Landlords set to stop investing in their properties if rent caps come in
More than a third of landlords will stop investing in their existing properties if rent controls are brought in by the government, according to buy-to-let lender Landbay.
The Renters’ Rights Bill, introduced to parliament last year, represents one of the most significant reforms to England’s private rental sector (PRS). Designed to strengthen tenants’ rights, enhance transparency, and improve rental conditions, the Bill introduces substantial regulatory changes. The Bill introduces stricter controls on rent increases, requiring landlords to give a two-month lead time – and tenants gain the right to challenge rent increases through tribunals.
Landbay asked landlords, ‘How will you react when rent caps are introduced?’. More than a third of those polled (37%) told Landbay they would stop investing in their properties.
Given there are 4.7 million properties1 in England’s private rented sector, the implications are enormous. Landbay’s research suggests that 1.75 million properties will no longer enjoy the levels of investment they currently do were the Renters’ Rights Bill to become law.
Rob Stanton, sales and distribution director at Landbay, said: “It’s really important that we go into the Bill with our eyes open. Rent control always has unintended consequences – and let’s be frank, that is exactly what we are signing up for with the Renters’ Rights Bill. We can see it in areas that have adopted it like Berlin, New York, and San Francisco. Trying to manipulate the market will lead to landlords leaving their properties untouched and not investing in them, potentially, lowering the quality of the housing stock. In a free market, rents reflect demand and scarcity. That will no longer be the case when the Bill comes in.”
Five years ago, the Berlin parliament voted to freeze rents in Berlin for five years, with rents controlled both within and between tenancies. The rental market was distorted. Landlords withdrew from the market (the number of classified ads for rental properties fell by more than half). Some landlords converted their rental properties into owner-occupied units; some modernised their properties to qualify for exemptions; some sold up altogether; others left properties vacant, in the hope that regulations would be reversed. New construction slowed as the PRS became a less attractive sector in which to invest. Existing tenants stuck to their rent-capped apartments and the reduction in the supply made it harder for newcomers and young renters to find a new flat.
In New York City, some apartments have their rents capped by a board and a black market for lettings is a feature of the local market there, too. Rental caps have spawned workarounds—illegal sublets and under-the-table payments for stabilised leases known as “key money”. Anecdotal evidence suggests a shadow, two-tier market filling the gap between capped supply and desperate demand.
In San Francisco, rent control has discouraged landlords from building. One study found rent control reduced the supply of rental housing in the city by about 15%. Rent-controlled buildings saw a 25% decrease in tenant turnover but, with fewer units available, the study noted that rent control increased income inequality among renters by favouring incumbents over new arrivals. This entrenched a divide between “housing haves” and “have-nots,” disproportionately burdening younger, mobile, or lower-income renters who missed the rent-control window.
Landbay also looked into other potential side-effects of the rent control measures within the Bill. Roughly one in six landlords (16%) say they will sell all their rental properties if the bill goes through – meaning approximately 750,000 properties across England would drop out of the sector. Approximately one in eight (12%) landlords admitted they would bend the rules to keep rents at a reasonable market level.
Rob Stanton said: “Rent controls, while well-intentioned, risk driving landlords out of the market or into workarounds that undermine the very tenants they aim to protect. We’re staring at a future where quality rented housing dwindles. If 350,000 landlords, with roughly 750,000 properties, leave the private rented sector, and landlords stop investing in 1,750,000 properties, at least 44% of England’s remaining private rented sector will face neglect and under investment. The data from Berlin, from New York, and from San Francisco screams caution—capping rents distorts markets, slashes supply, and creates black markets. Landlords aren’t the enemy; they’re responding to a market being squeezed dry. Ignore the evidence, and we’ll all pay the price. This is very bad news for the government.”