Rent Controls and the Reality of the Rental Market

Rent controls are often positioned as a solution to housing affordability challenges (where rents rise and become an unreasonable proportion of disposable income). By implementing caps on residential rents, policymakers aim to protect tenants from sudden increases and provide greater stability in the private rented sector. The intent is clear and, in many cases, well meaning.

However, the rental market does not operate in isolation from broader investment dynamics. Private rented housing exists because it attracts capital, and that capital is deployed based on expected returns, risk, and long-term yield. When government regulation upends those expectations, the market responds.

Recent developments in Scotland have provided us with a useful case study. Despite - or indeed because of - the introduction of rent controls during a declared housing emergency, rental supply has fallen in many areas. This experience highlights a core tension: restricting rental growth can reduce perceived returns, weaken investment appetite, and ultimately reduce the number of homes available to rent.

Why Rental Growth Is Central to Landlord Investment Decisions

At its core, the private rented sector is an investment market. Landlords - whether individuals, family offices, or institutional investors - evaluate property using familiar commercial metrics: yield, income growth, operating costs, capital expenditure, and regulatory risk.

Rental growth plays a central role in this equation. It offsets rising maintenance costs, compliance obligations, energy efficiency upgrades, and long-term asset stewardship and the tax and regulation onslaught of recent years. In many cases, rental growth also compensates for relatively modest headline yields when compared with other asset classes.

Importantly, capital is mobile: investing in property competes with equities, fixed income, infrastructure, and alternative assets. When expected returns in residential property are constrained, e.g., by rent controls, while costs and regulatory burdens continue to rise, investors reassess whether their capital is best deployed elsewhere – and with rent controls a mass landlord exodus is often a threat posed by landlord groups. The reality is that in Scotland – this reality has proven true.

From this perspective, rental growth is not an optional upside. It is a core component of how sustainable, long-term rental housing is financed and maintained. Else in a market where costs are rising faster than income, returns are eroded.

How Rent Controls Affect Perceived Returns and Capital Allocation

Rent controls alter the risk–reward balance of rental property in a fundamental way. Income growth is capped, but operating costs - maintenance, insurance, compliance, taxation, and financing - remain uncapped and often increase over time.

This creates an asymmetric risk profile. Even if headline yields remain acceptable in the short term, the long-term return becomes less predictable. For investors, perceived return matters as much as actual return. Regulatory uncertainty, particularly when future interventions are unclear, can dramatically reduce confidence.

The result is not necessarily immediate disinvestment, but hesitation. New developments are delayed, portfolio expansion slows, and marginal rental properties, or aging stock where maintenance costs are rising with age/obsolescence, naturally become less attractive to retain. Over time, this reduces the flow of capital into the sector.

It’s important to note that this is not an ideological response. It is a macro-economic adjustment to a changing investment environment.

Scotland’s Experience: Falling Rental Supply Following Intervention

The reality in Scotland in the last few years illustrates how these dynamics play out in practice. Data highlighted by Scottish Land & Estates shows a decline in available private rental homes across 14, predominantly rural, council areas between 2022 and 2025 - precisely the period in which rent controls were introduced.

The scale of the reduction is notable. In the Highlands, there are now more than 1,000 fewer homes available for private rent than in 2022. In Argyll and Bute, the number of rental properties has fallen by approximately 24% since 2024 alone.

The outcomes of rent controls are understandably pronounced in rural markets, where the economics of renting are already more fragile. Properties are often older, maintenance costs are higher, tradespeople are scarcer, and energy efficiency upgrades are more complex and expensive. Many landlords operate at a small scale, with limited capacity to absorb additional regulatory pressure.

Rather than stabilising supply, intervention has coincided with a contraction in available rental homes - demonstrating how sensitive investment decisions are to changes in perceived viability.

When Investment Falls, Homes Leave the Rental Market

When rental property becomes less attractive as an investment, landlords have several options. They can defer further investment, reduce exposure, or exit the sector entirely. Importantly, exit does not that the new purchaser is going to offer the property for rent, or indeed invest in an alternative property for rent.

The reality is that in many cases, properties are withdrawn from the rental market altogether. Tax considerations, local demand, and the lack of suitable replacement investments can all discourage property sales. The result is a net loss of rental stock.

This distinction matters. A home removed from the private rented sector is not automatically replaced by new supply. Particularly as Councils by and large have not built homes for rent for years, and housing association net additions to rental stock are shocking. Over time, fewer rental homes are available to meet the same - or growing - level of demand.

As supply tightens, competition among tenants increases. Ironically, this places upward pressure on rents in the medium to long term, undermining the very affordability objectives rent controls seek to achieve.

Conclusion: Sustainable Rental Markets Require Sustainable Investment

The experience in Scotland reinforces a fundamental lesson for housing policy across the UK. Rental affordability cannot be separated from rental supply, and rental supply depends on sustained investment.

The causal chain is clear: rent controls reduce perceived returns; reduced returns deter investment; lower investment leads to fewer homes available to rent; and constrained supply ultimately drives higher costs for tenants.

Protecting tenants and maintaining investor confidence are not mutually exclusive goals. But achieving both requires evidence-led policy, regional sensitivity, and a clear understanding of how capital behaves. Without that balance, well-intentioned regulation risks making the rental market less resilient, less accessible, and more expensive over time.

The solution is institutional build to rent: not buying up existing portfolios, but creating new stock for rent. The Ringley Group has advised on over 15,000 build to rent homes in recent years and operates thousands across the country. We are serious about contributing to and operating new housing supply which this country so badly needs.