What are the consequences of freezing private sector rents in Wales?

As we approach polling day for the Welsh Senedd at least two of the parties are promising or are hinting at a private sector rent freeze in Wales so as to help people with the cost of living. However, there may well be consequences of introducing such a policy and the evidence is already there to prove it.

The Guardian reports that shares in some of the UK’s biggest buy-to-let lenders such as Paragon and One Savings Bank have fallen after it emerged that the chancellor may make private landlords commit to a one-year rent freeze.

The paper says that in an effort to protect households from rising living costs as a result of the Iran war, Rachel Reeves is considering whether to ban landlords in England from increasing rents for a limited period of time, however shares in buy-to-let lenders subsequently fell when the London Stock Exchange opened on Tuesday:

Stock in OSB Group, one of the UK’s biggest buy-to-let mortgage providers, was down 3.6% at 510p as investors worried the rent freeze would hurt the FTSE 250 company behind the lenders Kent Reliance and Precise Mortgages.

Shares in Paragon Banking Group, another large buy-to-let lender, slumped 2.4% to 733p. The FTSE 250 group is largely focused on lending to professional landlords who own more than three properties.

The Guardian adds that the rent freeze would be the latest in a line of restrictive measures imposed on private landlords by successive governments since 2015 in a bid to crack down on the once booming buy-to-let sector:

On Friday, the Renters’ Rights Act will come into force, bringing significant changes to the sector. The new law aims to give renters more security by banning no-fault evictions, limiting rent rises to once a year and only up to “the market rate”, and stopping landlords from accepting an offer over asking price.

Timothy Douglas, the head of policy and campaigns at Propertymark, which represents property agents, said the reports of a rent freeze were “alarming” for landlords when the Renters’ Right Act is already introducing “huge regulatory change”.

He added: “Rent controls risk distorting the market and undermining investment at a time when demand already far outstrips supply.”

Douglas said the government should instead focus on increasing housing supply and supporting long-term investment in the private rented sector.

These quick solutions very rarely work and often have unforeseen consequences, some of which could impact on the tenants that they are meant to help. The new Welsh government needs to bear that in mind when it considers how best to help renters.