Rent controls are a terrible idea

Published by freemarketconservatives on

BY ANDREW BOFF

Rent controls are a zombie policy. However many times you think they are dead, they keep rising again as a new generation of left-wing politicians seizes upon them as an easy answer to a difficult problem. Perhaps this is unsurprising when you consider that the case for rent controls is incredibly straightforward:

  1. Rent is taking too much of people’s incomes.
  2. This must mean that greedy Landlords are exploiting their unfortunate tenants.
  3. Given the market has obviously failed, the state should step in and make things fairer.

It’s certainly true that rent is taking a very large chunk out of people’s salaries. A study last year showed that a Camden resident renting a one-bedroom flat and earning the average salary for a Camdenite would be paying 61% of that salary in rent.

So it’s perhaps understandable that some people will believe that the answer is for the state to step in and decide what should be a reasonable level of rent for a tenant to pay. Well, given where you’re reading this article, you may be unsurprised to learn that I am going to make the case that the state should do nothing of the kind. There is certainly a problem, but rent controls are no kind of solution.

The fact that rent controls are a terrible idea unites more economists from all sides of the political spectrum than almost any other issue. Almost all economists (upwards of 93% of those surveyed) will agree that introducing a ceiling on rents will inevitably lower both the quantity and quality of available housing. Or, to put it another way, rent controls restrict supply without reducing demand and they reduce the incentive for landlords to spend money on improving their properties.

One man who begs to differ is London’s current Mayor, Sadiq Khan. Depending on your perspective he either sincerely believes that, despite the evidence of every city in the world where rent controls have been tried, it will be different this time or he believes that there are votes in pandering to the left of his Party and pretending that rent controls are a viable solution. To this end in January this year he pledged to “develop a new blueprint for stabilising or controlling private rents in the capital” in a press release that trumpeted the statistic that 68% of Londoners support rent controls. Setting aside the fact that such statistics are notoriously unreliable – what percentage of Londoners would continue to support rent controls if they were first informed that over 90% of relevant experts believe them to be a bad idea? – it is clear there is real dissatisfaction with the status quo.

So if rent controls are not the solution, what should the Mayor or the Government be doing? It’s worth noting that simply scrapping all regulation or pretending that the state has no role whatsoever in housing provision would be neither viable nor desirable. There is a legitimate role for a Mayor of London or for the Government in ensuring that sufficient numbers of decent homes are being built. 

However, it’s crucial to recognise that a number of current interventionist policies are actually causing the problems they are ostensibly meant to be solving. For example the Mayor should scrap “affordable housing” targets – which often stop otherwise workable housing developments from being built. Instead have a simple tariff based on market value, which developers would give to Councils in the form of discounts to create affordability to meet local needs.

The UK has one of the lowest rates of self-build homes in Europe, so there is a tremendous opportunity to significantly increase these. Some people may be able to get hold of enough money for the build, but not for the cost of the plot. If first-time self-builders can find a plot of unallocated land owned by the Greater London Authority (GLA) and secure planning permission to build on it, they will given the plot with the value of the land paid back only after any subsequent sale.

The state owns too much land in the UK and a responsible Mayor would consistently push to free up land under his or her control so it can be used to build private homes. It would be far better if this land was owned by individual home owners rather than, as is often the case, being kept under state control just in case it might be needed at some point.

Sadiq Khan has removed targets for family homes and simultaneously removed protection against garden grabbing. It is bizarre that in two of the few cases where there is a genuine case for some intervention, the Mayor has chosen to step back.

There is no silver bullet or big bang solution that could solve all the problems in the UK’s housing market in one fell swoop.  Nevertheless by strategically reversing state intervention where it is stopping homes from being built and by avoiding catastrophic mistakes like rent controls it would be possible to radically improve the status quo.

Andrew Boff is a London Assembly Member and Chair of the London Assembly Planning Committee. Follow him on twitter: @AndrewBoff


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