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Housing

Could a rent freeze be on the way?

A rent freeze is in place in Scotland to tackle record prices and rising bils but will a form of rent controls follow in London and other parts of the UK?

Rents are at record heights and rising as the cost of living crisis continues to gather pace – and for some the only solution is to freeze them.

The median monthly rent in England between April 2021 and March 2022 was £795 – higher than at any other point in history, according to the Office for National Statistics. Since then they have continued to rise, while at the same time Section 21 eviction notices – also known as ‘no-fault evictions – have also spiked.

With a shortage of affordable housing and a rental sector that tips the power dynamic in the favour of landlords – until new rental reforms arrive at least – some of the fundamental reasons why rents are rising are not going to be solved in the short-term.

So here’s why rent controls are being proposed as a solution.

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How do rent controls work?

Rent controls prevent landlords from hiking rents or limit the amount they can raise rent by.

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The private rented sector is unregulated so the market dictates how much a landlord can raise their rent by without being unable to find a tenant.

With high demand for rented properties and a shortage of properties on the market, landlords have the power to increase prices at will.

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It’s a different story for the social rented sector. These rents are regulated and housing associations are only able to increase the amount of rent by consumer price inflation plus 1 per cent under the current government model.

This is set to change in April 2023 when soaring inflation means the formula would force tenants to pay unaffordable rents. As a result, the government is currently consulting on whether to cap rent rises at 3 per cent, 5 per cent or 7 per cent to help tenants.

Are there any rent controls in the UK?

Until recently there were no rent controls in place in the UK’s private rented sector, despite pleas from campaigners.

While rents have soared, the UK government has remained steadfast against introducing controls. In a written answer to a parliamentary question from Labour MP Rachael Maskell in May, now-former rough sleeping minister Eddie Hughes set out why the Westminster government is so against them.

Hughes said: “Historical evidence suggests that rent controls would discourage investment in the sector and would lead to declining property standards as a result, which would not help landlords or tenants.

“Recent international examples also suggest that rent controls can have an inadvertent negative impact on the supply of housing and may encourage more illegal subletting.”

While Hughes did not elaborate on the historical examples, there is a long history of controls in the sector over the last century.

Rent controls were introduced in 1915 as a response to the housing shortages during World War I through the Increase of Rent and Mortgage Interest Act. While initially meant as a temporary measure to combat profiteering while demand for housing outstripped supply during the war years, parts of the controls remained in place until January 1989 for certain dwellings.

The Rent Act 1957 also allowed previously controlled rents to be based on gross property values before the Rent Act 1965 introduced regulated tenancies with ‘fair rents’ set by independent rent officers.

As the private rented sector declined, the Housing Act 1988 deregulated the private rented sector.

Now the sector is booming, with 4.4million households in England using it at a time when once again shortages have seen prices rise.

That scenario plus the cost of living crisis has seen calls for Westminster ministers to act.

Alicia Kennedy, director of Generation Rent, said: “Without a rent freeze and measures to stop ‘no-fault’ evictions, people will still face devastating decisions over paying rent or staying warm this winter, and many of them will lose their home.”

London mayor Sadiq Khan has also pleaded with central government to give him the powers to introduce rent controls in London. The mayor claims it will save £3,000 a year in rent for thousands of Londoners as well as preventing homelessness.

“I have repeatedly asked for the powers to design and implement a system of rent control for London which would help to reduce the financial pressure on renters, without choking off supply,” Khan wrote in a letter to then-prime minister Boris Johnson ahead of May’s Queen’s Speech.

He added: “Affordability is clearly the most urgent issue facing the majority of renters, and currently the government remains silent on this issue. I am asking you to take the action necessary to prevent a major crisis now and to work with me to build a better London for everyone.”

As for Wales, Plaid Cymru has called for rent to be frozen this winter alongside an eviction ban.

Party leader Adam Price made the call ahead of First Minister’s Questions on September 27. He said: “We need rents to be frozen, not people, who risk being unable to afford to heat their home, or worse, be forced out on to the street. Welsh Government has the power to stop this happening – they should use it.”

While there seems little prospect of a U-turn in England and action in Wales is still to be determined, in Scotland it’s a different story.

Is there a rent cap in Scotland?

Nicola Sturgeon announced a rent freeze as well as an eviction ban until at least March 2023 as part of her Programme for Government in September.

The Scottish first minister said emergency legislation would be brought forward to protect tenants from the cost of living crisis. Sturgeon said the devolved government does not have the power to tackle rising energy bills so chose to intervene on the devolved matter of housing instead.

“The Scottish government does not have the power to stop your energy bills soaring but we can take action to ensure your rent does not rise,” said Sturgeon.

The first minister added: “The practical effect of this statement is that rents are frozen from today. 

“Two of the most important and fundamental sources of security for any of us are a job and a home. In times of economic and financial crisis. These can be the foundations that help people through.”

The move comes following years of campaigning from tenants’ union Living Rent and just two months after SNP and Scottish Greens ministers voted down plans for a rent freeze.

The Cost of Living (Tenant Protection) (Scotland) Bill passed into law a month after Sturgeon’s announcement on October 6.

