17 May 2023

The road to even higher rents is paved with good intentions


Pretty much every renter in Britain has a horrible landlord story. Whether it’s a mouldy bathroom, exaggerated damage costs after a tenancy, delayed repairs, surprise rent increases or shock evictions, there is no shortage of horror stories. The Government’s newly unveiled renters reform measures are meant to tackle ‘rogue’ landlords by banning ‘no fault evictions’ and discrimination against prospective tenants who claim benefits or have children.

Many will consider these changes to be compassionate – but policymaking cannot be based on good intentions alone. It is essential to assess whether policies will have their intended outcome or lead to unintended consequences. 

Banning no-fault evictions may boost security for existing renters, but there are significant trade-offs for those who want to move or enter the rental market for the first time. Making it harder for landlords to evict will ultimately make it harder to rent, as they exacerbate the risk of renting out properties. 

For example, the ban on evictions unless the tenant has fallen two months behind on rent explicitly incentivises renters to stay just below the threshold. This leaves landlords short of cash, but without any recourse to reclaim what they are owed. While the Government’s proposals would make it easier to evict anti-social tenants, landlords could only seek relief from the costs of anti-social behaviour after the fact.

Ultimately, these measures will force landlords to be more selective with who they rent to in order to minimise the risk of incurring those costs in the first place. This benefits applicants who have been renting for longer and can prove their reliability, as well as those with higher incomes and steady jobs, reducing their long-term risk to landlords.

The groups suffering most acutely from the housing shortage like students, young professionals, recent immigrants, and those on low incomes, are likely to suffer. It will be harder to rent for those who don’t have much in savings or wealthy parents willing to be guarantors. As the LSE’s Christine Whitehead and Cato Institute’s Ryan Bourne have highlighted, benefit claimants – whom the Government are explicitly trying to help through these new measures – are actually likely to lose out.

Not only will these measures lead to more selective landlords and higher rents, they will also lead to unseen effects like dissuading potential landlords from entering the private rented sector at all. Rising interest rates, the growing red tape burden, tax increases, and the costs of pandemic-era eviction bans are already seeing landlords leave the market. It will almost certainly have dissuaded many more from becoming landlords at all. This will only further restrict the supply of homes available to rent, push up the cost of renting, and increase the power of landlords who remain in the market.

The reason tenants are often poorly treated by landlords is that housing supply is so restricted. If the Government relaxed the absurdly burdensome planning laws to allow homebuilding, particularly in areas with acute housing shortages like London and the south-east, then house prices and rents would go down. It would force landlords to compete for tenants, ensuring their properties are well-maintained and of a higher standard.

Just look at Tokyo, where between 1995 and 2015 both house prices and rents rose more slowly than its population thanks to extensive homebuilding. Since the mid-1990s, London house prices and rents have skyrocketed in comparison to population and wage growth. In 2014, Tokyo (pop. 14 million) alone started building more new homes than the entirety of England (pop. 56 million).

Interestingly, after a bubble in its property market burst in the early 90s, Japan enacted some of the most stringent tenant protections, including making evictions extremely difficult. This deterred landlords and developers entering the market and further constrained housing supply. Ultimately, the Japanese government implemented a loophole in the form of long-term leases which circumvented its strict renter protection laws and arrested the increase in costs.

The Government should learn from Japan’s example. Imposing greater regulatory burdens on landlords is little more than virtue signalling policy which will serve to further restrict the supply of rental properties, raise rents, entrench the power of existing landlords, and raise barriers to entry for young, minority, and low-income renters. The right approach to reducing rents, raising standards, and combatting landlord power is the same solution to our housing crisis writ large: let the market build.

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Harrison Griffiths is Communications Officer at the Institute of Economic Affairs.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.