Rent controls would be dangerous and irresponsible – Sweden tells us as much
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BY EMILY CARVER
Every now and again a property listing goes viral on social media, reminding us just how extortionate and unaffordable the rental market in London has become. This time round it’s a one-bed flat in Camden where the mattress is conveniently positioned just inches from the toilet – all for the eye-watering sum of £1625 a month… not including bills.
It’s no secret in Britain that rents are high. Private renters here are forking out more to pay rent each month than anywhere else in Europe, bar Monaco (though some central London boroughs are even overtaking the riviera hotspot). These rent spikes translate to those on lower incomes struggling to be able to live and work in the capital – a situation both tragic and economically unsustainable.
Of course, politicians are keen to be seen to be on the side of renters. The Mayor of London Sadiq Khan has signalled that rent controls will form the cornerstone of his re-election campaign this spring, having consistently called for new powers to impose rent caps in the capital. And with the promise of cheaper rent, the quick-fix policy proves electorally popular – recent polling showed nearly 3 in 4 voters support the idea of rent controls and fewer than 1 in 10 oppose them.
But we only have to look to our Scandinavian neighbours in Sweden – who have had some form of rent controls since World War II – to see just how disastrous, both economically and socially, capping rents can be.
Sweden’s intention was to create a fairer society; that people would be able to live side by side in villages and cities alike, irrespective of their income. But as economist Milton Friedman said, it’s a mistake to judge policies by their intentions rather than their results. As with so many interventionist ideas, Sweden’s egalitarian dream has proven to be an illusion: in Stockholm, rent controls have caused acute housing shortages and worsened social and economic segregation.
In Stockholm, rental properties are meant to be allocated through a housing agency which ensures rents are kept artificially low. In practice however, properties in popular areas are not allocated this way. Savvy tenants who recognise the value of their contracts on the secondary rental market keep hold of their leases, even after they move out, choosing instead to sublet to their friends, exchange for other apartments or transfer them within their own family. Indeed, several prominent politicians have been caught using their political influence to cut the queue and obtain rental apartments before they’ve been returned to the housing agency. Only half of a per cent of primary rental contracts in central Stockholm find their way back to the housing agency. It’s little wonder that the housing queues are spiralling out of control.
The system, while deemed fair and equal on the surface of things, only works to the advantage of the well-connected. It is those at the bottom – including younger renters and new arrivals to the country – who are forced into the black market, where individuals pay on average double that of the official rent-controlled properties. A shocking fifth of young tenants in Stockholm admit to having illegally paid for a tenancy contract – a likely underestimation and a phenomenon that has fostered corruption, gang crime and even murder.
Rent controls have also left businesses in Sweden unable to recruit new employees – over a fifth of businesses claim housing shortages had made recruitment more difficult. It’s not clear how London’s Mayor would marry these conflicting consequences; on one hand, he has urged the Government to liberalise its immigration plans so that London businesses find it easy to recruit workers, but his support for rent controls would make it harder for businesses to do so.
The push for a more regulated rental market is relying on tried-and-failed evidence, fundamentally rooted in ideology instead of pragmatism. In the run-up to the Mayoral elections, we must work to shift the narrative on this dangerous, but popular intervention and focus attention on supply-side reform, including relieving tax pressure on landlords, and evidenced-based policies that will successfully prevent people from being priced out of the capital.
Emily Carver is media manager at the Institute of Economic Affairs. Follow her on twitter: @CarverEmily