Charity urges balanced rent controls to tackle rising rents

A charity is calling for rent controls to be introduced in a balanced way to mitigate unwanted consequences.

A report by the Joseph Rowntree Foundation reveals that if rent increases were capped at the Consumer Price Index (CPI) within tenancies, and CPI + 2% between tenancies, renters would save £1,200 by 2030.

However, industry experts have warned that rent controls do more harm than good.

The vast majority of landlords are profitable

The report cites polling by More in Common showing that 79% of the public believe the government should play a role in ensuring private rents are affordable.

The charity acknowledges that the government has resisted calls to introduce rent controls, while critics argue such policies could trigger a rapid sell-off of rental properties, reducing housing supply and harming tenants.

However, the charity argues landlords have continued to generate “supernormal” returns and strong profits.

The report says: “The vast majority of landlords are profitable on the rental income side of their investment: 93% of landlords in 2018 and 2021, and 95% in 2024, made a profit on their rental income.

“The fact that the proportion making an overall positive return on equity (ROE) on their investment, between rental income and capital gains, each year is even higher, reaching 98.8% in 2024, suggests it may be a feature of the sector that some landlords will accept making a loss on rental income in exchange for strong capital gains.”

It adds: “Average pre-tax return on equity (ROE) for landlords across the sector over the period analysed has remained strong. Landlords made average annual pre-tax returns of 8.5% in 2018 and 9.2% in 2021. In 2024, average returns fell slightly to 6.9%, reflecting the impact of the sharp rise in interest rates in 2022.

“In each of the three years analysed, these average rates of return exceeded the benchmark rate for the wider real estate sector, which stood at between 4.75% and 4.95% between 2018 and 2024.”

Intervention on rents

Senior policy adviser at the Joseph Rowntree Foundation, Rosie Worsdale, says rent controls would help renters, but need to be introduced in a way that is manageable for landlords.

She said: “The analysis shows the sector has generally been characterised by landlords making supernormal rates of return. Even in the most recent period, a strong majority achieved returns that exceeded both economy-wide returns from comparable investments and rates of return in the broader real estate sector.

“We argue that the high level of returns available to landlords warrants intervention on rents, both to make housing more affordable for renters and to curb the excessive returns landlords are currently able to make, at least while supply catches up.

“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.”

Rent controls rarely work

However, as previously reported by Property118, rent controls do more harm than good and actually do far more damage than benefit tenants.

According to the Institute of Economic Affairs (IEA), while rent controls may initially lower rents for existing tenants, they typically lead to higher rents in uncontrolled sectors and reduce housing supply and quality.

Even in Scotland, the rent cap has been blamed for soaring rents, which have increased by 11.6%.

Data by Hamptons reveals Scottish landlords are increasing rents at a faster pace than anywhere else in Great Britain because of rent controls reshaping the market.

Lead analyst at Hamptons, David Fell, said: “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.

“Faced with uncertainty over future rules, many landlords choose to raise rents little and often rather than risk falling far below market levels.”