The soaring cost of living has led some to suggest that rent controls would be a good idea. Here we’ll look at what rent controls are, and at what the advantages and disadvantages of them might be.
First, where do rent controls exist?
Several countries around the world have, or have used, rent controls of various types. These include Canada, China, France, Germany, Ireland, Netherlands, Spain, Sweden and the USA.
In countries where rent controls are legally allowed not everywhere necessarily has them. They are often only used in cities which have high property prices and rents.
Scotland already has some limited rent control legislation in place or available to be used and a so-called ‘rent freeze’ has been introduced. It is likely that the Welsh Government will bring forward proposals to introduce a rent control system in the near future.
The UK Government already has a system linking social housing rents to inflation. It is currently considering whether a ‘price cap’ at below current inflation levels should be brought in for social housing rents in England.
How rent controls work
There are different types of rent controls. A rent control system may mean that the rent can never be increased at all from the current level. Most rent control systems permit an annual increase up to a specified amount, often the inflation rate plus a set percentage. This may be known as rent stabilisation rather than rent control.
Some rent controls apply for as long as the current tenant stays in residence. The rent can be increased when the property is relet. With some systems the benefit of the controlled rent passes to the next tenant.
The advantages of rent controls
The main beneficiaries of rent controls are tenants who are already living in a rent controlled property. And especially those in areas where property prices and rents are very high.
These tenants benefit from certainty over what their future rent will be. They may also find that their rent actually goes down in real terms over the years.
The disadvantages of rent controls
There are a number of disadvantages of rent controls both to landlords and investors and also to tenants.
Landlords are reluctant to buy to let in rent controlled locations and for rent-controlled properties. They may look to invest in other areas and types of property instead.
Existing landlords may decide to sell up. Or move to types of lettings that aren’t controlled such as serviced lettings – which can create different issues in the property market.
Developers may decide they do not want to build more accommodation for rent in controlled areas.
These factors can lead to a shortage of properties to rent in rent-controlled areas.
Tenants in rent-controlled properties may find that their landlords are hard-pressed to do maintenance and repairs when costs rise faster than rents.
Those in a rent-controlled property can find that they are, in effect, trapped there. Since moving could mean they have to pay a much higher rent. This can be a problem for, for example, those with growing families or older people wanting to downsize.
Existing tenants could find that their landlord will use any legal avenue to evict them. So they can relet at a higher rent or sell the property.
Where rent controls are used, tenants usually find that the rent is increased up to any maximum possible every year. By contrast many private landlords do not currently increase the rent every year. So some tenants could find that they pay more under rent control than they otherwise might.
Those looking for accommodation may find that there is no rental accommodation at all in the place they want to live and that their only option is to buy. As rent controls are often found in high property price areas this may not be an option either.
Some might suggest that using rent controls to pressurise landlords into selling might increase the supply of houses to buy. But this wouldn’t necessarily make house prices affordable in expensive areas. Added to the fact that not everybody wants to buy anyway.
Although rent controls may sound an appealing idea, especially at the moment, it is clear they are not a simple tool when trying to make housing affordable. There are many more possible disadvantages than advantages which need to be addressed.
A better solution towards affordability might be to look at one of the causes of high rents, ie. that there is a high demand for housing and relatively limited supply. Increased housing supply would probably make house prices and rents more affordable, so there would actually not be any need to consider rent controls.