Can BTR have a future with rent controls?

The recent Labour Party Conference focussed heavily on the government’s evident and seismic commitment to housing delivery. The social and economic benefits of house building are compelling and this appears to be a very sound area to focus policy on. However, during several fringe sessions around the role and supply of rented housing, the topic of rent controls was debated. With rents continuing to rise across the UK and London showing a near record 9.6% over the past year, there is a great deal of concern about affordability for renters.

Many investors will quail at the prospect of controls, but looking across Europe, rent moderation mechanisms are the norm, with the UK and Finland being the exception. Closer examination of various limits reveals that the measures taken across Europe vary considerably, from the draconian in Italy (75% of CPI uplifts), to light touch in Portugal (6.94% maximum in 2024). However, many European markets with controls are much bigger institutional investment sectors than the UK, so it appears that markets can exist and even thrive with certain rent mechanisms.

Residential investment is long term by nature and long term investment requires overall stability and consistency of policy. The textbook approach of how not to introduce controls has recently been authored by the Scottish Government, who without consultation or warning, introduced a zero percent increase from 6th September 2022. This initial freeze has since been moderated to 3%, but the final position of the Scottish Government has yet to be confirmed. The result of over two years of chaos has been a near standstill of the nascent Scottish BTR sector and a loss of millions of pounds of inward investment into Scotland to bolster its creaking housing stock. Even after the Scottish Government finally confirms its position on rent controls, it will take time for investor confidence to return.

It is clear that institutional residential investment markets can work with rent moderation mechanisms, but rent freezes and knee-jerk policies strangle new housing supply. Whatever the rental controls deployed, it is vital that this does not impede the supply of good quality housing, be it for institutional or private ownership. BTR has a very considerable role to play in the regeneration and vitality of city centres and it would be hugely detrimental to our urban fabric if the wrong mechanisms are put in place. The key lesson that the UK can learn from other markets is that moderation mechanisms can protect renters from rental spikes, whilst ensuring that capital continues to back housing development.

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