A think tank has put forward an ambitious, highly controversial blueprint that seeks to overhaul how the private rented sector operates, pitching strict rent caps alongside a dramatic reversal of landlord tax policy. In a detailed policy intervention, the Joseph Rowntree Foundation argues that ministers should step in to curb rent increases both within and between tenancies, using market controls to rein in the spiralling state bill for housing support.
To stop landlords fleeing the sector in response to statutory caps, the charity proposes a significant concession: repealing the Section 24 mortgage interest relief restrictions brought in by George Osborne nearly a decade ago. Under the plan, that tax break would be funded by introducing National Insurance Contributions on residential rental profits, effectively shifting the tax burden from highly leveraged buy-to-let investors to unencumbered, outright property owners.
The Rising Cost of Support and Market Rents
At the heart of the proposal lies the contentious issue of Local Housing Allowance. The allowance rates remain frozen, having last been realigned with actual market values in April 2024. The charity warns that if this freeze stays in place across the lifetime of the current parliament, private renters who rely on housing support will face a shortfall of around £700 a year by 2029.
The human cost outlined in the modelling is stark. The foundation estimates that keeping rates frozen could push an additional 50,000 people into poverty, 60,000 into deep poverty, and 80,000 people, including 30,000 children, into very deep poverty. To avoid that outcome, the charity wants the government to restore rates to the 30th percentile of local rents at the upcoming Autumn Budget, followed by an ironclad commitment to uprate them every year.
Yet footing that bill is expensive. The Treasury faces mounting pressure over public spending, which is why the foundation links welfare uprating directly to statutory rent restrictions. According to the report, introducing caps between and within tenancies from the 2027/28 financial year could suppress open-market inflation enough to reduce the state cost of relinking benefits by £1.1 billion by 2030/31. That represents a 40 per cent reduction in the long-term cost of regular uprating.
Unwinding Section 24 to Protect Leveraged Portfolios
Recognising that statutory rent limits often trigger supply contraction, the charity proposes unwinding the tax framework that has squeezed leveraged landlords since 2017. Section 24 of the Finance Act 2015 phased out the right of individuals to deduct full finance costs from their rental income, replacing relief with a basic-rate tax credit worth 20 per cent.
The report argues that returning to full mortgage interest deductibility would give indebted landlords the fiscal breathing room needed to endure restricted rent growth. As the charity frames it, the goal is to smooth the introduction of a rent control and protect the small minority of financially exposed landlords by restoring mortgage interest relief.
The cost of this tax break would not fall on the public purse. Instead, the charity suggests levying National Insurance Contributions directly onto rental income. This mechanism targets landlords who own properties outright without borrowing costs, who the foundation claims have enjoyed above-normal profits under the current tax rules. By rebalancing the tax burden away from thin-margin mortgaged landlords and onto cash-rich portfolios, the authors argue the government could prevent a disorderly sell-off while keeping rents suppressed.
What the Debate Means for Regional Tenancies
For letting markets across the South East, including commuter belts and market towns throughout Kent, the mechanics of this proposal reveal sharp regional fault lines. In areas where local rents outstrip standard housing support, the freeze on Local Housing Allowance has already widened the shortfall for low-income households. Tenants receiving support face intense competition for entry-level accommodation against professionals moving outward from central metropolitan hubs.
Yet capping rents between tenancies introduces well-documented hazards for supply. When landlords lose the ability to reset rents to open-market levels between tenancies, capital improvements frequently grind to a halt. Landlords choose not to upgrade fixtures or improve energy performance ratings if the capital outlay cannot be reflected in future yields.
The suggested tax trade-off also cuts differently across different landlord profiles. In commuter belts like west and mid-Kent, older landlords who built unencumbered portfolios over twenty or thirty years would bear the brunt of any new National Insurance levy. Conversely, younger landlords carrying substantial buy-to-let mortgages would welcome the return of full finance cost relief, which would restore cash flows damaged by recent interest rate volatility.
Government Hesitation and the Market Reality
Ministers have shown little appetite for rent controls. The government has repeatedly defended the freeze on housing support by pointing to a challenging fiscal backdrop, while insisting it has no plans to introduce statutory rent caps. Historical evidence from other European cities suggests that capping rents between tenancies discourages institutional investment and leads to shadow markets, where prospective tenants compete through informal premiums rather than transparent listings.
Even so, the policy intervention highlights the intensifying friction between welfare spending and rental market pricing. Freezing support rates temporarily protects the public purse, but it does so by pushing lower-income private tenants closer to arrears, placing local authorities under severe homelessness pressures. For landlords, an unlinked benefit rate simply increases the risk of rent default across tenancy agreements.
The debate makes one point clear: the private rented sector cannot be treated as a single, uniform entity. The financial realities of an investor running a heavily mortgaged portfolio differ entirely from an unencumbered retiree relying on rental yields for pension income. Sweeping proposals that try to engineer market rents while balancing the books through targeted tax penalties risk distorting the private sector even further, long before any relief reaches the tenant.