What Do Rent Controls Actually Mean?

Labour has pledged rent controls for private tenants if elected. But how would they work, and would there be any side-effects?
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The housing market of decades past is long gone, and where the majority of adults would have once managed to afford their own home, 2017 figures show 4.5m of us now rent.

There might be some benefits to renting, but widely it’s seen as a pretty thankless aspect of modern living – with huge chunks of our monthly salaries now destined for landlords’ bank accounts and no investment at the end of it.

The problem isn’t just the cost of renting – it’s the insecurity of tenant contracts and major problems with the state of the properties themselves that are causing huge problems for tenants.

With headlines about the housing crisis looming large, it’s unsurprising that the roofs over our heads have become a major issue in the upcoming December election.

The Tories have announced plans to get rid of “no fault’ evictions while the Lib Dems said they would introduce a Help to Rent loan for all first-time renters aged 30 and under in a bid to tackle the issue of high deposit costs.

Meanwhile, the Labour Party has answered the calls of groups such as Generation Rent, Shelter, and London Renter’s Union to bring in rent controls – alongside measures such as making sure landlords keep their properties maintained to an acceptable standard and introducing “open-ended tenancies”.

Rent controls hit UK headlines earlier this year when London mayor Sadiq Khan called for tighter regulations, and they’re used widely across some of Europe and the US’ major cities, so there’s good chance you’ve heard of rent control in the past.

But it’s also likely most people don’t have much of an idea about the nitty-gritty of what rent regulation actually means.

We get it, we’re all busy – so here’s a quick guide to the basics:

So, what are rental controls?

In a nutshell, rent controls are limits put on the amount landlords can charge.

They can take various different forms – whether that’s putting a cap on the rent itself such as making sure prices don’t rise above the rate of inflation, or freezing the cost of renting altogether.

At the moment prices can sometimes rise during a tenancy – for example, when the original contract period ends after a year – but another form of rent control could make it harder for landlords to do this.

What are rent controls, and what could they mean for tenants in the UK?
What are rent controls, and what could they mean for tenants in the UK?
VictorHuang via Getty Images

Do they exist anywhere else?

Yes – rent controls have been used on-and-off for decades and in the west, which has seen a widespread rise in the cost of renting, new regulations have become more fashionable.

The UK even has experience with rent controls, albeit quite some time ago. The early 20th century saw a rise and fall in the type and severity of regulations, with complete control imposed during the Second World War and the following years, when thousands of households were recovering from the Blitz and coping with a lack of materials.

In 2019, Germany – where just 51% of people own their home – has become a popular point of reference when it comes to discussing rent control.

The BBC reports that, under new rules introduced in 2015, landlords with properties in 313 of the 11,000 towns and cities in Germany (home to about a quarter of the population including Berlin and Munich) are banned from setting rents more than 10% above the local average from the preceding four years.

Researchers at the German Institute for Economic Research (DIW) found that the measures had improved housing issues in some areas of Germany, such as parts of Berlin, which had seen the most significant jumps in rental costs with rises of at least 4% across each of the previous four years.

However, in other areas where rents had not risen so dramatically, the scheme had proven to be less of a success.

A study published in 2018 by American economists at Stanford University found that rent controls imposed in San Francisco in the 1990s had improved conditions for older, better-established renters – especially those from minority backgrounds – and had helped them stay in one property for significantly longer than they would have done on average otherwise.

Researchers also found that, financially, rent control hugely benefited tenants, who found themselves between $2,300 (ÂŁ1,796) and $6,600 (ÂŁ5,127) better off per person, per year between 1995 and 2012, against a 5.1% rise in rental prices across the city.

However, it was revealed that young people trying to gain access to the rental market in the Californian city for the first time struggled to find homes due to a lack of available stock.

Why do people want them?

In many parts of the country the prince of renting has risen significantly in recent years. For many people, it’s more expensive to rent than ever before.

If we were all being paid more, it wouldn’t be such a problem – but the issue is we aren’t. Wages are rising, slowly, but not quickly enough to keep up with the cost of renting.

According to the most recent ONS figures, published earlier this month, private rental prices across the UK as a whole increased by 8.1% between January 2015 and October 2019. In some areas prices didn’t rise that much, but in others – especially in some cities – they rose much more.

Meanwhile, many more people now rent than did in the past. Figures released in 2017 show that the number of households in the private rented sector in the UK increased from 2.8m in 2007 to 4.5m in 2017, an increase of 1.7m (63%) households.

While people across all demographics rent, this gap between how much rent costs and how much we can afford hits young people the hardest – in 2017 those in the 25-to-34 age group represented the largest group (35%).

Young people are being priced out of the areas they want to live in and, in some cases, the communities they grew up in.

Sky-high rents are also making it near-impossible for many people in this exact age bracket to save for a mortgage deposit.

What could the change mean for tenants?

The primary benefit is pretty simple – more affordable rents.

A change in policy could bring an end to situations where tenants pay out more than half their wages on rent, and could stop people being priced out of the areas they want to live or where they grew up.

Lower rents, or at least tenancies at a price that doesn’t outstrip wages, would also mean that more tenants – especially young people – will be able to put more into their savings accounts and eventually buy a house of their own.

At the moment, some renters see an increase in the price of their rent mid-tenancy, or have to deal with a big jump in costs when their contract rolls over into another year.

Rent controls could bring this to an end, sparing the tenants the anxiety around not knowing how much their rent could increase and whether or not they’ll be forced to find a new home they can actually afford.

That’s not to say tenants will always be happy about rent controls, however.

While renters might initially celebrate rent controls, a recent article in the Economist – drawing on examples such as Stockholm and San Francisco – claimed that increased regulation could lead to a shortage of housing supply.

With capped rents, there could be less incentive to build new properties, and tenants could stay put for much longer than they do at the moment, squeezing out younger renters.

It could also mean that someone’s living situation might not necessarily reflect their lifestyle particularly well, and someone who might be better suited to the home could be unable to access it. For example, if a tenant had a great deal in their current property but it was a long way from work, they might still be more likely to stay than to risk finding a new home.

It’s claimed tenants could also see the standards of their homes fall, as landlords could see less incentive in renovating properties. At the moment some landlords carry out work in their properties almost solely to increase the price of rent, and there have been cases in which tenants have been knowingly forced out by this supposed increase in value.

While it would largely be considered a good thing that this could no longer happen, it could mean some renters are trapped in gradually decaying properties – unless legislation is brought in to stop that, too, which it could be.

Of course, the types of rent controls that are enforced will ultimately shape a changing private rental market, and while other some cities have seen difficulties it doesn’t mean we could those situations play out in the UK.

How could landlords be affected?

It probably won’t come as a surprise that many landlords aren’t particularly keen on the idea of rent controls – after all, introducing a cap could well lead to their profits taking a dip.

When Sadiq Khan ignited a discussion earlier this year about rent controls in London, which has the highest average rents in the UK, the National Landlords Association (NLA) said that “artificially suppressing rents [...] would be counterproductive” and would fail to address the real reasons behind a lack of affordable housing.

It said rent controls could “stifle” housing supply, and reduce the money available to a landlord to maintain their properties.

The NLA has also said rent controls could remove the incentive for landlords to buy new properties as buy-to-let homes, leading to a compounded shortage in housing supply.

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