It's not. And I am way outside my comfort zone but my recollection was it works a little like this.
- At the time of becoming a tenant you pay a fair market rate that is determined by guidelines set by the state. It is reflective of housing pricess and of course increases over time. So you only move into something you can afford (or afford with benefits) at the start of your rental journey.
- Tenants then have certain protections so your rent can only increase moderately, something like a little less than underlying inflation or similar. The idea I think is that rent becomes more affordable over time or certainly not worse if salaries and benefits can close to keep up with inflation
- Pay your rent on time and you can't be chucked out - tenants have a lot more protection than the UK
- Now the market rate for rental for a new tenant may increase faster due to property prices but your existing landlord can't take advantage of that while you're paying your rent on time.
- This discourages too many wannabe landlords making a quick buck because there isn't one to be made.
- If housing prices and thus market rate for rent increases faster then as a tenant who maybe isn't advancing in life financially you basically stay where you are since you can't be chucked out but you also can't afford to start afresh at market rates if you enter a new property. So you can't move but you'll always have a roof over your head which is the whole point here.
- All this keeps housing prices moderately in check because there's no fast cash to be made
- As a result of all this landlords tend to end up being more "institutional" buying blocks of flats. So with much less turnover of tenants they rely on a larger portfolio so their average rental at a given moment in time in the block is "OK" for a return - a mix of people there decades paying well below market rate and newer ones paying more for the same thing. Remember new tenants where you've previously had long term tenants will pay market rate which is likely to be considerably more than the outgoing tenant who'd been paying an index linked amount for decades that is probably well short of property price inflation and thus the rental rates. Keep your rental property portfolio longer and the returns become more than acceptable since your mortgage/financing won't change much.
I caveat all this again by saying this was my interpretation from 20 years ago so I may have been completely wrong then and now.
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