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Guidance on responding to the Fair Rents consultation for Wales

Introduction

The Welsh Government is seeking the views of landlords operating in Wales in its new consultation on ‘fair rents and the right to adequate housing’. The NRLA is responding to the consultation, but members are strongly encouraged to submit their own responses as well to explain how the proposals would affect them.

Of the two elements considered in the consultation, ‘fair rents’ (rent controls) are likely to be of particular concern for landlords, especially given the ongoing challenges associated with rising costs and ensuring compliance with the Renting Homes (Wales) Act.

The NRLA is firmly opposed to the introduction of rent controls in Wales. We believe that, ultimately, rent controls harm tenants more than they help them by reducing the available supply of homes and trapping tenants in unsuitable homes as their circumstances change.

Given that landlords do not generally increase rents during a tenancy, rent controls may also, perversely, lead to rents increasing faster in Wales. Landlords will feel compelled to raise rents annually to ensure they are protected against price shocks in the future.

 It is important to note that the consultation is a ‘green paper’ which means the Welsh Government is not committed to taking these proposals forward – it is simply seeking feedback on them. By making your voice heard and demonstrating what impact the proposals are likely to have on the private rented sector in Wales, you greatly reduce the chance that rent controls will be adopted in Wales in the future.

Guidance on responding to this consultation

The consultation is made up of several questions, but you do not have to address every single one of them, and you can answer multiple questions within one answer. Set out below are some of the key issues that you may wish to refer to in your response.

Responding to consultations can be time-consuming, but it is imperative that the Welsh Government recognises the likely detrimental consequences of the introduction of rent controls. The more responses the Welsh Government receives outlining these, the less likely it is to proceed with such a flawed policy, particularly when the sector is still adjusting after the biggest change to legislation in nearly forty years.

Responses should be submitted via the options at link below by September 15th. 
 

Respond to the consultation here

Questions 1-4: the right to adequate housing

We are primarily concerned with the proposals on ‘fair rents’, however the consultation also considers adequacy of housing. The questions here focus on the seven factors of adequacy which have been identified by the United Nations, and asks whether these should form the basis of assessing housing adequacy in Wales. If they do, how can they be monitored? And what other considerations and implications are there in the delivery of these seven factors.

The 7 factors are:

  • Security of Tenure
  • Availability of services, materials, facilities and infrastructure
  • Affordability
  • Habitability
  • Accessibility
  • Location
  • Cultural Inadequacy

They are explored in some detail in the early parts of the consultation. 

We have no particular recommendations on responding to these questions as more detail would need to be forthcoming on how these aspirations could be measurable. You may leave these questions blank unless you have an opinion on the aspirations set out in this section.
 

Questions 5 to 9- affordable rents

Q5 and 6 - defining fair rents

Questions 5 and 6 of the consultation ask respondents to consider whether they agree with using a wider definition of ‘fair’ which is fair to all parties, and what should be considered when defining what a ‘fair rent’ means, to avoid unintended consequences.

It is encouraging that the consultation makes specific reference to the rent being fair for all parties, but it is notable that the consultation does not outline how a rent could be fair for landlords and tenants. Implicitly, the suggestion is that rent control measures are the solution to achieving a fair rent, but it is arguable that this is the case. 

For these questions, we recommend making the point that most landlords already set a rent that is fair and affordable to the tenants. Interfering with this by setting limitations on rent increases may, perversely, lead to higher rent increases in the future. 

To support this argument, you can point to ONS statistics which show that rent inflation in Wales is typically much lower than the UK average. In fact, rent inflation is lower than would be allowed under the proposals in the Green Paper. 

 

Grt Britain

England

Wales

Scotland

CPI (UK)

Average annual rent/price
 growth to Jan 2023

Jan-11

2.1%

2.1%

1.2%

1.4%

2.7%

Jan-12

2.0%

2.0%

1.2%

1.4%

2.7%

Jan-13

1.9%

2.0%

1.2%

1.4%

2.7%

Jan-14

2.0%

2.0%

1.3%

1.4%

2.8%

Jan-15

2.0%

2.0%

1.4%

1.3%

3.1%

Jan-16

1.9%

1.9%

1.6%

1.4%

3.5%

Jan-17

1.9%

1.9%

1.7%

1.6%

3.7%

Jan-18

2.0%

2.0%

1.8%

1.9%

3.9%

Jan-19

2.3%

2.3%

2.0%

2.1%

4.4%

Jan-20

2.5%

2.5%

2.3%

2.7%

5.3%

Jan-21

3.2%

3.1%

2.6%

3.5%

7.7%

Jan-22

4.3%

4.3%

3.9%

4.5%

10.0%

Jan-23

--

--

--

--

--

This shows that the gap between average rents in Wales and the average in Great Britain is actually widening. For more information on this, see our research blog on the topic.  

