Our first members' Policy Assembly in April identified housing as a key policy area for Mainstream, and in July we ran two debates about rent controls, among MPs and party members, with speakers from the Joseph Rowntree Foundation (JRF) and Centre for British Progress (CBP).
Below is a quick summary of the arguments.
The case for
- It is in the private rented sector that the greatest housing poverty is experienced. Private rents have risen from around 11% of incomes in 1980, to around 30% in 2020. By 2025 in London, average private sector rents are 46% of income.
- The poorest 30% of renters are paying over 60% of their income in rent. 70% of private renters were in poverty after paying their rent.
- 2 million private renters get no universal credit or benefits, and since the ‘local housing allowance’ element of benefits has been frozen, even those on benefits are using the food and subsistence element of their payments to meet rising rents. But constantly uprating the local housing allowance would increase the government's benefit bill.
- As rents constantly rise, government has to pay more and more in benefits which goes to private landlords. And, for most although not all landlords, the profit from renting is higher than they would get from other comparable investments - so called ‘supernormal’ returns.
- Private renting has risen to 20% of all housing, as the share of housing in owner occupation or social housing has fallen. Much of what was social housing is now privately rented.
- So, rent controls would reduce the cost of living crisis for many of the poorest households - JRF modelling suggests modest controls would save renters £1200 a year, and in doing so would reduce the government's benefits bill by £600m.
The case against
However, the left has been very cautious about the policy of rent controls because of possible downsides:
- If private renting became less profitable, many landlords are expected to exit the sector, creating a shortage of housing to rent.
- Any drop in profitability would impact on housebuilding, since developers are often building housing for private rent.
- Rent controls create a divide between ‘insiders’, those already in rented housing, who would gain, and ‘outsiders’, those who are searching for housing, who would find it harder and harder to get housing.
- The ‘outsiders’ are often those who are most vulnerable or have the lowest incomes - new arrivals in the UK, refugees, young people starting out for the first time.
- It could distort the market - so that being ‘in the know’ and able to access housing was limited to certain sorts of households.
Mitigations
In discussion we explored a number of possible mitigations that might make the downsides of rent controls less problematic than they have been in some other cities…
- For most landlords, especially those without mortgages, renting out property brings in a significantly higher profit than other forms of investment and therefore even if rents increased more slowly, this might still be the most profitable option
- If tax changes for landlords were introduced at the same time, including tax relief on mortgages, and applying National Insurance Contributions, it would shift the tax burden away from landlords making slimmer profits towards those with larger portfolios, indeed JRF modelling suggests that with tax reforms alongside modest rent controls fewer landlords would run a negative return on income than the current system.
- If councils were able to buy up properties when private landlords wanted to exit, this would keep the number of rented properties stable. 40% of recent additional council homes have been bought from the private sector – and councils should be able to invest in this way – but may need government help to do so. It might be possible to fund the acquisition of homes from the private rented sector outside government borrowing limits – this could be explored.
- If a major expansion of council and social house building happened at the same time as rent controls, this would limit the effect of any shortage of supply.
- If new build housing was exempt from rent control, this would lessen any impact on housebuilding.
- If the rent controls applied both to in-tenancy and between tenancies, this would reduce distortions in the housing market.
- If rent controls were cautious and kept under review (JRF suggest CPI within tenancies and CPI +2% between tenancies ) this would limit any of the potential impacts.
Next steps
Mainstream takes a position on key policy issues in partnership with our members. Over the coming months, we'll be continuing to survey the position of our members on rent controls and other potential policy interventions, with guidance from experts across civil society.
