The resurgence of private renting is perhaps the biggest transformation in the UK housing system over the last decade.

Indeed, if you put it into a longer historical perspective it is quite remarkable. In the 1970s, in the face of seemingly inexorable growth of owner occupation and local authority renting, housing commentators seriously forecast the imminent demise of the private landlord. The decline of private landlordism went into reverse under the later Thatcher government, but its revival has been propelled more rapidly since the early 2000s by the engines of Buy-to-Let funding, affordability problems in owner occupation, wage stagnation, high household debt, and poor economic prospects.

The change in the scale of the sector has been accompanied by an equally important rehabilitation of its reputation. The 1960s brought us the word Rachmanism to signify exploitative and intimidatory landlordism. In the 1970s those on the political left contemplated the prospect of the extinction of the private landlord with enthusiasm: the landlord was an anachronism of the Victorian age – profiting from basic needs and misfortunes – that had no place in a modern civilised society. Yet from the 1980s onward there has been a continuous flow of policy statements aimed at rehabilitating and legitimising private landlordism.

The current government has sought to stimulate the sector through a range of funding mechanisms. It has sought not only to increase the scale of the sector but also raise its reputation further by encouraging institutional investors to enter the market. Institutions with valuable brands to protect are not, in theory, going to risk engaging in the sort of poor landlord practices – neglect of physical maintenance, harassment, unlawful eviction – that have been seen as endemic in the sector.

It may look like private renting is therefore very much back in business. But there are problems ahead.

First, there is the question of questionable practice. Today’s Guardian carries a piece entitled Meet the new class of landlord profiting from Generation Rent. It has generated considerable comment. The landlords profiled in the article have very different business models. The most disquiet has been generated by the Rent to Rent model showcased by one Dan Burton. This seems, to any objective analysis, to be about nothing other than exploiting acute housing shortage. It appears that young Mr Burton’s business model involves renting properties from other landlords, converting living rooms into bedrooms and then subletting the individual rooms. The rooms are let on licenses rather than tenancies in an attempt to ensure occupiers’ rights are minimised. This is a way of extracting more profit from the same property by crowding it.

This approach, as described in the Guardian at least, begs all sorts of questions. If the property owner/landlord isn’t aware that the property is being sublet then it probably means they are in breach of their own mortgage. It is likely that if the property being sublet is large enough then it would qualify as a House in Multiple Occupation, which means that it would need licensing and would no doubt be treated differently for insurance purposes. There is also the question of whether the resulting letting arrangements, if cramped enough, would run into problems under the Housing Health and Safety Rating System. It’s not really my field, but my understanding is that subletting is a bit of legal minefield anyway. It can be legal, but is usual done via commercial arrangements, and certain types of legal rights for the subtenant can inadvertently be created. This could make things hugely complicated – if anyone in the vicinity of such an arrangement had any understanding of their legal rights.

The negative response to Rent to Rent comes not just from tenants and potential tenants. It also comes from landlords who see this sort of behaviour as retoxifying the sector. The fear is that we’ll be perceived as heading back to an era of Rachmanite profiteering. And that may well generate a negative political reaction. After all, it was protests about landlords profiteering from the deprivations of the First World War that triggered the first moves by the government to regulate rents in 1915. Labour are already talking about resurrecting the idea of a national register for landlords, which is just the sort of thing most landlords would rather avoid.

The second problem is the coming rental housing crunch. How this will play out, and over what timescale, is not entirely clear, but my feeling is crunch there almost certainly will be. The restrictions in the local housing allowance and the benefit rules for Under 25s already mean that certain types of property and certain areas are no longer affordable to those on low income. And one of the consequences of the new underoccupancy rules in the social rented sector is that more people are seeking to access the private rented sector to trade down in property size, even if the rent and the housing benefit bill do not fall. Layer on top of that the overall benefit cap and a further group of households will find that their current accommodation is no longer affordable.

So there is a general pressure to trade down to poorer accommodation across much of the low income rented sector. This all increases the demand for the type of property that Mr Burton and his ilk are willing to offer – overcrowded HMO-type accommodation from which the maximum rent is being extracted. Reports of landlords subdividing properties and intensifying utilization in a bid to profit from people’s declining incomes are not difficult to come by.

Yet, at the same time the move to direct payments under Universal Credit, coupled with those same declining incomes and increasing benefit dependency, particularly among those in work, mean that some private landlords are increasingly reluctant to let to those reliant upon benefits. Renters are being given notice to quit simply because landlords fear they might not be able to pay in future. And they are struggling to find alternative accommodation. In high pressure housing markets there is little available in the social rented sector, even for those who are technically homeless. But they cannot be housed adequately in the private rented sector because rents for appropriate properties breach the LHA limits and low pay means that the tenant is unable to make up the difference over the long term. The only option is overcrowding in bed and breakfast accommodation.

The critic might say that people on benefit shouldn’t expect to live in expensive areas so they need to relocate. But that argument needs scrutinising much more closely. First, it is frequently being made but more rarely is it calibrated. If the only accommodation that is both appropriate and affordable to those in low paid work, with assistance from housing benefit, is twenty, thirty, forty miles from the place of work then it places households in an impossible position, particularly if they have school age children. Second, it is an argument that focuses on the individual household and not what is required to keep local economies and communities functioning. We are not talking about the unemployed being priced out of Virginia Water. We are talking about key workers such as teachers or nursery nurses who cannot afford to live locally. You might say that, eventually, if the high cost of housing means there is a shortage of staff then salaries will have to rise. All I would say to that is that it would be a good idea to become a bit more familiar with the extent of the squeeze on public sector budgets and the incomes of those who are supposed to be paying for services such as childcare.

I don’t think the current policy directions are sustainable. Something is going to give way. They are setting in train processes of spatial sorting and segregation that will eventually start to impede the functioning of local economies. Central London may become, if it isn’t already, an exclusive enclave of the super-rich. It is one thing for the low paid workers who keep the city running to have to be bussed in from Brent. It is a different type of problem if they’ve all had to move to Birmingham to find somewhere affordable to live.

An alternative future is one in which policy renegotiates the definition of acceptable accommodation. Overcrowding and poor quality are reclassified as acceptable and not a cause for concern or government action. Beds in sheds are no longer a problem but a practical market-driven solution. The poor can cram into shanty towns around the edge of the shiny city. And they can travel in each day to keep the city ticking over in return for a few pounds.

That is no doubt a sustainable model. You can find it operating in many parts of the developing world. But it is a model that we should aspire to? Or, worse, a model that policy should actively seek to promote?

If we don’t like either of those scenarios then we need to apply some more serious thought to the housing problem. How are we going to realize a different future which offers the possibility of everyone living with dignity in appropriate, adequate and affordable accommodation? And being able to do so in ways that keep local economies both functioning and competitive.