Why national rent control risks creating hotspots and discouraging investment in the private rental sector
Andy Burnham looks set to become the next UK prime minister after Sir Keir Starmer's resignation triggered a Labour leadership contest, with nominations due to open on 9 July.
Burnham, who stepped down as Greater Manchester mayor upon winning the Makerfield by-election on 18 June, is the only declared candidate.
The prospect has revived debate over rent control in the private rented sector (PRS), with David Smith (pictured top), a partner and residential property law specialist at Bishop & Sewell, questioning how far Burnham's past support for the policy would translate into national action.
"It's not clear whether that was just for consumption as the mayor knowing that it was never going to happen, or whether he's serious about that and whether he would then look for a national model or some kind of devolved power," Smith told Mortgage Introducer.
Average private rents across the UK stood at £1,381 a month in April, up 3.5% on the year, according to the Office for National Statistics, underlining why rent policy remains so politically charged.
Why area-based rent control tends to backfire
Smith warned geographically limited schemes create distortions at their edges. "You tend to find, if you do it area-based rent control, it's quite unhelpful because what you tend to find is rents go up massively as soon as you get to the perimeter of the control area and you have problems with people then staying inside the control area when, for other economic reasons, they should move out of it," he said.
He noted the Institute for Public Policy Research (IPPR) and other bodies have already published rent control proposals clearly aimed at a future Burnham government, with the think tank's case for limiting rent increases in the private rental sector arguing for capping rises in line with wages and inflation.
Smith described this pre-emptive lobbying as part of a wider problem of "giving oxygen" to the debate before any policy has been decided.
Could more social housing ease pressure on landlords?
Smith was more engaged by Burnham's recent emphasis on social housebuilding, which he argued could benefit rather than threaten the PRS. "My view is it’s quite a good thing, because the reality is we've asked the PRS to do lots of rather disparate and odd things over a long period of time, which it’s not really very well suited to doing, and might be better done in the social sector," he said, pointing to the sector's current role housing asylum seekers, students and benefit claimants alongside conventional tenants.
He also argued fairness demands social and private landlords be treated differently on rent-setting, given the tax treatment each receives. "You've got a real problem if you turn around to private sector landlords and say you also should not take a full market rent, but we're not going to give you any beneficial tax treatment. In fact, we're going to give you a negative tax treatment as a result. That doesn't seem tremendously fair to me."
Layering reform onto the Renters' Rights Act
The Renters' Rights Act saw its main tenancy reforms take effect on 1 May, part of the government's phased implementation roadmap for reforming the private rented sector, and Smith questioned whether further intervention so soon afterwards is wise.
On the mechanics, he pointed out rent increases already run through the First-tier Tribunal, meaning a cap could be added without new primary legislation. "All increases have to go through the First-tier Tribunal now, and you could simply say that the First-tier Tribunal couldn't increase rents by more than a certain percentage. But I don't think you achieve that much, because in practice at the moment, most landlords tend to increase rents more dramatically between tenancies and don't go for massive in-tenancy rent increases."
On timing, Smith set out two competing views within Labour, also pointing to Burnham's landlord licensing record as Greater Manchester mayor as a guide to his instincts. "The alternative view is that you've done this, it's really destabilising to go in and start making further alterations just a relatively short time after you've brought this into effect. And it's actually going to make things much worse, because people who are already a bit nervy about the situation will become completely turned off, and that's a bad business environment that impacts all the way through."
Economic knock-on effects for brokers and buy-to-let lending
Smith linked landlord confidence directly to the mortgage market. "If landlords are no longer interested in borrowing, that affects buy-to-let lending, that affects mortgages and brokers, because that's a huge part of their business," he said.
He illustrated the wider stakes with a local example. Rental housing near the McLaren site in Woking, Surrey, where the automotive manufacturer is seeking planning permission to double in size, houses many of the firm's workers. Without available rental stock nearby, he argued, businesses with expansion or re-industrialisation ambitions – a theme Burnham has also raised – could struggle to grow.
That housing pool argument, Smith said, extends to the wider PRS: "The PRS has always been really important for businesses that want to expand, because they're your housing pool to allow you to surge your workforce."
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