Rent costs so much that the average renter household in England spends 36% of their income on keeping a roof over their heads. That’s almost four and a half months of income going straight to our landlords every single year, which we visualised with this year’s Cost of Rent Day falling on 11 May. In London, where rent costs 42% of household income, the average renter was effectively working for their landlord until 2 June.
High rents force some renters to cut back on essentials like food and heating, some of us face moving away from our workplaces and communities, and all of us struggle to save for the future.
The reason rents are so unaffordable is because England hasn’t been building enough homes in the places where people want to live. That causes competition when a home comes up for rent and the renter who can pay the most will get it. With more homes, landlords would have to compete for renters, and if they ask for too much they will find themselves with an empty property and no rental income at all.
Long term, the answer is to build more, and the government has been changing planning rules and raising grant funding to make this happen.
But it will take years for house building to have an impact and bring the Cost of Rent Day back to a more reasonable point, like 19 April (30% of income or less is generally considered affordable).
Controlling by law what rent landlords can charge has the potential to make a difference much sooner. Scotland has already passed a law that creates the power from 2027 to limit rent rises in certain areas to consumer price inflation (CPI) +1, or 6%, whichever is lower. Many countries around the world have controlled rents for many years. England used to have them until the 1980s (and some private tenants still have a controlled “fair” rent).
The debate in England is now ramping up, with the Green Party calling for rent controls and up in the polls, and the Labour Government’s Treasury reportedly considering an intervention to freeze rents. During the week of Cost of Rent Day, three think tanks published reports with recommendations of how a rent control system could work.
In-tenancy vs between-tenancy caps
Before looking at the new reports, it’s worth mentioning the two main types of rent cap.*
While the Renters Rights Bill was going through Parliament, we were pushing the government to adopt limits on rents within tenancies based on the lower of wage growth or inflation, so that landlords could not get around the end of Section 21 by suddenly raising the rent to an unaffordable level. The government rejected this, so getting priced out of your home is still possible under the new system of challenging rent rises. The tribunal will use the market rent (i.e. on adverts for new tenancies) to make decisions, rather than what the tenant can afford or even what new tenants are actually agreeing to pay.
This proposal would only have affected existing tenancies – for new tenancies, landlords would still have been able to set the rent based on what new tenants were willing to pay. That creates a downside for this type of rent cap – if you want to move you need to pay the going market rent. Depending on what rate the cap is set at, and how much market rents have risen since you last moved, this could mean a big difference in your monthly outgoings after moving. This “cliff face” of a rent increase that is impossible to scale could lead you to simply stay put, and tolerate a home that has become unsuitable albeit still affordable.
The other, more ambitious, type of rent cap is one that applies between tenancies, so that when you move out of your home, the landlord has to charge the next tenant the same rent and only raise it in line with the cap. That should make it easier for you to move when your circumstances change. But that too comes with a downside: no non-landlord likes high rents, but they do provide a signal to builders that there are not enough homes in a particular area to accommodate people who want to live there.
If a builder is making decisions about where to build a new block of flats, they will look at places where rents are high and/or rising and start looking for suitable sites. If new tenancy rents are capped, then places with underlying shortages will be harder to spot, and fewer new homes will be built there. For this reason, in-tenancy rent caps may be better for generating a healthy supply of new homes – and if there are enough, could avoid the cliff face that discourages moves.
Scotland, where new rent control powers will apply between tenancies, has sought to overcome this with an exemption for new build homes. That would mean landlords of newly built homes would be free to charge what they could get away with – but there’s no end date to this exemption. That might lead to more homes being built, but we would end up with a two-tier rental market with tenants of newer homes vulnerable to sudden unaffordable rent increases.
For each type of cap, there is also a balance to be struck in terms of the rate you set it at. Too high and you won’t actually make much difference to affordability. But setting it a lot lower than inflation or wage growth could result in too few homes becoming available to rent, either because current tenants with in-tenancy caps don’t want to move when circumstances change, or caps between tenancies mean more people competing for properties in desirable areas.
The three proposals
This is where the recent reports come in. Interestingly, all three – New Economics Foundation (NEF), Institute for Public Policy Research (IPPR) and Joseph Rowntree Foundation (JRF) – recommend between-tenancy caps, though set these at different rates.
NEF would set the toughest caps, initially imposing a “brake” on rents of CPI or 2%, whichever is lower. They would develop longer term rent controls to converge existing rents with “fair” rent levels and pilot these at local level. They would create a time-limited exemption for new build homes, then gradually bring them into the fair rents system.
IPPR share our preference for the lower of average wage growth and inflation so that rent can’t rise faster than either your income or your other outgoings. Their exemption for new-build homes would last for ten years, which reduces the risk of a permanent two-tier market as we may see in Scotland.
At the other end of the scale, JRF would cap rent rises at CPI during tenancies, and at CPI+2 between tenancies – so more freedom for landlords to set rents, and a risk that they could rise faster than your income. In addition, that extra 2% on new tenancies could build up over the years to create more risk of a cliff face.
Smoothing the transition
JRF has looked at landlord profitability with another think tank, Autonomy, and how easy it would be for them to adapt to rent caps. For a long time, landlords have been extracting excessive profits, when compared with more productive investments like shares. More recently, the 2022-23 spike in interest rates, combined with the withdrawal of tax relief for landlord mortgage interest, meant that some landlords saw profits plunge, although most have continued to rake it in.
JRF has called for changes to landlord taxation – reinstate mortgage interest relief but raise the overall tax rate on landlords, essentially by having them pay national insurance. This would bring taxation of rental income into line with other types of income, while reducing pressure on landlords to sell as a result of interest rate rises.
NEF has similarly called for landlords to pay national insurance, and would respond to pressure on landlords to sell by establishing a social and community acquisition programme. Tenants whose landlord is selling would have the right of first refusal, and if they couldn’t buy, then local authorities, housing associations or community housing organisations would have the chance to buy the property.
IPPR has spotted the risk that some landlords could try to avoid rent control by switching their properties to holiday lets. They have recommended a licensing system for holiday lets which would limit conversions while nudging landlords to return to the residential sector.
As demand for rent controls grows, it is essential that politicians can design a system that takes account of all the trade-offs and strike a balance that suits all renters, whether they want to move to a new city, have a growing family, or want to stay close to their community.
Each report does important work to consider what it takes to make rent controls work, and address the main concerns expressed by politicians. They’re essential reading for any politician who wants to win power by appealing to renters.
We’ll be doing more to campaign on this, generate debate in Parliament, and develop our own policy recommendations to slam the brakes on rents. Sign up to the campaign here.
In the meantime, renters in Bristol are about to reach their Cost Of Rent Day this Saturday, 13 June.
*An in-tenancy cap on rent rises is also known as third generation rent control, a between-tenancy cap is known as second generation. First generation rent control is where the actual rent is set out in law.
