There were celebrations across the Labour frontbench as the Renters’ Rights Act came into force today. That won’t last for long, writes Ben Hopkinson
Swedish economist Assar Lindbeck famously called rent control “the most efficient technique presently known to destroy a city – except for bombing”. Somebody must have communicated this to No 10 and the Housing Ministry last week, given how quickly they shut down the rumours that Rachel Reeves was mulling a rent freeze ahead of the local elections.
It’s just a shame that the government’s very own Renters’ Rights Act, which came into force today, will have similarly devastating consequences. More rights for renters rights might sound great – but they are useless if there are no properties available to actually rent.
What does the Renters’ Rights Act actually do?
The headline policy of the Act abolishes Section 21 evictions, also known as ‘no fault’ evictions. These enabled fixed-term tenancies by giving landlords the power to regain possession of their property once the agreed term expires. Since the Act went into force, every tenancy is effectively indefinite.c
There’s a principled argument against this: why shouldn’t tenants and landlords be able to agree a contract length between them? But there’s also a practical one: if landlords are confident that they can easily regain possession, they will be much more likely to let out their properties in the first place.
With this protection gone, landlords have no certainty about getting their property back at an agreed point. Instead they may have to jump through multiple hoops, including backlogged courts and the queue to get a bailiff, with a huge potential for lost income.
It’s little surprise, then, that thousands of landlords put in last-minute Section 21 notices in the final weeks of April. They knew how damaging this change will be.
Landlords will be more likely to pass over first-time renters
But the Act also changes who will actually get to rent flats. The Act stops tenants from paying rent in advance and bans landlords from accepting an offer above their initial asking price. Without the ability to compete on price, prospective renters will be forced to compete on other grounds. That could mean CV checks, references from previous landlords and renting within personal networks.
This will be disastrous for young people who are trying to move out of their childhood home into their first tenancy. Without a rental history, and probably on a lower income than those further along in their career paths, they will look riskier on paper, which will mean landlords are more likely to pass them over.
Perhaps most significant of all, the act brings in rent control through the backdoor. No longer will rents be set by agreements between tenant and landlord. Instead, tenants will be empowered to challenge any rental increase through a tribunal.
Until the tribunal makes its decision, the tenant will pay the existing rent – and any tribunal decision will not be backdated. The tribunal is also banned from suggesting a rent higher than the one the landlord proposed. So there’s literally no reason for a tenant not to go to a tribunal.
With 11m private renters and only 34 tribunal judges, the system is likely to be overwhelmed almost instantly. That will mean Rachel Reeves gets her rent freeze wish after all.
Landlord exodus will not improve the rental sector
If we want a functioning private rental sector, it needs to be in the interest of both tenants and landlords to enter into agreements. Over the past decade there’s been increased stamp duty for landlords, tax changes that mean they can no longer deduct mortgage interest from their taxes and increased regulatory requirements like improved energy efficiency, which have all added costs. The result has been a net loss of 300,000 homes in the private rental market between 2016 and 2023.
The Renters’ Rights Act is supercharging this shift. Over the last year, 254,000 buy-to-let properties have been put up to sale. This will only get worse as the full impacts of the Act become clear.
Instead of introducing rent control through the backdoor and inadvertently destroying the rental market, the government needs to get out of the way to make renting a better deal for both tenants and landlords.
There were celebrations across the Labour frontbench when the Renters’ Rights Act came into force. In a few years time, when they’re left staring at cityscapes denuded of rental properties, the mood will probably be one of shellshock rather than jubilation.
Ben Hopkinson is the head of housing and infrastructure at the Centre for Policy Studies
