A recent report from the Joseph Rowntree Foundation has reignited the debate on rent controls, advocating for a balanced approach to address rising rents while minimising negative impacts on landlords and the rental market. The charity highlights significant potential savings for tenants but also acknowledges the complexities involved in implementing such measures effectively.

Potential Savings for Renters

The Joseph Rowntree Foundation’s report suggests that capping rent increases at the Consumer Price Index (CPI) during tenancies, with a limit of CPI plus 2% between tenancies, could save renters around £1,200 by 2030. This proposal aims to make private rents more affordable without causing abrupt disruptions to the rental market.

Landlord Profitability Remains Strong

Despite public support for government intervention—polling by More in Common shows 79% of people believe the government should ensure private rents remain affordable—the charity points out that most landlords continue to generate substantial profits. According to the report, 93% of landlords made a profit on rental income in 2018 and 2021, increasing to 95% in 2024.

Moreover, the overall return on equity (ROE), which includes rental income and capital gains, was positive for 98.8% of landlords in 2024. This suggests some landlords accept losses on rental income in exchange for capital appreciation. Average pre-tax ROE stood at 8.5% in 2018 and rose to 9.2% in 2021, before easing to 6.9% in 2024, reflecting higher interest rates since 2022. These returns consistently exceeded the wider real estate sector benchmark of approximately 4.75% to 4.95% during the same period.

Calls for Managed Intervention

Rosie Worsdale, senior policy adviser at the Joseph Rowntree Foundation, advocates for rent controls as a necessary intervention to curb excessive landlord returns and improve affordability for tenants. However, she stresses the importance of a measured introduction to avoid a sudden reduction in rental housing supply through landlord sell-offs.

Worsdale explains: “This needs to happen at a manageable pace, however, to avoid a sharp shock to the availability of rental homes as landlords sell up. This can be partly addressed by improving the rental tax system, which is inefficient and poorly targeted at the landlords making the largest profits.”

Concerns Over Rent Controls’ Effectiveness

Contrasting views remain strong within the industry. The Institute of Economic Affairs (IEA) warns that rent controls often cause more harm than good. While they may temporarily reduce rents for existing tenants, they tend to push rents higher in uncontrolled sectors and diminish both housing supply and quality.

Evidence from Scotland, where rent caps have been introduced, supports this caution. Scottish rents have risen by 11.6%, with landlords increasing rents faster than anywhere else in Great Britain. Hamptons’ lead analyst David Fell notes: “The evidence from Scotland suggests that rent controls rarely work as intended. At best, they delay rent increases; at worst, they set a new benchmark where landlords feel compelled to increase their rents every year by the maximum allowed.”

Fell adds that uncertainty over future regulations encourages landlords to raise rents incrementally rather than risk setting rents too far below market levels.

What this means for landlords

Landlords should be aware that while rent controls may be introduced to address affordability concerns, the Joseph Rowntree Foundation emphasises the need for careful implementation to avoid destabilising the rental market. The report’s data confirms that many landlords are currently achieving strong returns despite rising interest rates, suggesting that moderate rent regulation combined with tax reform could be a more balanced approach.

However, landlords must also consider the risks highlighted by critics, including potential reductions in rental supply and increased rent volatility in uncontrolled sectors. Staying informed and engaged with policy developments will be crucial as the government weighs its options.

Source: Based on reporting from Property118

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