Landlords have been on edge for the past few months. They’ve been awaiting the release of the Renters Reform Bill and have had the possibility of rent controls hanging over them given the increasingly likelihood of a Labour Government.
However, Landlords throughout England can now breathe a collective sigh of relief. The Renters Reform Bill has now been published the Labour party dismisses the idea of implementing rent controls.
Lisa Nandy, the Shadow Secretary for Housing, advocated local councils having rent control authority last year. “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,” Nandy said at the time. Andy Burnham, the mayor of Manchester, and Sadiq Khan, the mayor of London, both advocate for rent freezes.
In what appears to be a u-turn, Nandy has shifted her stance on rent controls. Speaking at the Chartered Institute of Housing Conference, she highlighted her opposition to rent controls, particularly in a time when new housing delivery is expected to plummet and landlords are exiting the market. Nandy acknowledged that while rent controls may benefit some, they could also leave others without a home.
Record Rental Rises
In April, residential rents in the United Kingdom skyrocketed to unprecedented levels, with tenants in London witnessing a surge that surpassed almost every other city. From April 2022 to April 2023, rents in London experienced an astonishing growth of 13.5%, second only to Edinburgh, which saw a rental increase of 13.7% during the same period.
Rental Inflation – April 2022 to April 2023
Why are Rents Going Up?
The rapid surge in interest rates, coupled with rising costs and less favorable tax conditions for landlords, many property owners have made the difficult decision to exit the rental market. As a result, a significant number of properties have been bought by owner-occupiers, enabling them to finally step onto the property ladder.
However, this shift in ownership has inadvertently contributed to a decrease in the availability of rental properties. Consequently, a noticeable disparity has emerged between the high demand for rental properties and the limited supply currently in the market.
Four weeks to 11 June 2023 versus 5-Year Average
Why Rental Controls Should Not Be Implemented
Even if the Labour party were to win the election, I have been predicting that rent controls are unlikely to be implemented. It’s easy to understand why. Simply put, there enough new homes being provided to make this a realistic alternative.
Since the lockdowns, there has been an increase in the supply of new homes, but it still falls far short of forecast demand. Furthermore, given the sharp rise in interest rates and the stress on living standards brought on by high inflation.
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.
Crisis in Rental Supply Brewing in London
The housing landscape in London presents a particular challenge, as the number of new planning applications and construction projects has experienced a significant decline since 2014. Factors such as new planning regulations, the Help to Buy scheme, and other considerations have prompted many developers who typically focused on the capital to shift their attention to other regions of the country. As a result, a dire housing supply crisis looms large over London, and it is anticipated that resolving this issue will take several years, if not decades.
London – Estimated Annual Demand versus Potential Supply
Investors and potential investors can now breathe a sigh of relief as the Labour government dismisses the idea of implementing rent controls. It is highly unlikely that a Labour government will enforce such controls, and the Renters Reform Bill offers no significant changes to the status quo..
This is good news for purchasers, as lower demand and an impending supply squeeze create favourable opportunities. Many developers are willing to discount prices, presenting buyers with unprecedented opportunities not seen for over a decade.
You might be interested in: 6 things to consider when investing in Property in the UK.