Rental prices in England have surged recently, growing by 8.6% in the year ending July 2024. From 2017 to 2023, rents have risen by a cumulative 18%.[1] This trend has disproportionately affected renters, who are often lower-income, further intensifying the ongoing cost-of-living crisis.
Price increases, alongside ongoing social commentary about the morals of landlordism, including its impact on the number of homes available for sale and lingering concerns around fairness in the rental market, have led to the previous government taking action. This came firstly in the form of changes to the tax treatment of buy-to-let mortgages and a Renters Reform Bill that ultimately did not pass due to the calling of the election. Labour has replaced this with its own, even more heavy-handed bill.
Key proposals in the new Renters Rights bill include banning no-fault evictions, abolishing fixed-term tenancies, prohibiting rental bidding wars, limiting rent increases during tenancies, and introducing decent home standards.[2] While these measures are intended to enhance security for tenants, they might inadvertently exacerbate rental market issues.
For example, the proposed method seeks to prohibit bidding wars by preventing landlords from accepting offers above the listed asking price. In this instance, what is to prevent landlords from setting excessively high asking prices and simply accepting the highest offer? Similarly, limiting rent increases to once per year may inadvertently lead to larger yet less frequent hikes in rent which would do little to curb the overall trajectory of longer-term rate of rent growth.
One of the main challenges in addressing pricing dynamics in the rental market is that, on the surface, prices don’t appear excessively high. Despite recent increases, rental prices have actually remained relatively stable when adjusted for inflation over the past two decades, growing by just 13% since 1996. In stark contrast, house prices have surged by 168% over the same time period.
The recent increase in rents can largely be put attributed to interest rates. Our calculations demonstrate that a percentage point increase in rates typically results in a 0.5 to 0.7 percentage point increase in the rate of growth in rents. The interplay of high inflation and tighter monetary policy inevitably drives up rents, as landlords face higher costs that are subsequently passed on to tenants.
In fact, recent policies may have unintentionally driven rents higher by reducing the supply of available housing. The number of private rental dwellings declined between 2017 and 2019, coinciding with government policies like the 3% stamp duty surcharge[3] on second homes and the gradual phasing out of mortgage interest relief[4], both of which would have increased the costs for buy-to-let landlords. Meanwhile, rising house prices have further skewed the balance between renting and selling, making homeownership increasingly out of reach for many. As a result, more people are being pushed into the rental market, deepening their reliance on it as an alternative to owning a home.
Figure 1 – Annual changes in rent prices and dwelling stock in the private rented sector
Source: Office for National Statistics, Department for Levelling Up, Housing & Communities, Cebr analysis
It is likely that many landlords exited the rental market in anticipation of the Renters Reform Bill, first introduced in early 2023. Our analysis suggests that, compared to the pre-2017 average ratio of privately owned to private rental properties, there was an estimated shortfall of 138,000 rental properties in 2023 – around 2.7% of the current stock. We estimate this has led to rents being 4.1% higher than they would have been without the shortfall.
The new bill could lead to increased costs and more red tape. The abolition of fixed-term tenancies could create uncertainty for landlords, and the upcoming Budget could further complicate matters. Potential changes to Capital Gains Tax (CGT) on additional properties could mirror past policies that prompted landlords to exit the market. If similar outcomes occur, a reduced rental supply may drive rents even higher, exacerbating the affordability crisis for tenants.
Indeed, low confidence among landlords is reflected in the National Residential Landlords Association’s Landlord Confidence Index for Q2 2024.[5] Only 9% of landlords plan on expanding their portfolios, the lowest on record, compared to 39% who plan to sell. With BBC data showing that rent enquiries have tripled over the past four years, averaging 30 per property,[6] curtailing supply further seems short-sighted and is likely to exacerbate the housing crisis.
Ultimately, while these policy changes are intended to protect tenants, they may inadvertently end up doing more harm than good. Forcing landlords to sell could modestly improve housing supply and affordability for prospective homeowners. However, this benefit is likely to favour those on relatively higher incomes, leaving lower income renters – who the policies were meant to protect in the first place – at a greater disadvantage.
The only sustainable solution for reducing both rents and house prices lies in significantly boosting housing supply. While the Government moves forward with planning deregulation and ambitious housebuilding targets, it must approach these interventions with care and foresight. A thoughtful, well-executed strategy is essential to ensure that efforts to increase supply truly address the root causes of the housing crisis, rather than simply treating the symptoms.
[2] National Residential Landlords Association
[5] National Residential Landlords Association
Cebr’s next Forecasting Eye will be released on 18th October.
For more information contact:
Hafsa Haniffa, Economist – hhaniffa@cebr.com – 020 7324 2859
Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.