The bill freezes rent for most tenants, in some circumstances landlords will be able to increase rents by up to 3 per cent if they can prove that they face increased costs, such as mortgages. The bill will be up for review at the end of March 2023.

“The rent freeze is a huge relief for tenants and is badly needed. Over the last year, landlords have poured petrol on the cost of living crisis by increasing rents on top of already soaring energy bills and other costs,” said Meg Bishop, a spokesperson for Living Rent. 

“The rent freeze will go a long way to ensuring that tenants are not made to pay for the economic crisis and ensure that tenants do not need to worry about increasing rents and being evicted this winter on top of all the other uncertainties. When the situation is so uncertain, this is exactly what strong leadership by a government looks like, finding ways of helping those who need it most.

“Though a huge win, rents before the freeze were completely unaffordable. This rent freeze is a great emergency response, and will need to stay in place until the Scottish government brings in proper rent controls to push rents down.

“Nevertheless, the passage of the bill shows the incredible power that people have when they get organised, and fight for their essential needs.”

The Scottish government is expected to bring in rent controls in the years to come, possibly in 2024.

Who gains from rent controls?

Tenants are the big winners when it comes to rent controls. Caps mean rents can be kept to an affordable level, giving prospective tenants more properties in their price bracket to choose from – at least in theory.

Living Rent’s Gordon Maloney told the Big Issue the tenants union wants to see controls that bring rents down long-term, arguing that the record rent rise seen in recent months makes renting unsustainable even with a freeze in place in Scotland.

The union is also calling for controls linked to the property rather than the tenancy to prevent landlords from hiking up rents when a tenancy ends or a new tenant moves in.

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Controls are not just about setting prices they also vital to improving the quality of properties and in climate crisis-battling efforts too, Maloney said.

“One of the things that for us is really important is linking the amount a landlord can charge to the quality of the property,” he said.

“The idea is it acts as both a carrot and a stick – a carrot to incentivise improvements and repairs and the stick to meaningfully penalise disrepair.

“That’s always been important but going into an energy crisis what we find is that, certainly in Scotland, private rented homes are among the worst for energy efficiency of any housing in the country.

“We talk about it in three aspects: the impact on poverty where bills are through the roof and they are disproportionately more expensive in the private rented sector.

“There’s the quality of life impact on tenants: people are literally going to die this winter because of the energy efficiency in their private rented home.

“The third aspect is climate change. The domestic carbon footprint from energy is enormous and if the only thing that happened is we made them as energy efficient as owner occupied flats – it’s hardly reaching for the stars – that would have an enormous impact on the UK carbon footprint. It seems like a total no-brainer.”

What are the disadvantages of rent control?

From a landlords’ perspective, rent controls can be a bad thing. They crack down on the idea of renting out a home as an investment, something which has become commonplace as the private rented market has grown in recent years to become the second biggest tenure.

With the Bank of England raising interest rates to combat inflation, mortgage rates are forecasted to hit 6 per cent next year. That could see landlords being squeezed even further, making rent controls even less likely. 

Where around the world has rent controls?

Rent controls have been employed in countries around the world, mostly as a method of protecting tenants during the Covid lockdown.

Berlin introduced controls in January 2020 just before the Covid outbreak. The Mietendeckel set rent limits in each area and stopped all rent increases for five years with fines for landlords who flouted the limits.

However, it was repealed in April 2021 after a German court ruled it was unconstitutional. That meant landlords were able to demand back-payments from tenants where rents had previously been frozen, leaving some renters in arrears.

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Rent freezes and controls remain in place in Los Angeles more than two and a half years after the pandemic began. The measures block any increases on rent control units and cap rises on other types of homes while evictions have also been blocked. The measures may not last too much longer though with protections set to be wound down by January.

The province of Ontario in Canada also froze rents during 2021 but that has now lapsed with landlords given the go-ahead to raise rents by up to 1.2 per cent in 2022. That will rise to 2.5 per cent in 2023 after Ontario leaders vowed to cap rents below the rate of inflation to protect tenants. 

“As Ontario families face the rising cost of living, our government is providing stability and predictability to the vast majority of tenants by capping the rent increase guideline below inflation,” said Steve Clark, Ontario’s minister of municipal affairs and housing.

The government in New Zealand introduced a temporary six-month rent freeze to cap increases during the pandemic and the New Zealand Green Party has called for its returns. 

The party’s tweet following the announcement that Scotland would introduce a freeze went viral after it showed an empty George Square in Glasgow alongside the joke: “Graphic footage shows anarchy in Scottish streets after pledge of rent freeze”.

The Spanish government approved rent controls in February 2022 with the country’s first-ever nationwide “right to housing law” known as Ley por el Derecho a Vivienda.

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The law was introduced as part of ministers’ efforts to tackle Spain’s housing affordability crisis. It gives powers to town halls to tackle rent prices in areas determined to be ‘tense’ where rental prices exceed 30 per cent of tenants’ income or rents increase more than 5 per cent above inflation.

In return for sticking to lower rent prices, landlords are able to claim bonuses and tax incentives but face penalties for leaving properties empty.

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