Rent Controls & the PRS

This former Residential Landlords Assocation (RLA), now NRLA, report documents the experience of cities which have been recently subject to some form of rent control. 

The paper highlights the inescapable truth that rent controls simply do not work. A lack of new social housing and flat real wage growth are factors common across cities in Europe and the USA. The presence of rent controls – where they exist – have done nothing to address affordability.

Introduction

Across Western Europe and North America there is continued interest in applying rent controls in the Private Rented Sector (PRS). In London too, there is pressure from tenants to introduce rent control policies for the first time since their abolition in the 1980s.

The policy is a response to growing housing affordability challenges. A common feature of western economies has been the acceleration of house prices – and rents – in major conurbations. 

However, rent controls do not work. This report offers a summary of research, produced by reputable NGOs, academics, academic institutions and think tanks. 

The research evidence underlines the fallacy of rent control as an effective mechanism to address housing shortages.

Consequences of rent controls

Where rent controls are introduced, unintended consequences emerge. These unanticipated impacts arise from:

• Changing behaviour on both the demand and supply side of the PRS market in response to policy.
• Regulatory failings – the administration of schemes expand and becomes more expensive and complex, undermining the intended simplicity of the scheme.  
• Unfair advantages landlords who remain in the PRS may gain as result of the complexities of the system and a court system under strain.
• The wider economic impacts of resulting labour market rigidities.
• The inability of cities to properly address the real causes of housing shortages
• The difficulties in properly evaluating and assessing rent control policy. The lack of clear, impact-based evidence leaves the door ajar for lobby groups to have undue influence on policy.

Mayor of London proposals

There is no major city in Western Europe or the USA where it can be demonstrated rent controls have been a consistent factor in making housing more affordable.

The Mayor’s blueprint report contains many ideas which are good. For example, the ideas around an employer-led scheme for interest-free tenancy deposit loans are worth further consideration.

However, the proposed approach to rent controls is centred around an approach which:

1. Risks reducing the supply of available homes, further inflating prices
2. Reduces incentives for landlords to invest in their properties
3. Creates a system of oversight which will be expensive to run, subject to sectional interests and open to abuse.

The presence of localised rent controls in London is also likely, as it has elsewhere, to impact on the UK’s regional economies: increasing the quantity of labour drawn to London at the expense of the regions. 

In a city in which the supply of available homes to rent would be falling as a result of rent controls, the impact of such a dynamic on housing costs is clear. Rents would continue to rise and there would be no strong PRS to relieve the pressure. 

Conclusions

This report contains evidence which underline all of the above observations. In our view the Mayor should put lobbying for rent controls to one side and instead, press Whitehall to support a vision for the capital in which:

• Social housing and creating well-planned communities return to the forefront of policy.
• Incentives are created for both landlord and tenant to develop stronger relationships of trust and respect and so, voluntarily, slow down the growth in rents.

This blog post was written by Nick Clay, NRLA. The views expressed in this post are his own and not necessarily those of the NRLA or other contributors to the report.