This week, the UK Parliament passed the Renters’ Rights Act. It is the biggest shakeup to the British rental market this century, and is being sold as a big win for tenants.
This could not be further from the truth. This legislation will wreak havoc on the already fundamentally broken rental market.
It introduces de facto rent controls, crushes the supply of housing, and makes life harder for everyone trying to find somewhere to live.
So what does this Act actually do?
Most damagingly, it ends so-called “no-fault evictions,” or Section 21. That sounds nice. But evicting someone during their tenancy is already illegal.
Until 2017, the term “no fault evictions” had simply been used to distinguish between a Section 8 notice, in which a tenant is evicted because they’ve broken the terms of their tenancy agreement, and a Section 21 notice (the Section in question), when someone is evicted because their tenancy has expired.
A landlord would be able to reclaim his property after an agreed period, because it is his property. This basic tenet of property rights was, until recently, uncontroversial.
What this new law does is ban landlords from reclaiming their property after a lease ends (unless they are selling it, moving in themselves, or a tribunal gives permission).
In other words: if you rent out your property, you might never get it back.
Within these new indefinite tenancies, rent increases will be controlled by rent tribunals. Tenants will even be able to move in, agree to a rent, and then immediately take their landlord to a tribunal claiming it’s too high.
All of this amounts to de facto controls on rent. And rent controls destroy housing supply.
Here are just some of the likely consequences:
Landlords sell up. When rents can’t rise, and tenants can’t be asked to leave, why take the risk?
There are countless examples of controls on the price of rents having disastrous effects on the supply of housing. In Stockholm, thousands of Swedes are left waiting for years. As of 2019, some 670,000 people were listed in the housing queue. In Ireland, postwar rent controls shrank the rental market from 26% to 8% of the total housing stock in 40 years.
In Britain, the Increase of Rent and Mortgage Interest (War Restrictions) Act 1915 introduced rent controls, where the price of privately rented homes was restricted to their 1914 level. The Act was originally intended to be a temporary wartime measure, but continued to apply to some rental agreements all the way until 1989.
The private rented sector made up nine-tenths of the housing stock in 1915. This declined to one-tenth by 1991. According to the House of Commons Library, rent control has been widely identified as a factor in this decline because of its effect of reducing possible rent returns, thus reducing investment.
This means fewer rental properties and higher rents.
Many landlords have already decided to pull out of the rental market in anticipation of the Renters’ Rights Act. As reported in the BBC, 61-year-old Patricia sold her two-bedroom flat in London, saying that “landlords are scared.” She said that whilst we do need more affordable homes, “what we don’t need is the private rental sector being contracted because landlords are scared and they’re selling up and they’re leaving the sector.”
Patricia is one of thousands of landlords who are selling up. This time last year, the Property Franchise Group was managing 153,000 rental homes for landlords, but that has now fallen to 150,000.
A smaller rental market simply means higher rental prices and lower-quality housing. This actively makes the rental market in the UK less affordable, which is surely the exact opposite of what the Government is trying to achieve?
More discrimination. The smaller rental market means less competition for tenants. Because it will be extremely difficult to evict tenants, landlords will be much more selective about who they allow to rent their property. This incentivizes discrimination against those regarded as riskier tenants—younger people, the self-employed, and those with less financial security.
The rental market would be systematically geared toward older tenants with stable, regular incomes or those who can count on help from Mum and Dad. Again, this is the exact opposite of what the Government supposedly intends to achieve.
Poor-quality housing. If you’re forced to rent at below-market rates, as a landlord, you have little incentive to fix the leaky roof or replace the broken boiler. You have your pick of tenants. There is little competition.
People stop moving. Just like in social housing, tenants cling to artificially cheap flats—even if it means staying in the wrong city or turning down a better job. Labor mobility reduces.
Less building. After 1945, when Britain had rent controls, almost no private flats were built for rent. The same happened in France. Builders are less likely to invest in markets where the Government fixes prices.
This is what happens when policymakers don’t understand markets.
Britain’s housing crisis is already utterly abysmal. This new legislation will make things a whole lot worse.
If we want more affordable homes, we need more supply. If you want tenants to have more power, if you want better-quality housing, we must simply build more homes. That would tilt power in the market toward tenants.
More building. More housing supply. More choice for tenants and more opportunity for investors.
The Renters’ Rights Act is not a victory for tenants. It is an act of economic vandalism that will wreck the housing market and hurt the very people it claims to protect.
The post Britain’s War on Landlords was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.
