Why Finland shows that rent controls don’t work

A growing private rental sector crisis in the UK with landlords leaving and rents increasing has seen a growing clamour to introduce rent controls.

However, the experience of renters in Finland shows that this might be the wrong approach.

Politicians such as Nicola Sturgeon who unveiled a ban on rent rises in Scotland last September, which will be replaced by a 3% cap on rent rises in April, led the way.

Since then, the Welsh government has admitted that it has looked at introducing rent controls, and the issue of a rent freeze is a regular subject for Sadiq Khan, the mayor of London. The Labour Party has also warned that rent controls may be needed in the cost-of-living crisis.

Policymakers not introducing rent freezes or more regulation

However, an analysis from the Daily Telegraph shows that the experience in Finland where tenants saw a rent supply crunch during the 1990s led to policymakers not introducing rent freezes or more regulation.

Instead, they deregulated the sector to deliver affordable homes to rent – and that move has been hailed as a housing policy success story by the Organisation for Economic Co-operation and Development (OECD).

Before deregulation, Finland had a heavily regulated private rented sector with strict rules covering evictions and every aspect of renting controlled by the government.

But with the supply of homes to rent falling over 10 years by 11% in the 1990s, and fast rising rents, Finland decided to act.

Some landlords were not declaring rental income

The government acknowledges that some landlords were not declaring rental income for tax purposes, and some employers would lease building from landlords and then sublet them to an employee.

And once restrictions in Finland were lifted, there was an immediate bounce in rental property supply. Between 1990 and 2000, government statistics show that the number of homes for rent leapt by 45%.

The lesson learned from Finland, the Telegraph says, is that encouraging more landlords to invest in the rental sector did not lead to a negative impact on the country’s housing market.

However, one secret for Finland’s success is that there was a house building boom to meet growing demand.

One Finnish housing expert told the newspaper that rent controls have ‘unintended consequences’ and the lesson for the UK is to expand housing supply rather than imposing rent controls to deal with a housing crisis.

‘We need a balanced private rented sector which is fair’

A spokesperson from the National Residential Landlords Association (NRLA) told Property118: “We need a balanced private rented sector which is fair and works in the interests of both landlords and tenants.

“The introduction of rent controls would only serve to make the market more unstable, increasing the sector’s ongoing affordability issues.

“Evidence from practically every jurisdiction that has introduced rent controls shows that they reduce investment, make it harder for households to find quality accommodation, and ultimately damage their respective rental sectors.”

The spokesperson added: “The best way to tackle rising costs and restricted availability is to make investment more worthwhile.

“Pro-growth measures, including the scrapping of policies which deter investment, are the best way to provide a path towards greater investment in the sector.”

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