Rent caps could have 'unintended consequences' and lead to landlords leaving the market, CIH Cymru says

The Chartered Institute of Housing (CIH) Cymru has argued that rent caps should be linked to local income to ensure more households can afford the rent levels set.

In response to the Welsh government’s consultation on housing adequacy and fair rents, CIH Cymru said that housing affordability should be linked to income, based on the gross weekly pay for an employee on minimum wage, working full-time.

CIH Cymru’s response to the consultation said: “It does not seem equitable to base rent caps on property prices, as rent caps are designed to improve the affordability of rent”.

The response also voices concerns about landlords leaving the market if rent controls were to be introduced in Wales, and that ’unintended consequences’ could put greater strain on an already insufficient supply of homes. 

CIH Cymru says that if a rent cap were to be implemented in Wales, then rent levels should be set based on local income, rather than property values. 

As part of the Welsh government’s consultation on housing adequacy and fair rents, it put forward several models for implementing rent caps.

One of the proposed models was based on property value, while another factored in the expenses associated with maintenance and property improvements.

Another model suggested linking rents to the energy performance ratings of properties based on rent bands.

>> See also: Social housing providers seek contractors for new £800m MMC framework

>> See also: Wales extends building control registration deadline amid fears of crisis

CIH Cymru stated that an energy-efficiency-based model “could incentivise some landlords to undertake work”, but warned that it must not create a two-tier rental system, “whereby those on low incomes can only access properties with a lower energy efficiency and lower rent”.

The government also proposed setting rents based on market rent data provided by rent officers. This model would identify “rent pressure zones” by looking at how much average households spend on rent in a specific geographical location.

The professional body for housing professionals in Wales said that to introduce this model, it must be mandatory for landlords to provide their rent data on an annual basis or at any change in the tenancy.

CIH Cymru added that “we also need to ensure that by implementing a rent pressure zone in one area it does not impact rent prices in neighbouring areas and that supply is not compromised as landlords decide to leave the market”.

Their consultation response noted that “whilst a rent cap would seem fair to a tenant it may not be evaluated as being fair for a landlord”.

The CIH’s research into rent regulation in Northern Ireland found that overall, a rent freeze or reduction would benefit tenants who remain in their homes and would reduce the annual expenditure on welfare.

However, it also indicated that between 41% and 60% of landlords would look to leave the rental market if a rent freeze was brought in.

The report noted that, in particular, this would impact landlords with mortgages, who might view that a decrease in rental income would make being a landlord “unaffordable”.

In November 2021, the Welsh government committed to publishing a white paper, to include proposals for a right to adequate housing and the role of rent control in the private rented sector. This initiative comes in response to rising rents in Wales over recent years and the decreased availability of affordable rental properties.

The consultation on the government’s green paper - entitled ’on securing a path towards adequate housing, including fair rents and affordability’ - ran between 6 June and 15 September 2023.

The feedback received from the first consultation will help to inform the development of the government’s white paper, which is scheduled for release in the summer.