadiq Khan, alongside tenant organisations such as Generation Rent and Shelter all recently supporting some form of rent control policy, it is unlikely to become established in any legislation soon. The current Government have no plans to put forward any rent control policies, despite the planned Renter’s Reform bill that will supposedly reform the current private rented sector and which is set to be published (in White paper form) in early 2022.
Furthermore, Sadiq Khan as at the time of writing does not have the power to introduce a rent control policy in London.
In part two of the series, we will be discussing why rent control is not favoured by economists as a long term policy in reducing rental prices as well as having a look at examples of current rent control policies in other countries and how successful they have been.