As an unintended consequence, should rent controls be introduced, landlords may also feel compelled to raise rents annually. Typically, this is not the case. A tenant survey performed for the NRLA, found that just 16% of tenants experienced annual rent rises in normal times. 

Q7 and 8 - defining low incomes

Question 7 and 8 of the consultation asks respondents how low incomes should be defined, and what considerations should be taken into account when assessing affordability. In particular, it asks whether respondents agree that the use of 30% of a household’s income as a definition for affordable housing is an appropriate one or not.

We recommend responding to these questions by stating that the industry standard already uses 30% of the tenants’ income as a measure of whether a tenant can afford the property. However, the industry standard is more flexible than the one implied by the green paper, as it is the individual tenant’s ability to pay that is being assessed, not overall rents in an area. 

The cruder measure of affordability proposed by the paper would be to assess rents based on 30% of the income of the lowest income group, not the individual tenant’s ability to pay. 

Should rents be linked to this measure in the future it would likely lead to a reduction in the quality and standards for the majority of tenants in Wales who can afford their current rents. It would also likely lead to a number of landlords choosing to exit the sector as their typical costs would exceed the acceptable rent (use examples from your own portfolio to supplement this argument).

What we would propose instead is that the affordability criteria set out in the paper be used to identify where targeted financial support is needed for the those with the lowest income. It is notable that nearly half of social renters spend more than 30% of their income on rent, a much higher proportion than the private rented sector (see paragraph 1.28 of the consultation). This reflects the inadequacies of the current local housing allowance payments. The Welsh Government should focus on addressing the inadequacy of this support rather than linking rent levels to this measure.

Q9 any other matters

Question 9 asks respondents to put forward any other data or evidence which has not been considered thus far. 

Landlords may wish to signpost to research such as -

These provide evidence that rent controls are barriers to mobility, reduced the supply of homes, and led to higher rents than may have otherwise occurred. All of which would have significant negative impacts on those tenants with the lowest incomes.

In addition, you may wish to point out that since the possibility of rent controls were introduced in Scotland, it has had the highest annual inflation of the UK nations. This suggests that rent controls ultimately harm more than they help.
 

Questions 10-11 - data collection

Question 10 and 11 considers whether better data on incomes and affordability is necessary to inform policy, and how to obtain this data and what data should be captured.

We recommend you support NRLA calls for an establishment of a Welsh equivalent of the English housing survey, to collect this type of data and more. The more data can inform policy development, the more likely it is that the policy will not end up harming those it is supposed to help.

Much of the data available on the PRS is built on English data. Given the introduction of Renting Homes (Wales) and the unique challenges faced in Wales, it is vital that the Welsh Government is using appropriate and accurate data to design policy and ensure this. 

Question 12 - other considerations

Question 12 asks ‘are there other considerations and potential impacts (including other data sources) you wish to highlight in regard to the current and future private rental market?’

This question represents your opportunity to discuss the impact of the Renting Homes (Wales) Act on the current and future market in Wales. You may wish to point to the recent possession statistics in Wales as evidence of the dangers of significant policy changes at a time where landlord confidence is very low.

To support this argument, you could also point to the NRLA’s landlord confidence index to support the argument that the Welsh government should be looking to incentivise landlords to stay in the sector as well as enticing more entrants into the PRS in Wales. 

You may also wish to point to BPF’s research into the Scottish experience, where they found that rent controls had created an environment that investors were unwilling to enter, despite record demand for properties and an ongoing shortage of rental properties.
 

Respond to the consultation here

Questions 13-16 - how should rent data be captured?

Questions 13 – 16 are asking about how  rent data should be collected, and the potential role of rent officers in relation to that. The consultation also asks whether this should just be a requirement for larger landlords and whether there should be an enforcement mechanism for this.

