The UK's rental market has changed dramatically over recent decades, with the proportion of renters doubling to 30% since 2000. Over the same period, housing costs have increased far faster than wages.
Authors
- Nikhil Datta
Assistant Professor, Economics, University of Warwick
- Jan David Bakker
Assistant Professor of Economics, Bocconi University
Historically, the rental sector has faced less regulation in the UK than in many other European countries. But now new legislation aims to improve the security of tenancies in England and strengthen tenant protections against environmental hazards.
Many elements of the renters' rights bill are likely to improve the lives of renters without harming landlords. But some of the improvements for tenants will make being a landlord more difficult or even, for some, undesirable. So far, we feel that the proposed measures fall into three groups - the good, the not-so-good, and the complicated.
The good
A government report from 2023 estimated that 3.6% of private rented properties had serious levels of damp and mould. One section of the bill will extend "Awaab's law" (named after two-year-old Awaab Ishak, who died as a result of living in a mould-infested home) to the private rental sector, offering protection to tenants in problem properties.
Also, a new private rental sector landlord ombudsman will be able to help tenants resolve disputes without slow and costly legal proceedings. The creation of a private rented sector database will improve transparency for tenant and compliance with pre-existing laws by landlords.
The not-so-good
The bill seeks to end the practice of "rental bidding", where landlords can effectively maximise the rent they receive. Landlords and letting agents will not be allowed to accept more than the initial rent advertised.
In practice, many landlords may simply raise their initial asking rents so the new rule has little actual effect on the prices tenants face. Additionally, evidence from other markets , such as eBay, suggests that auction-style price setting has in many cases resulted in lower prices relative to simply posting a price.
As such, it is not clear this policy will have the intended effect. But the bill does also seek to regulate rent increases for incumbent tenants.
One of the most important parts of the bill is the abolition of "section 21 evictions" (so-called "no fault" evictions). Abolishing section 21 would leave landlords relying on what's known as a "section 8 notice", a written document used when a tenant has broken the rules of their rental agreement.
And while a section 8 does allow landlords to recover costs, it also requires a full court hearing. Yet evidence suggests that landlords are often willing to forego the prospect of reclaiming losses in order to get their property back quickly.
A key reason for this is the stretched court system and the length of time repossession can take (often as long as a year). The bill missed an opportunity to tackle costly court delays by creating a specialist housing court - something that could have been easily funded by a tiny levy on the UK's annual £55 billion in rental income .
The complicated
Overall, the reforms are likely to increase the cost (and decrease the income) of being a landlord. This may push some landlords to leave the sector and change the composition of landlords active in the market. There is strong evidence of net market exit in the case of rent controls from other countries, including the US and Spain.
UK landlords have seen negative impacts on profits from several recent policies, including the phasing out of mortgage interest tax deductibility, stamp duty on second properties, and the 2019 Tenant Fees Act which banned letting fees in the private sector. Our own research on this found that landlords ended up paying about 25% of the fee previously covered by tenants.
Landlords quitting the sector is not necessarily a major concern, but how it affects the functioning of the market could be.
When landlords sell their properties, a key question is who buys them? Basic economics suggests that landlords exiting the sector reduces prices in the property market, making it possible for some renters to buy.
But the realities of the UK housing market mean things are not so simple. The large deposits required and limited access to mortgages and credit will still prevent many renters from being able to buy a home.
In any case, it would apply only to a small share of renters. If the reform increases the cost of becoming a landlord, it is likely that part of that increase will be passed over to tenants.
The UK letting market is dominated by "mom-and-pop" landlords (those with just a small number of properties), while other countries such as the US have seen a rise in institutional investors. It is possible that the bill could contribute to a similar rise in the UK, which could lead to higher rents as those big players are more able to exert market power.
The immediate effects of the bill may be modest. But a bigger concern lies ahead. Will lower house prices reduce construction activity and ultimately depress housing supply? This is certainly possible, but the government has other levers it can - and should - pull with regard to modernising the planning system and making construction cheaper. These measures could boost supply and improve affordability for both renters and buyers alike.
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
