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Landlords across England will breathe a sigh of relief as the Labour government rules out rent controls. Landlords have been on tenterhooks for the past few months as they braced for the release of long anticipated Renters Reform Bill and the potential impact of a change of government from a Conservative to a Labour government or Labour/Liberal coalition.
Rent Controls
Shadow housing secretary Lisa Nandy said last year that local councils should be given rent control powers. Nandy said at the time “I’m personally very interested and attracted by the idea that local mayors and council leaders should be able to make decisions to freeze rent increases in their local areas over the winter”. Other Labour party leaders including London’s mayor Sadiq Khan and Manchester mayor Andy Burnham have been calling for rent freezes.
However, in an apparent u turn for the Labour party in a recent speech to the Chartered Institute of Housing Conference, Lisa Nandy has outlined her opposition to introducing rent controls. Nandy noted that at a time when new housing delivery is likely to ‘fall off a cliff’ and when many landlords are leaving the market, the introduction of rent controls would lead to rents being cut for some but almost certainly leave others homeless.
Record Rental Increases
Residential rents in the United Kingdom rose at record rates in April, with tenants in London experiencing a greater increase than any other city bar one. In the year from April 2023 to April 2022 rents in London grew by 13.5%, only surpassed by Edinburgh which experienced rental growth of 13.7% over the same period.
Rental Inflation – April 2022 to April 2023
Source: Zoopla
Why are Rents Increasing?
Rapid increases in interest rates, together with increased costs and less favourable tax conditions for landlords has led to many landlords leaving the rental market altogether. As landlords have sold their properties, many have been purchased by owner occupiers, this has allowed many to get on the property ladder but also reduced the supply of available property for rent.
Because of landlords choosing to exist the market and the rental housing stock not increasing, a significant imbalance has been created between demand for rental property versus how much is available to rent.
Four weeks to 11 June 2023 versus 5-Year Average
Source: Zoopla
Why Rental Controls Are Not Possible
At MyPropTech we have been forecasting for some time that even if the Labour party were to get in power, rent controls are unlikely to be introduced. The reason is simple. There is simply not enough new housing being delivered for this to be considered a viable option.
Although new housing supply has increased since the lockdowns, it is simply nowhere near close to forecast demand. In addition, given the rapid increase in interest rates as well as cost of living squeeze driven by high inflation, housebuilders and developers are likely to reduce short-term supply in anticipation of lower demand.
London's Looming Rental Supply Crisis
The situation is most challenging in London, where new planning applications and new construction starts have significantly declined since 2014. New planning rules, Help to Buy and a number of other factors has led to many developers who would traditionally build in the capital to focus on other parts of the country. The net result is a huge looming housing supply crisis which will take several years (if not decades) to solve.
London - Estimated Annual Demand versus Potential Supply
Source: Molior, MyPropTech
Conclusion
Investors and potential investors are able to breath a sigh of relief. It is highly unlikely that a Labour government will implement rent controls and the Renters Reform Bill contains no meaningful changes to the status quo.
Current market conditions are favorable to purchasers who can take advantage of lower demand and looming supply squeeze. Developers with stock units on their books are willing to discount prices, creating opportunities for buyers that have not been seen for over a decade.
