UK housing market faces risks as rent control debate returns

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UK housing rent control debate

Highlights

Proposals from the Joseph Rowntree Foundation and IPPR call for rent controls tied to inflation or wage growth, reviving UK policy debate.
UK asking rents rose 1.9 per cent in the year to March, down from 2.8 per cent a year earlier, indicating easing rental inflation.
Buy-to-let market faces investor pullback due to tighter taxes, added costs from the Renters' Rights Act, and ongoing housing supply shortfall near 200,000 homes per year.

Think-tank proposals revive policy debate

As reported by Financial Times, proposals from groups including the Joseph Rowntree Foundation and the Institute for Public Policy Research are pushing for limits on future rent increases, with some suggesting caps linked to inflation or wage growth. The renewed debate follows Chancellor Rachel Reeves briefly floating an emergency rent freeze last month in response to the war in the Middle East before stepping back from the idea.

Supporters of rent controls argue that careful design, drawing on examples from Scotland, France, Germany, Spain and Ireland, could soften the usual drawbacks. Suggested options include tax changes to cushion the impact on lossmaking landlords and a so-called double lock that would restrict rent rises to the lower of wage growth or inflation.

The case against such measures remains centered on familiar market effects, notably weaker investment in existing rental stock and lower appetite for building new homes. Concerns also focus on the poor quality of data in the private rented sector and the difficulty of applying national caps to a market that often behaves locally, particularly given London's outsized role in England's rental market.

Slowing rent growth and supply needs shape the impact

The argument over timing is central because rent controls limit future increases rather than reversing already high rents. Asking rents rose at double-digit annual rates in 2022-23, according to Zoopla, but that surge has eased, with UK asking rents up 1.9 per cent in the year to March, down from 2.8 per cent a year earlier.

Other indicators also point to softer demand. Zoopla says inquiries per property have fallen to their lowest level in six years, while Rightmove says the average rental home now receives eight inquiries, down from 11 a year earlier and 29 at the 2022 peak. Demand pressure may also weaken further as international migration falls and strains emerge in student housing and the graduate jobs market.

At the same time, tighter taxes and regulation have already made buy-to-let less attractive, while the Renters' Rights Act is adding further costs, especially for small landlords. That matters for housing delivery because developers of high-rise flats often rely on investor demand and forward sales, and with new housing supply still around 200,000 homes a year, well below government targets, any further hit to landlord appetite could undermine efforts to increase construction and improve rental affordability through more building.

In our earlier coverage of the Federal Reserve’s policy stance ahead of the June FOMC meeting, we highlighted Vice Chair Philip Jefferson’s view that the current 3.5%–3.75% rate range keeps the Fed ready to respond as inflation risks remain tilted upward. He pointed to potential price pressure from Middle East energy disruptions and import tax hikes, while also noting a still-solid but potentially softening labor market.

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