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Rising Rents – is it time to say ‘freeze’?

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There are growing calls for rent controls and it’s not difficult to see why the issue has become so important.  So with rising rents is a rent freeze the right approach? We take a look

The private rental sector

The size of the private rental sector is growing. Government figures show that one household in five in England rents privately.

Rent rises

Rents have risen sharply in recent months. The Office for National Statistics says the average rise across the UK was 4.2% in the year to December 2022. But that average masks many variations and some tenant campaign groups, for example, claim double-digit rent rises in some areas.

Whatever the actual rise in the past year, rents are obviously high in absolute terms. Hamptons, a respected lettings agency, says the average monthly rent across the UK now is £1,216 – an undeniably big sum.

Need for a rent freeze?

As we all know, inflation is extremely high and a mix of soaring energy costs and rising interest rates mean a tougher time for everyone. Renters are often amongst the least well paid and therefore least able to absorb price rises across the board.

So looking at these factors the need for a rent freeze looks like a no brainer. The Scottish Government felt the same and passed a law stopping any rent rises at all for three months over the turn of the year.

But there’s another side to this issue.

The impact on landlords

Private landlords don’t have the degree of public sympathy shown towards renters but their costs, too, have risen.

The large majority of buy to let landlords own only one or two properties to let so are small scale rather than large businesses.

Tax changes and tightening regulations surrounding health and safety and energy efficiency have sharply reduced the profitability of buy to let. Landlords have been obliged to spend more to meet local licensing and national regulation changes.

The National Residential Landlords Association, a trade body, says there are now some 140 laws which privately rented properties have to abide by.

In addition, landlords, too, have to cope with higher prices and the government statistic of an average 4.2% rent rise is well below the official inflation rate.

A consequence of the lower profitability has been that some landlords have simply sold up, reducing the number of properties to rent and – as supply has lagged well behind demand – triggered further rent rises.

Demand is at record levels with Rightmove reporting just before Christmas that the number of online searches for homes to rent was up 23% on 12 months earlier.

Potential impact of a rent freeze

The fear amongst some property experts is that a rent freeze, if applied across the UK, might be the straw that breaks the camel’s back for more landlords who will then sell, creating a vicious circle of decline.

For that reason, the Scottish Government has ended its rent freeze after only three months and will now allow landlords to raise rents by 3% to 6% in the coming year, depending on circumstances.

This sort of maximum rent rise – a cap, not a freeze – is below inflation so helps tenants by restricting increases, yet also recognises that landlords need to cover costs too.

What’s needed in the long-term?

The long-term solution, of course, is to have enough homes to meet demand across the board, for buyers and renters alike.

There is some hope with the arrival of Build to Rent (BtR) properties; these are purpose built apartments funded by institutional investors. BTR is in addition to the private homes of buy to let landlords so it has increased rental stock slightly but it’s still a very small contribution falling far short of overall rental demand.

Until there are enough homes – and that won’t be happening any time soon – there will have to be a difficult balancing act.

Rent controls offer a lifeline to tenants in the short run but are unlikely to satisfy the long-term needs of a growing population. Only bigger house building programs will do that – and that may set off a whole new series of issues and concerns.

No one can say that balancing the housing market in early 2023 is easy!

Last Updated: January 31st, 2023

Phil Spencer

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