Right-wing think tank criticizes rent controls

The think tank Institute of Economic Affairs (IEA) has published a report criticising rent controls. They lead to higher rents for new tenants and worsen both the supply and quality of housing.

This makes it more difficult for tenants to find a new apartment and prevents landlords from increasing supply by purchasing new properties.

The work was conducted by Dr. Konstantin Kholodilin, senior researcher at the German Institute for Economic Research, who analyzed 196 studies from six decades and almost 100 countries.

He said: “Rent control effectively reduces rents in the controlled sector, but it comes at a high price.

“Tenants who live in rent-controlled apartments benefit the most, at least in the short term, while newcomers lose out due to rent control.

“In the long run, rent control can harm the rental sector by forcing landlords to convert their housing and turning tenants into owners.”

The Scottish National Party had previously introduced a rent cap of three percent per year, while tenants north of the border can continue to challenge unfair rent increases.

London Mayor Sadiq Khan also supports rent controls, but the leadership seems to be more cautious.

Dr Kristian Niemietz, IEA’s editorial director, said: “Economists are a notoriously divided profession: ask three economists and you will get four opinions. But there are exceptions, and the study of rent controls is one of them.”

“This is an area where the empirical evidence really overwhelmingly points in the same direction.

“The finding that rent controls reduce the supply and quality of rental housing, reduce housing construction, reduce the mobility of private tenants and lead to a misallocation of the existing rental housing stock is as close to a consensus as is realistically possible in economic research.”

Ben Twomey, managing director of the tenant initiative Generation Rent, responded to the newspaper.

He said: “One of the obvious disadvantages of rent control, the IEA says, is that it forces renters to become homeowners. Yes, please! That is what many of us would like to do but cannot because of rising rents.”

“The briefing also mentions that rent controls could reduce ‘home mobility’, which might be a problem in other countries, but in England the typical renter spends less than three years in their home, so more stability to put down roots would be a welcome change.

“It is also claimed that the quality of housing will not improve or will even deteriorate under rent control schemes. Around one million privately rented homes currently do not meet decent housing standards and more than one in ten private renters live in potentially life-threatening situations – and all this without rent controls. To change this, regulation outside the framework of rent control is needed.”

He further noted that “rent controls will not solve all the problems,” adding that more affordable housing needs to be built.