Labour & Tories must learn from history and avoid sensationalism to help private renters.

As the Prime Minister, in a surprise move, announced the date for the next general election yesterday, the political debate on housing this week shifted to rent stabilisation, in other words, "rent caps", following an interview in which Shadow Chancellor Rachel Reeves suggested that she was in favour of enabling individual councils to decide on rental caps in their area. The idea of rent caps is not new, and has been trialled in many countries and in the UK before. Often leading to higher rental inflation unless it was accompanied by an increase in supply in the number of properties to rent, a condition that was rarely met. 

Scotland is the most recent case study of why rent caps do not work. Rent caps in Scotland were labelled as an "abstract failure." Rents rose by 16.5% between April 2022 and March 2024, the highest of the UK nations, during the period in which rent caps were enforced in Scotland. 

Another argument advocators for rent controls make is that rent regulations were part of the UK throughout most of the 20th Century. That rent control measures somehow worked in the 20th Century. To suggest that rent regulations across the 20th Century worked is false. They were scrapped in the Housing Act 1988 because they were not working, and the private rental sector needed to attract investment.

The private rental sector (PRS) halved between 1961 and 1991. The sector went from accounting for 22.6% of all households in 1971 to just 9.3% by 1991, as the table below shows the steady decline of the PRS in the 20th Century. However, it was only after deregulation that investment poured back into the sector, and as a result, rental price growth for much of the 21st Century was at or below inflation, indicating the positive impact of a deregulated rental market.   

Source: The fall and rise of the private rented sector in England (University of York)

If you look at the data from the Office for National Statistics (ONS), rental inflation averaged 2% annually between 2006 and 2018. As the rental stock grew over this period, rents were stable across the country, and renters had more freedom to move and choose the type of accommodation they would like. The chart above shows that the PRS grew back to 17.1% of all households by 2011, still well below its peak of 22.6% in 1971.

While the sector grew by 6.1% between 2001 and 2011, it only grew by 1.7% between 2011 and 2023. It peaked at 20.3% of all households in 2017, but the scrapping of mortgage interest rate relief, or Section 24 as it is known, after 2017 resulted in the sector contracting by 1.6% between 2017 and 2023. 

As a result of supply falling and more regulation being introduced in the form of Section 24, rent inflation has increased to its highest on record, and over 160,000 properties to rent disappeared in this period. According to Hamptons estate agents we have 40% fewer properties to rent today when compared to 2019.

The only period when rent inflation stayed stable was when the PRS was growing and taxed fairly. We seem to be going back to the 1980s, with a highly regulated sector that constrains supply and, as a result, increases rental inflation. 

PRS provides relatively easy access and exit to housing for young and mobile professionals. It plays a more traditional role in housing the elderly who might always have lived in this sector, employment-linked accommodation such as for agricultural workers or caretakers, and housing those who are unable to access owner occupation or social renting. The PRS plays a vital role in society and must be protected.

The upcoming election on July 5th is a critical moment, regardless of which party comes into power. It's important to avoid sensationalised politics and focus on implementing policies that will genuinely help renters. I hope that after the election, both major political parties will take a more practical approach to housing. History has proven that creating favourable conditions for investment in the private rented sector (PRS) leads to a stable housing market, not increased regulation or rent caps. As Winston Churchill wisely said, "Those who do not learn from history are doomed to repeat it."