Research blog: The reality of rent controls

London Mayor Sadiq Khan has once again proposed rent controls for the capital. NRLA research officer Nick Clay examines the figures. 

Rent controls have once more been proposed by London Mayor Sadiq Khan, despite evidence showing they do not work – and can even reduce the supply of available homes. 

As outlined earlier in the Bulletin, Khan has called for the power to introduce rent controls in London in his manifesto for re-election. 

This is despite a report published by The Treasury in 2010 under the last Labour Government - in which Khan was a Minister -  warning of the devastating impact such a policy would have on inner city housing.   

His proposed London Private Rent Commission would be tasked with developing a system of rent control which would attempt to: 

• implement, monitor, and enforce a rent control system 

• impose rent reductions and control within and between rent rises

NLRA legacy organisation the RLA took a close look at rent controls. Drawing on the experience of those cities where rent controls had been introduced, the report concluded the Mayor of London’s approach to rent controls was based on an approach which: 

• risks reducing the supply of available homes, further inflating prices. 

• reduces incentives for landlords to invest in their properties. 

• creates a system of oversight which will be expensive to run, subject to sectional interests and open to abuse. 

The complexities in quantifying the impact of rent controls on supply, price and future investment in London are however secondary to a rather more fundamental question – are rent controls in the capital city actually needed?  

The evidence on private sector rent levels the NRLA regularly collects and reports on suggests the policy is simply not necessary. 

What is happening to rents in the capital?  

The Index of Private Housing Rental Prices (IPHRP) compiled by the Office for National Statistics (ONS) tracks private sector rents.   

When the figures for London are compared to both the national average and the costs associated with owner occupancy over the last five years they show that while private rental prices in London have risen by 3.6% to March 2021, this is much lower than the national average of 6.8%. 

By comparison, the overall measure of the cost of living rose by 9% - two-and-a-half times rental price inflation in London. 

And you would need to go back to October 2016 for annual rental prices in London to be above the national average for England. 

These figures add weight to the argument that there is no need for intervention of this kind. 

Indeed, while controlled rents may sound attractive to tenants, evidence shows over and over that tenants, would-be tenants and landlords all suffer where rent controls are imposed. 

Imposing rent controls could mean locking in mandatory annual price rises for tenants. History has also shown it reduces the quality of the rented homes out there, with less cash coming in  to be invested in improvements. 

In addition to locking new residents out of cities it could see landlords quit the market, which in turn would reduce the overall number of homes available to rent. 

During the pandemic, estimates suggest the resident population of London may have fallen by nearly 700,000.  

Against this backdrop getting these residents back into the capital would seem to be a more important priority than developing an unnecessary rent control system.