In your answer you may want to consider whether sharing up to date information on rents with the VOA (the rent officer) may lead to more accurate figures on rent in the private rented sector. 

While we know from our own research that most landlords do not raise rents in tenancy, resetting the rent to market rate at the start of a new tenancy is relatively common. 

Due to this, arguments for rent controls often sensationalise the true cost of renting by focusing on the rent for new properties only. This leads to a distorted picture on rent rises. 

In answering these questions, you may want to suggest that landlords should only have to provide information on rent levels at the start of a tenancy and when the rent level changes. This would reduce the necessary administrative work to when it was needed.

Questions 17-21 - rent controls

Rent controls in differing forms have been implemented around the world, with varying results. There is in fact much evidence to suggest that rent controls do not effectively achieve their aims in the long-term.

We can divide rent controls into 3 types, or generations, of rent control:

  • First generation rent controls are those which control the level at which rent can be set from the outset of the letting.
  • Second generation rent controls are those which control the rent increases after the initial letting. Moderated rent increases are allowable.
  • Third generation rent controls are those which control the rent increases within each letting. Rents also tend to reset at or around market levels between lettings.

As a general rule, first and second generation rent controls are significantly more impactful on supply and the quality of homes than the lighter touch third generation controls.

The consultation sets out potential examples for each for you to consider. 
 

Question 17  - the advantages and disadvantages of the different types of rent controls

Question 17 has particular regard to the advantages and disadvantages of the three generations of rent controls.

Respondents can point to the examples such as Scotland and the change in landlord behaviour as a result of rent control measures leading to larger increases in rent than tenants would otherwise have faced.

In particular, you may want to make the point that all forms of rent controls would reduce supply in the private rented sector. You may want to point to research performed for Shelter in this area, which found that, even in the best-case scenario (third generation controls) 40% of landlords would look to reduce their investment in the PRS. In the worst-case scenario (first generation rent caps on maximum rents), four in five landlords would choose to reduce their investment in the sector, with 45% of landlords intending to sell their entire portfolio.

Similarly, you could point to research by the Scottish Landlords Association which found 61% of now intended to sell their properties following the introduction of rent controls in Scotland. Notably, rent controls in Scotland only prevent in tenancy rent rises, suggesting that even third generation rent controls can have potentially disastrous consequences for supply. 

Finally, you can also point to research from the Chartered Institute of Housing where 41-60% of landlords in Northern Ireland would quit the market if rents were frozen or cut.
 

Questions 18-20 - who, what and how?

Questions 18, 19 and 20 broadly cover the who, what, and how of rent controls. If measures were introduced, what factors should be looked at to determine if rent controls should apply in an area, who should determine whether to introduce them, and how would the compliance with these measures be enforced?

In this answer we would suggest that you keep the answer simple and broadly reject the idea of implementing rent controls at all. Should you wish, you could propose reintroducing the  ability to challenge above market rate rent rises. This existed prior to the Renting Homes (Wales) Act when a landlord used a Section 13 notice. 

Question 21 - views on the example rent control options

Question 21 asks for any other views on the models for rent control measures presented in the paper. It is likely that, given the evidence against the measures, many landlords will not have a positive view of rent controls. We encourage landlords to make reference to the evidence given alongside the consultation and that we have provided on this page to express their concerns here.

In this answer, it would be a good place to share how you would respond to each of the models being introduced. You may want to consider how these proposals would impact your ability to make energy efficiency improvements, how it would affect your current approach to rent increases and how you would approach credit checks following the introduction of rent controls.

You may want to make the point that introducing a policy of rent controls without sufficient data about why tenants leave the sector, impact of the RHWA, or analysis of landlords’ reactions to rent controls of differing types is unwise.

In the Welsh Government’s briefing paper accompanying this consultation, reference is made to the NRLA’s own shadow white paper from 2022. To repeat our own message from that report, there is a considerable body of independent evidence that demonstrates rent controls simply do not work in achieving their desired result.

Rent controls have been proven to cause a lack of investment in the sector, from those landlords already within it who may have been wanting to acquire new properties or invest in their existing ones, and from those who were thinking about investing. This leads to a reduction in the number of properties available for rent, and in their quality.

Respond to the consultation here

Further evidence

To support your arguments further, consider using the evidence provided in these reports.