What are the options for rent control?

I recently wrote about the fact that not all ‘rent control’ is the same thing. I said that it’s wrong to present the choices around rent controls as a binary one because there are a wide range of different possible regimes to regulate rent. They differ depending on what the minimum tenancy length is, what restrictions are placed on rent increases within that tenancy and any restrictions on rents at the outset of a tenancy.

I said that we need to debate the detail of different proposals and left it at that.

But it’s all very well to say that a broad spectrum of different regulatory regimes are possible. The reality is that there are a number of proposals already on the table, ready to be debated. Shelter has proposed restriction on rent increases within five year tenancies as part of our Stable Rental Contract, and a host of other organisations (and individuals) have also proposed other new regimes. And then there are England’s current and historical regimes – regimes that have been tried and (for whatever reason) replaced.

I’ve put together a list of the options that I’ve seen being discussed recently as possible regimes for England at the bottom of this post. (Leave a comment if you think I’ve missed one and I’ll see about adding it.)

As well as differing in their detail, it’s important to note that the different regulatory regimes proposed are trying to do different things. Although all of them restrict a landlord’s ability to increase the rent in some way, not all of them are measures to make renting more affordable. The Stable Rental Contract, for example, was not designed primarily as a reform to make private renting more generally affordable, but to make it more stable and secure for families by introducing a longer tenancies. Limits on in-contract rent increases are needed for such longer tenancies as renters are otherwise vulnerable to eviction by a rent hike.

In contrast, some proposals for rent control are entirely motivated by a desire to generally improve affordability for renters. (Arguably, if they propose big cuts in rent levels, they also put at renters’ security of tenure as some landlords will likely try do everything they can to sell-up.)

So I’ve also indicated what the stated purpose of the regulation is and given some comments on how likely it is to achieve it. Finally, where they’re significant, I’ve also suggested any other possible effects that it might be argued the measure could cause.

The table is only a guide to the lie of the land in the current debate as I see it and plenty more analysis of the pros and cons of each of the options is needed. Importantly, I’m also not going to suggest a way of choosing between them. To an extent that will always depend on what you think the regulation should and shouldn’t be trying to achieve.

Who/what? The detail Stated purpose and effect
Assured Shorthold Tenancy (all English tenancies post-1989) Minimum six month tenancies;Rent fixed for minimum of six months (1 year during statutory periodic); rises unrestricted;

Rent set by market at contract start.

Purpose: to create a free market for rentsEfficacy: this is the existing regulatory regime, so the effect is renting as it exists at the moment

Other effects: as above – all of those currently posed (renting is expensive, unstable, etc.)

Shelter’ Stable Rental Contract Five year tenancies;Rent rises limited to inflation in contract;

Rent set by market at contract start.

Purpose: to provide greater security and stability for renters.Probably efficacy: likely to achieve stability, but limited impact on market rents as the rent ‘resets’ at the end of every five years. Rents more predictable during course of tenancy.

Other potential effects: unlikely to do a lot about the high cost of renting.

Civitas Indefinite tenancies;Rent rises limited to inflation or wages in contract;

Rent set by the market at contract start.

Purpose: to provide greater security and stability for renters.Probably efficacy: likely to achieve stability. Over the long-term a gap may open up between rents that can be charged in properties with long-term tenants and those with new as rents do not regularly ‘reset’.

Other potential effects: gap between rents that could be charged may create renting winners (long-term tenants) and losers (new tenants). Similar arguments then as against rent caps for long-term tenants over the long-term (generational timeframe).

Labour Party policy Three year tenancies;Rent rises limited to inflation in contract;

Rent set by market at contract start.

Purpose: to provide greater security and stability for renters.Probably efficacy: likely to achieve stability, but limited impact on market rents as the rent ‘resets’ at the end of every three years. Rents more predictable during course of tenancy.

Other potential effects: unlikely to do a lot about the high cost of renting and security less durable than proposed by Stables Rental Contract, for example.

David Lammy MP’s proposal Three year tenancies;Rent rises limited to 20% increase over three years;

Rent limited to 20% above market rate at contract start.

Purpose: to provide greater security and stability for renters and place constraints on market rents.Other potential effects: question over whether a 20% limit on increases would achieve stability as this is a much bigger increase than many families would be able to bear in a single year. Arguably limited impact on market rents as few properties let out at 20% above market rent.

