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There is something of a perfect storm in UK housing regulation.

This week saw the second reading of the Renters Reform Bill which has long been trailed but contains much which might worry landlords. It also saw the publication of a from Labour, the opposition party likely to assume power following the next general election, which is expected later this year. The report makes a series of surprising recommendations, including the introduction of rent caps, described as 鈥渞ental stabilisation鈥� measures.

This comes against a background of ever more stringent energy performance regulations for residential development and rental properties in general. Together with the widespread refurbishment of cladding now being enforced for UK private-rented sector (PRS) properties following the appalling tragedy of the Grenfell Tower fire, and a series of tax measures penalising small private landlords.

Have we got to the stage where regulation is frightening investors? 鈥淭he UK needs to continue to attract global and domestic investors into the housing sector,鈥� warns Polly Simpson, head of multifamily development at Savills. 鈥淣ew regulations [are] adding to an increased cost base as well as the time to deliver new homes. Certainty over regulatory requirements is essential to ensure the UK remains an attractive place to invest and develop housing.鈥�

The Renters Reform Bill was first mooted by the incumbent Conservative government in 2019. Its principal intention was to forbid 鈥榥o-fault evictions鈥�, under so-called Section 21, whereby a landlord can evict a tenant without a reason, once their fixed-term contact has come to an end. No-fault evictions have been on the rise 鈥� last year, there were 9,457, the highest level in seven years and a 49% increase over the previous year.

The bill is getting very close to becoming law, but there have been innumerable amendments, not least over this central aim. The government says the new system will not take place 鈥渦ntil we judge sufficient progress has been made to improve the courts鈥�. But as Louise Marin-Bataller, senior associate at law firm Forsters, wonders: 鈥淗ow long could a reform of the court system take? Will it ever happen and will section 21 ever go?鈥� It would seem unlikely during the current government鈥檚 lifetime.

There are many other aspects to the Reform Bill, however, which might still have implications if not further amended. Worries around the private student housing market appear to have abated, which is lucky as some of the original proposals regarding changes to notice were quite simply 鈥渁 minefield鈥� in Marin-Bataller鈥檚 opinion.

She remains worried about proposals to stop landlords accepting more than one month鈥檚 rent in advance. This could cause problems for foreign renters or those with bad credit histories, who 鈥渨ould normally get around the credit referencing issue by paying six to 12 months鈥� rent in advance,鈥� Marin-Bataller says. 鈥淲hat will happen to this group of people, particularly when some have suggested that guarantors should also no longer be allowed?鈥�

Tenants could clearly benefit from landlords being unable to serve notice to terminate a lease until six months into the lease term. But unless proposed amendments are accepted, 鈥渓andlords could be faced with notices served on day one by tenants resulting in short-term lets of two months鈥�. Marin-Bataller wonders: 鈥淲ill this ultimately lead to landlords leaving the PRS?鈥�

There is no question that the Bill is spooking many of the UK鈥檚 two million private small investors, who dominate the UK rental market. Many are now selling up. But what about larger institutional investors?

Ian Fletcher, director of policy at the British Property Federation, says: 鈥淭here are some proposals around being able to raise rents that are now going to be tougher. Landlords are going to have to use what鈥檚 called a section 13 process. So, it鈥檚 certainly, a more challenging environment, but for larger institutions, which typically are the kinds of organisations we represent, there鈥檚 a lot of things in the bill that they would do as a matter of course anyway.鈥�

Indeed, some welcome the professionalisation of the market. Rick de Blaby, CEO of Get Living 鈥� whose owners include institutional investors Aware Super, APG, Oxford Properties, Alecta, Allianz and Local Pensions Partnership 鈥� is in support of 鈥渓egislation that drives up standards鈥�.

He says: 鈥淎n efficient, transparent and professional rental market should offer benefits for both investors and residents, but the current mismatch in supply and demand has, at the margins, allowed poor landlord behaviour to flourish. We therefore welcome government in bringing forward legislation in the form of the Renters Reform Bill to tackle the short-term issues in the sector.鈥�

One question is why politicians are so focused on supply rather than considering what is happening to demand. 鈥淲hat has grown most has been demand,鈥� says Fletcher. 鈥淭here has been a lot of household formation after the pandemic, since migration has been strong into the UK. So whilst some small landlords have left the market, the thing that鈥檚 really driven prices in the market has been those various demand levers that have created a mismatch between supply and demand.鈥�

The Cowan report鈥檚 鈥榬ental stabilisation鈥�

Even if the Conservatives鈥� bill ends up being neutered, Labour is committed to ending no-fault evictions and might well introduce further legislation itself post-election. The question arises what else might it do?

Investors had felt reassured that, should it come to power, the party would not introduce rent controls. But on Wednesday a Labour-commissioned report led by Stephen Cowan, councillor of Hammersmith and Fulham, published its findings. Apart from calling for a tell-all register of rental housing, there was a key recommendation that rent rises should be 鈥渟tabilised鈥�. Any rise would be capped at either consumer price inflation or local wage growth 鈥� whichever is lower.

Labour鈥檚 official response to the report was to re-emphasise its opposition to rent controls. However, it is divided on this issue. The report鈥檚 author was moved to write an op-ed in the Guardian newspaper stating that his report rejected rent controls, describing the measures as 鈥渘ot a cap on rents, but a cap on rent increases鈥�.

Fletcher worries there is 鈥渢ension鈥� between the Labour Party and some of its mayoral candidates, who over the past year have been vocal in favour of rent controls at a local level. 鈥淚 would say that local rent controls are probably the worst form of rent control,鈥� he says.

鈥淚t would curb my members鈥� enthusiasm for the market if [Cowan鈥檚] proposal went through. The institutional market is small and relatively nascent here. And I just think that the messaging around rent controls would make the UK an unattractive place to invest.鈥�

Blaby is also concerned. 鈥淣ot only has it been proven to lower standards and restrict tenancies in markets it has been introduced in, but it will also cause a dramatic drop in the supply of new rental homes,鈥� he says. 鈥淩ent controls will undoubtedly damage investor confidence and therefore stall crucial investment.鈥�

Darren Gardner, chief operating officer of Nido, which was recently acquired by Canada Pension Plan Investment Board, agrees but is sanguine. 鈥淚t still seems unlikely that a new Labour government would introduce rent controls,鈥� he says. 鈥淩ecent experiences in Ireland and Scotland have illustrated how much these negatively disrupt the market.鈥� He points out that a cap on rent increases in Ireland has 鈥渟ignificantly strangled new development.鈥�

Time will tell if this is wishful thinking.