Housing and high rental costs have been a major issue for the UK in the past decade. While other countries have moved towards protections for renters, rent control has not been a widespread feature of the British rental market for over a generation.
Authors
- Nikhil Datta
Assistant Professor, Economics, University of Warwick
- Jan David Bakker
Assistant Professor of Economics, Bocconi University
But now the new Renters' Rights Act introduces provisions to protect tenants in England against rent increases. While the UK government says it "does not support the introduction of rent controls", the act does allow tenants to appeal rent increases if they are above market rents.
Only time will tell whether the act introduces rent control through the back door. In the meantime, the Scottish parliament recently passed landmark housing legislation that will allow for limited rent controls across the country from 2027.
But among economists, rent controls are controversial. They have the potential for unintended consequences - including, ultimately, housing shortages. However, fears were raised about the unintended consequences of a proposed minimum wage three decades ago. Today, the policy is generally seen as having avoided the negative impact on employment that was once feared.
Rent control reliably offers short-term protection for sitting tenants, curbing their need to move away in the face of price pressures and keeping rents lower in covered properties.
But landlords often adjust in ways that shrink the regulated rental stock, selling properties on to owner-occupiers or converting them into short-term lets. This was the experience in San Francisco , where landlords responded by reducing the number of rent-controlled units.
Berlin's rent freeze seemed to have similar effects, briefly pushing down regulated asking rents, which coincided with a fall in the number of rental listings.
Evidence from Catalonia in Spain, however, paints a more optimistic picture. Average rents there fell by around 4%-6% without any detectable fall in supply.
Classic economic theory - and evidence - highlight another set of risks: mis-allocation (where homes don't go to those who could benefit most from them) and under-maintenance of properties within the controlled sector. When strict controls were abolished in Cambridge, Massachusetts , property values jumped sharply both for previously controlled homes and those that had never been subject to rent controls.
This suggests there were negative consequences from regulated properties on others in the neighbourhood, possibly driven by under-maintenance reducing overall neighbourhood appeal.
Overall, reviews of academic studies suggest that the outcome depends on the shape the policy takes - things like whether new-builds are exempt, if rents can rise between tenancies and whether controls are indexed and enforced.
Yet the broad pattern is clear: rent control tends to protect tenants in the short run. But in the longer run, supply responses often shift the pressure on to those still searching for a home.
So, what can we learn from economic analysis? The Renters' Rights Act does not limit rents for new contracts, but seeks to regulate rent increases for incumbent tenants. Given the abolition of section 21 ("no-fault") evictions , this is necessary to prevent landlords from raising rents far above the market rate to force tenants out.
Some economic models suggest it is reasonable to regulate rent increases for sitting tenants. Renters who are already in a property are typically less price-sensitive than those searching on the open market. They may have attachments to their homes - proximity to work and schools, or community ties, for example - and moving would be costly.
As a result, landlords may hold greater power over these tenants. Consequently, the legislation aims to ensure that tenants do not face rent increases beyond what landlords could obtain on the open market.
Theory vs practice
While well-intentioned, there are concerns when it comes to the design of rent control. A key worry is the uncertainty around what the "market rate" actually is.
If a tenant believes a rent increase exceeds that, they will be able to challenge it through the UK's tribunal system. Right now, the first-tier tribunal hears very few cases - but an increase in complaints could overburden the system.
At present, market rent is determined by looking at properties in the area and is decided by a judge or surveyor . But this setup comes with challenges.
Homes have many dimensions that people value differently. This makes predicting what a property would rent for on the open market far from straightforward. Even surveyors valuing homes for sale tend to deviate by around 10% in either direction from actual prices. Machine learning models perform no better.
As a result, judgements could have a "luck of the draw" element for both tenants and landlords, raising issues of consistency and transparency. These problems will be even more acute for unique properties.
Finally, there is the issue of access. Evidence shows that lower-income or otherwise disadvantaged people are less likely to use formal tribunal processes.
These challenges do not mean the policy should be abandoned. But careful design could ease pressure on the judicial system and improve transparency.
One option would be to introduce a commitment mechanism for rent increases. Under this approach, if a landlord raised the rent and the tenant felt it was unfair and chose to leave, the tenant could complain to a proposed new ombudsman or tribunal.
The tribunal's role would be limited. It would record the complaint and later review the rent agreed in the next tenancy for that property. If it was lower, the landlord would pay the former tenant compensation.
This mechanism would encourage landlords to set rent increases only at levels they genuinely believe the market will bear.
Ultimately, the success of rent regulation will depend less on the principle and more on the details of its design and enforcement. A system that protects tenants without freezing supply or overburdening the courts will need clear rules, credible oversight and realistic expectations of the "market rate".
The Renters' Rights Act represents a bold attempt to rebalance power in favour of the tenant. But its implementation will determine whether it provides stability for renters and improves the market, or simply adds a layer of uncertainty for both sides.
Nikhil Datta receives, or has received funding from the Nuffield Foundation, British Academy, Leverhulme Trust and the Economic and Social Research Council.
Jan David Bakker has received funding from the BA/Leverhulme Trust, the PRIN and the PNRR.
