Rent control again
Rent control is back under consideration in many cities, even though it is one of the most damaging economic policies ever devised. Assar Lindbeck, the Swedish economist described its effects: “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.” As the ASI pointed out in one of its earliest publications, it is more effective than bombing because bombing takes out demand as well as supply. Rent control just takes out supply.
No matter how many times its ruinous effects are demonstrated by shortages of rentals, huge waiting lists stretching into years, and a deteriorating housing stock, back it comes from economic insanity to haunt us like some monster from the black lagoon of political oblivion.
You can, to mix metaphors somewhat, put a stake through its heart and bury it at the crossroads, but it rises again from the dead to wreak its havoc yet again.
First the bad news, and then the really bad news. When rent prices are fixed at below market levels, many landlords sell up and put their properties on the market for prospective home buyers rather than renters. Potential new investors who might have become landlords turn to investments that will bring better returns.
Rent control policies have led to long waiting lists for rental properties in various cities around the world. Stockholm’s strict rent control laws, have resulted in wait times of 10–20 years for a rent-controlled apartment. Many tenants hold onto their apartments for life, reducing turnover and availability.
In San Francisco control has contributed to a shortage of available rental units, with landlords opting to convert properties into condos or keep them off the market to avoid regulatory restrictions.
After implementing rent caps in 2020 (later overturned in 2021), Berlin saw a decline in available rental properties as landlords withdrew apartments from the market, leading queues and waiting lists.
Vienna’s extensive public and rent-controlled housing system has led to long waiting periods, with some applicants waiting years for a subsidized apartment.
Similar results have taken place under the rent controls in Toronto and Dublin. The story is the same: fewer properties on the rental market and waiting lists stretching into years.
Even more bad news is that with returns fixed below economic levels, landlords tend to skimp on repairs and maintenance, causing properties to fall into disrepair more rapidly than when they produce adequate returns for the landlords. This is why rent controls degrade the housing stock.
On the other hand, the relaxation of rent controls in Buenos Aires encouraged more landlords to re-enter the market, increasing the number of available rentals. While rents initially surged, the long-term effect was a more stable and balanced rental market.
Why, given all this, are rent controls on the agenda? The answer is that while they make no economic sense, they make political sense. Current renters are a lobby that politicians can appeal to. Future would-be renters, the ones who suffer from controls, have no votes now. They do not see themselves as victims of controls. The really bad news is that unscrupulous politicians reduce and degrade the stock of rental properties so they can win the votes of those whose rents are capped.