Arguments against: questions over efficacy.

Generation Rent 50% surcharge on all rents charged above a level based on local council tax. Purpose: to cap rents and make renting affordable. And to raise money for investment in affordable homes.Other potential effects: unlikely to make renting more affordable as will act more like a tax on rent income. Could even increase some rents as some landlords struggle to meet costs. However, could be effective in raising more money for affordable housing investment.

Arguments against: lack of efficacy in principle aim and potential perverse impact. Cut in rental yields may make landlords try to sell-up and leave the rental market.

38 degrees petition (created by Becky Ely) Caps on amount that can be charged for any private rented home (£75 for a room in a shared house, £95 for a studio, £120 for a one bed property, etc.) Purpose: to cap rents and make renting affordable (in London).Probably efficacy: likely to achieve aim within regulated market, however may lead to an increase in the black market and hidden charges (service charges etc.). Likely to have other potential significant drawbacks.

Other potential effects: this would imply a significant cut in rent for most parts of the capital, where the cap is proposed. Landlords would likely try to leave market, which would have short-term implication for existing renters. Potential implications for investment in existing stock over the long-term.

Fair rent regime (England for all tenancies 1977-1989) Indefinite tenancies; chargeable rent limited by the amount assessed as a fair rent for a similar property in the same area. Purpose: to remove impact of scarcity of rental properties by limiting the amount that could be charged for properties to ‘fair’ levels (which assumed no shortage).Probably efficacy: rents limited below market rents.

Other potential effects: similar to those used against absolute caps. Current existing stock still subject to fair rent regime creates renting winners and losers. Said to have contributed to the decline in the numbers of rental homes and investment in stock.

Rent freeze (England during WW1 and WW2) Emergency measure. Chargeable rents limited to their current levels. Purpose: to prevent rapid rent inflation at a time of war.Probably efficacy: over time rents are held below what is judged to be the ‘equilibrium level’

Other potential effects: similar to those used against absolute caps, but impact takes longer to be felt as rent take longer to move to below what would otherwise be the market level.

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  1. Always the stick and no carrot with Shelter, that is why their proposals never work. If they genuinely want to improve things for tenants, they need to start working with landlords rather than against them.

    What would be the outcome of making landlords give 5 year tenancies?

    Most landlords would discriminate against tenants with families wanting to stay long term, choosing more transient tenants. Those landlords willing to take them on would be able to demand a premium in return for locking up their investment for 5 years, forcing up rents for families.

    Far better to encourage landlords with something like no/reduced CGT after a 5 year tenancy.

    1. Hi Glen, being Swiss, I come originally from a country where the majority rents. Our rental system is close to the Civitas system. It is an indefinite role over rent, with 3 month notice for the renter and 6 month notice for the landlord. Rents can be raised either linked to inflation, max. 80% of inflation, or to interest rates for basic mortages, again max 80%. The majority lives for decades in the same place. Increases need a 6 month notice period and can be contested. Landlords are banned for 3 years to give notice to anybody who won a contest against them, be it for increases, or not keeping the property up to standard. If the renter gets notice, and has paid his rent and not smashed the place, he can prolong the notice period, especially if they have children in local schools, to up to 3 years, giving them time to find another rental, at similar cost, in the same area, so the kids can continue going to the same school. Works pretty well. It does not regulate the initial rent though, just the future. However, much better than what we have here. Cheers.

  2. Out of all the proposals – simple temporary rent freeze for two years would be the most sensible option. In fact is a better option then Shelter’s proposal for rents to go up by inflation.

    It would stop those landlords who increase rents annually, but it would not hurt those landlord who don’t increase rents. The LHA rate should be allowed to go up by the 1%, so that it can catch up to market rents.

    The only exclusions would be those tenants who break the terms of their tenancy.

    Fixed 5 years tenancy do not work for every time. Because, a Landlord may have a property which is only good for 2 years before a refurbishment is needed, landlord can’t afford to put up tenants in hotels and there are health & safety implications if tenants are living there whilst works are going on.

    There are some tenancies which are difficult to manage. A landlord should not loose the right to end a tenancy.I have come accross good and bad tenants.

    Shelter does not campaign on ‘fairness’, they should take into account the views of Landlords too.

    I second @GlenGrant about tax relief for those landlords who want to exit the rental market.

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