Would Rent Control Create More Problems Than it Solves in the UK Housing Market?

Rahul Jeyanand

The Renter’s Rights Act is set to take effect in May 2026, and will bring major changes to the rental market. Promised in the 2024 Labour Party Manifesto, the legislation significantly limits the power which landlords wield over tenants in many ways, including the prohibition of landlords or agents accepting offers over the listed price and the abolition of Section 21 in the private sector, which prevents landlords from evicting tenants for no legitimate reason following the end of a fixed-term contract. There is one idea, however, which has been omitted by the government: rent control. Currently used in France and Germany, rent controls are government regulations which place caps on how much rent landlords charge and how large any rent increases can be. It aims to ensure that renting remains an affordable option for tenants. Although rent control has gained support from influential figures, such as Mayor of London Sadiq Khan and co-leader of Your Party Jeremy Corbyn MP, for being able to improve the security of tenants and preventing exploitation in areas where demand outstrips supply, critics argue that it discourages landlords from investing in rental housing and reduces the housing supply. This can worsen housing shortages, creating significant market failure and reduced social mobility as few people are able to move to high-opportunity areas. 

As concerns still linger about rent prices in the UK beyond the scope of the Renters’ Rights Act due to the cost of living crisis, could rent control be what Britain needs?

An argument in favour of implementing rent control within the UK is that it can reduce rent prices for tenants. Since rent control limits how much landlords charge as well as the size of increases in rent, the rental market becomes less volatile and the pressure of housing costs eases. This benefits current tenants in particular, because these controls would help stop them from being priced out of their rental housing as well as making rental costs more predictable. New York City, one of the most expensive rental markets in the world, employs a rent regulation scheme which covers half of the rental units in the city, providing stability for tenants by requiring that landlords charge below market rates. Consequently, according to data analysis of the 2023 New York City Housing Vacancy Survey, 37% of low-income households (who earn below 50% of the median area income) live in rental units which are regulated while 43% of tenants renting regulated housing units are immigrants. This highlights how controlling rent prices may provide vital stability for the most vulnerable groups in society and maintain economic and social diversity, particularly in areas with a high cost of living. In the UK, since those renting in the private sector spend a much larger portion of their income on housing than homeowners, rent controls could improve affordability and provide stability for tenants, protecting tenants from short-term rent shocks.

One limitation, however, of introducing rent control would be that it may reduce the supply of rental housing and investment in the rental market. Due to rent prices and rent increases being limited by the government, landlords and developers face a restriction on the potential returns available to them. As a result, investment in rental accommodation could become less appealing, slowing the growth of the rental market since there is less incentive to build new rental units. Existing landlords may also lose confidence in the rental market and sell their properties, shifting them into owner-occupied housing or short-term lets, such as homes listed on Airbnb, shrinking the current supply of rental homes. In 2020, Berlin’s left-wing coalition government at the time imposed a rent freeze, known as the Mietendeckel, designed to bring the skyrocketing rent prices under control. While the policy provided short-term security to tenants, it also caused significant economic consequences. According to research from the Ifo Institute, investment in regulated rental units within Berlin fell by up to 60%. Eventually, the controversial policy would be deemed unconstitutional by the German Federal Court, over concerns that the law was straining the housing market and deterring private sector investment. Existing tenants may benefit from stable and lower rents, but new renters face much fewer options and are pushed to the more expensive and demand-heavy market for unregulated housing, demonstrating the tradeoff between achieving short-term affordability and long-term market strength. 

Another reason why rent control is unsuitable is that it leads to reduced social mobility. In market economies, prices signal scarcity and demand while also providing incentives to firms and consumers: this is essential in order for resources to be efficiently allocated. If the government intervenes by lowering rents to below market-clearing levels, then it weakens the signalling function and pushes demand into the unregulated sector, where prices face upward pressure. Rent controls typically protect existing tenants rather than new entrants to the market, which means that occupants of rent-regulated housing are often long-term tenants. As a result, new renters must compete for the limited supply of unregulated housing, where prices are higher. This creates a dual market in which existing tenants enjoy below-market rates, while new renters have to deal with significantly higher housing costs. Consequently, tenants within rent-controlled properties have more incentive to remain, as moving would mean giving up a discounted rent and having to enter a more expensive market. The opportunity cost of relocation is still considerable, even when employment and educational opportunities change, which reduces both residential and labour mobility. This is evident in Sweden’s rent control system, where according to the OECD, the average waiting time in the Stockholm region before getting an apartment was 8.8 years in 2024, with more than 800,000 people on waiting lists, which is around 35% of the region’s population. Housing is therefore rationed through waiting lists instead of price, meaning that access is dependent on tenure and queue position rather than need or productivity. From an economic viewpoint, this can be seen as an allocative inefficiency, as housing is determined by tenure rather than need or productivity. Rent controls may reflect egalitarian ideas by prioritizing security, but it also directly comes into conflict with more liberal thinkers, such as Adam Smith, who view decentralised markets as the optimal method of allocating and coordinating resources through efficiency.

To summarise, rent control does propose an attractive short-term solution by stabilising rent prices and shielding tenants from sudden price rises, but its long-term problems do outweigh this short-term relief. Cities such as New York may have demonstrated that rent controls can maintain affordability for vulnerable groups within society, but the experiences of Berlin and Stockholm demonstrate how it can deter investment and distort the allocation of housing. By interfering with the price mechanism, rent control risks undermining social mobility and creating allocative inefficiency within the housing market, which exacerbates the original shortage of housing. If the UK does want to achieve sustainable affordability, expanding the housing supply and improving the responsiveness of the housing market itself would be more effective than regulating rent.