Why affordability is key to the rent control argument

A guest blog by Adrian Gill, Non-Exec Board Member at Reapit.

The hot topic of rent controls has re-emerged in recent weeks, with passionate voices on both sides of the argument speaking strongly for and against the measure that entails putting a cap on the amount that a landlord can demand from a tenant when renting a home or renewing a tenancy agreement.

The cost of rent control

Such arguments are certainly not news to agents. These conversations have piqued up from time to time, especially when the issue of rising rents becomes a more painful challenge for renters.

But, although average rent increases are certainly a persistent and often stressful issue for tenants, the solution to this problem is not to simply cap rents at a fixed amount.

While rent controls are in high demand among struggling tenants, putting a cap on rents will not make things any easier for them. But the cost?

Well, landlords will only be more incentivised to exit the market, leaving less choice and leading to higher rents in areas outside of rent control zones.

Public interest in rent control

Certainly, it’s not difficult to understand the widespread public appeal for rent controls. A recent survey from YouGov found that 67% of Britons are in favour of putting a cap on private rental rates.

Much of this stems from the continual increase to rents themselves, with the latest Zoopla Rental Market Report for Q4 2021 finding that annual rents in the UK had increased by 8.3% over the period – which according to Gráinne Gilmore, Head of Research at Zoopla, was the fastest growth than at any time over the last 13 years.

Pressures on affordability

Rising rents would not be a problem if tenants could afford to meet them, but the changes to rents have put pressure on affordability, with Zoopla’s research finding that rent as a proportion of gross income rose to 37% of a single earner’s income in December.

The burgeoning cost-of-living crisis has made life very difficult for renters, with the Joseph Rowntree Foundation estimating that some 3.8 million low-income households were behind on their bills last October.

Whilst affordability remains the major issue, fixing affordability will be the solution to the cost-of-living crisis and the silver bullet to the rent control argument.

But this is a difficult challenge in itself that can only be resolved by improving nationwide wage growth and increasing supply in the market. These will take time, and there’s a lack of public trust in the willingness of government and in house builders to make viable changes.

The big issues with rent controls

Understandably the support for rent controls has grown in recent years both from the public side – the issues are very real, and a cap would certainly sound appealing to renters on the surface.

But support has also been increasing politically over recent weeks, with the Bristol City Council, the Mayor of London, and the Welsh nationalist party Plaid Cymru all pushing for the introduction of new powers to cap rents.

Much of this political wrangling likely stems from the possibility of leveraging rent controls for political gain – such powers would be undeniably popular vote winners among renters.

However, rent controls create negative distortions in the market that are detrimental to future renters, reducing supply and driving down standards, and politicians should not be pushing for controls that would most harm the people they claim to serve.

A history of rent control

Rent controls are certainly not without precedent in the UK. They were introduced in the Rents and Mortgage Interest Restriction Act 1915 to deal with the excessive increases in rents caused by the wartime housing shortage, before their final repeal by Thatcher government with the Housing Act 1988.

Outside of the UK, various other cities in countries across the world have tried rent controls without much success from San Francisco in 1994 to Germany and Paris in 2015 and 2019 respectively.

One of the key questions that economists have being trying to answer is whether rent control policies can have large negative effects on the rental markets. The findings have both economic and social implications.

In one study by the American Economic Association, San Francisco’s 1994 rent control law resulted in a 5.1% city-wide increase in overall rents over the following two decades, with renters’ mobility curtailed by 20% and landlords reacting by reducing rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings.

A European study of Germany’s 2015 rent control found that although the measure found significant success in the short term, dampening rental prices by up to 5% for all dwellings, the effect vanished around one year after the implementation, with basically no effect on rental prices thereafter.

Furthermore, the biggest beneficiaries of the rent control were mostly areas inhabited by high-income households, missing the original goal of helping those most in need, and impacting on the quality of homes available to rent as an additional consequence.

No silver bullet, but agents can support tenants

There’s not much more that can be said about rent controls at this time. The public push for them will undoubtedly grow given that not much is likely to change with regard either to the cost-of-living crisis or with the supply issues (something that would otherwise take years to address at scale).

What can be done is something that agents have always been doing – helping their customer to find homes wherever they can. Whilst supply is limited and affordability remains an issue, there are rooms and properties out there that will more closely match renter’s price capability.

On the technological side, agents can help tenants by utilising their data to more accurately matching tenants with properties in their price range, showing them opportunities that fit in with their affordability.

But on the personal side, agents can continue to show their support with their expertise by advising tenants how they can manage their rent, what to do if they are struggling with arrears, and where to look for properties that they can afford.

It's a challenging market, and none of these actions are a silver bullet for rent control, but we’re all in this together at the end, and tenants will welcome any sincere initiatives to support them when their chips are down.

First published on Estate Agent Today.