Watch out for the unintended consequences of Britain’s rent act

The government’s new law threatens to make renting worse, not better

FOR TWO decades the private rental market in England boomed. Cheap finance, tax incentives and laissez-faire regulation encouraged buy-to-let investors to pile in. The number of privately rented homes rose from 2m in 1996 to 4.7m in 2016. Cheap finance and intense competition kept prices down for tenants. In the decade since then, mortgage costs have risen, tax has become burdensome and landlords must navigate a thicket of rules. As a result there are just 20,000 more privately rented homes than in 2016, even though the population has grown by 3.3m.

Sweeping legislative reforms that came into force on May 1st mean that renting privately may become worse. The act attempts to tackle genuine insecurity. The new law abolished fixed-term (typically 12-month) tenancies and replaced them with ones that roll on indefinitely. Tenants’ notice to landlords will be set at two months and “no-fault” evictions will end. Instead landlords will need a valid reason—such as selling or rent arrears—for ousting tenants.

The new law will also restrict landlords’ ability to raise prices. Bidding wars above the asking price for new lets are now banned. Tenants will also be able to challenge annual rent reviews at a tribunal. They will have every incentive to do so, as the new rent will be payable from the tribunal’s decision rather than backdated.

The government had been rumoured to be considering capping rent rises for one year in response to inflation pressures from the Gulf war. Although the current occupants of Downing Street have pooh-poohed the policy, rent controls are favoured by much of Labour’s left, including Andy Burnham, the ambitious mayor of Manchester. The Green Party, the most popular outfit for voters in their 20s, would also cap rents if it gained power. Such caps would offer temporary relief for sitting tenants. But landlords squeezed by lower returns might skimp on maintenance or exit the market altogether. The result would be a smaller, shabbier sector.

The perception that rents have spiralled out of control in recent years is misplaced. Rents increased by an average of 2.1% a year between 2005 and 2021, whereas over the past four years they have shot up by 6.7% a year. But pay has kept pace. As a share of renters’ median incomes, the rent burden has fallen from 40% to 33% over the past two decades. In London, with 1m rented homes, that burden has been closer to 50% of income, but is little changed from 20 years ago (see chart).

Landlords tend to get a bad rap. Yet a government-commissioned survey of private landlords found that one-third did not increase rents upon renewal in 2024, even though the market was frothy at the time. Similarly, most tenants are happy in their homes: 77% reported in 2024 that they felt “physically safe and secure”.

There are a few bad apples. Some unscrupulous landlords took to issuing no-fault eviction notices ahead of the law changing on May 1st, with the intention of turning their properties into short-term lets. Around 10% of private renters report problems with damp, compared with only 7% of people in social housing (a difference partly explained by private renters’ preference for Victorian terraces). The new act implements “Awaab’s law”, named after a two-year-old child who died from prolonged exposure to black mould in a council flat in Manchester.

For the many baby-boomers who entered the buy-to-let market in the late 1990s, the good times are over. Richard Donnell from Zoopla, a property website, says that “the numbers don’t stack up for many landlords any more.” Four-fifths of all landlords own four or fewer homes and most purchased them to supplement pensions that they are now spending. Landlords that remain are more likely to be corporates that drive a harder bargain with tenants. As the sector stagnates, the risk is that the new law benefits incumbent tenants but makes access to renting more expensive for everyone else. ■