Reeves rent freeze: How did Chancellor turn to a Mamdani-style policy controversy?
Reports of plans in Downing Street for a rent freeze came as a shock after a housing minister said Labour opposes the policy. Felix Armstrong explores why rent controls stoke so much controversy, from New York to Sweden.
Rumours that Rachel Reeves is considering slapping a freeze on private rents shocked the property market on Monday night, as leading economists warned the policy is doomed to fail.
Labour ministers had – until this week – vocalised their opposition to rent controls, and the Green Party was England’s only political voice calling for their introduction.
Zack Polanski’s party has long been committed to rent controls, and has recently called on the government to give local authorities the power to ban rent hikes.
Zohran Mamdani, the hard-left mayor of New York, pledged to cap rent at nearly one million apartments in the city, and Polanski has not been shy in declaring his admiration for the newly elected Democrat.
Until now, the Greens have been a lone voice in England on rent intervention.
And Labour’s housing minister, Matthew Pennycook, set out his opposition to the policy only two weeks ago.
Responding to a question from a Labour MP, Pennycook said: “The government do not support the introduction of rent controls, which we believe could make life more difficult for renters.
“There is sufficient international evidence from countries such as Sweden and Germany, and from individual cities such as San Francisco, as well as the recent Scottish experience, to attest to the potential detrimental impacts of rent controls on tenants.”
But rumours broke on Monday night that Reeves is considering a rent freeze, and she refused to deny on Tuesday whether she is considering the measure.
Asked by a Labour MP to implement a freeze on private rents, the Chancellor told the Commons: “I will do everything in my power and use every lever we have to bear down on the cost of living, including for people in the private rented sector.”
Responding to the news, leading economists pointed to many of Pennycook’s own examples as they urged Reeves to change course.
Stockholm syndrome
In Sweden, the government enforces a “utility value” bargaining system, where rents are negotiated between landlord and tenant associations to ensure they remain below market value.
But residents have warned that this has not stopped young professionals being priced out of city centres. And businesses fear the focus on rent-controlled buildings is coming at the expense of private lettings agencies which they say would offer more stock.
Sweden’s political opposition is calling for a market-based model to encourage more investment in rental accommodation.
Robert Colvile, head of the Centre for Policy Studies think tank, told Morning Wire Sweden is a cautionary tale for the risks of rent controls.
He said: “The Swedish economist Assar Lindbeck once suggested rent controls were the most efficient technique for destroying a city apart from bombing.”
An expert at Germany’s leading economic think-tank the Ifo Institute has warned that the use of rent controls in his country worsened its housing shortage and made it more expensive for tenants to move.
Clemens Fuest, Ifo president, found that rents have risen by around 18 per cent in existing tenancies – where landlords face tight restrictions on raising bills – while rents were up around 50 per cent in new tenancies.
Two tier fears
Critics of rent controls often argue that, while they benefit sitting tenants, these freezes result in a two-tier system where other renters are subjected to soaring rents at buildings which are not subjected to the same controls.
“The existing regulations protect tenants who have an apartment and no reason to move. This is at the expense of landlords and all prospective tenants looking for a rental apartment,” Fuest said.
In Scotland, emergency rent controls had been in place until March last year but are set to return as part of the SNP’s new housing act, due in 2027.
The Scottish government claims it is implementing a “flexible” type of rent freeze which includes exemptions for mid-market rents and student flats to ensure a “robust supply of homes”.
But some in Scotland have warned that even these proposals risk forcing landlords out of the market, and therefore reducing the stock of housing available for renters.
John Blackwood, chief executive of the Scottish Association of Landlords, said: “A key concern is that, without adequate incentives, landlords may choose to sell their properties, reducing the overall rental stock and inadvertently worsening the housing crisis.”
Economists agree – for once – on rent controls
A review of global evidence on rent controls produced by the Institute of Economic Affairs found that the measures succeed in lowering rents in a majority of cases.
But, the free-market think tank found that a majority of studies saw reduced housing quality and worse residential mobility as a result of rent controls.
Kristian Niemietz, the IEA’s editorial director, said: “Economists are a notoriously divided profession […] but there are exceptions to this, and the study of rent controls is one of them.
“The finding that rent controls reduce the supply and quality of rental housing, reduce housing construction, reduce mobility among private tenants, and lead to a misallocation of the existing rental housing stock, is as close to a consensus as economic research can realistically get.”
Colvile pointed to England’s own history of rent controls, where caps were enforced immediately following the Second World War, and persisted for more than a decade.
He told Morning Wire: “The period in which we had them in England saw the private rental stock become run-down and our big cities empty out.
That’s because with rent control there is no incentive for landlords to renovate or even repair their properties.”