Things not to do: Reintroducing rent controls

Some policy proposals are being advocated as if they were pure theory, untested, and capable of being implemented as suggested. In fact many of them have been tested and found to produce adverse, sometimes disastrous, results in practice. Those proposing them seem to have no sense of history or any understanding of economics and the way the world works. Some of the most absurd have shown, sometimes repeatedly, that they fail in practice; others have produced in practice the very opposite result of what they were intended to achieve. The real world has already passed its verdict on many of these fanciful and dangerous proposals.

Rent controls

Wherever they have been introduced rent controls have led to a shortage of rental accommodation and a deterioration in its quality.  When Britain had rent controls there was a chronic shortage pf private rented accommodation. Those who became landlords could easily transfer their funds to other investment classes instead. If there is insufficient return from property, they will choose other things to gain greater returns.

Rent controls involve having rents limited by law to below what would prevail in an open market by the ratio of demand to supply.  Given below market returns, landlords have tended to withdraw from the rental market, to sell their properties, and to invest elsewhere.  The supply of rental properties diminishes in consequence.

Furthermore, with less money coming in from their investment, landlords tend to scrimp on maintenance and renovation. They choose to cut their investment because it now brings inadequate returns. General maintenance slips back on things such as damp and rot treatment and repainting and refurbishing. Rewiring and re-plumbing are postponed, and the physical condition of the property declines.

The Swedish economist, Assar Lindbeck, made a study of rent control in many cities and found a similar pattern emerged.  He famously remarked that, "next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities." In fact rent controls only take out supply of housing, leaving demand unaffected, whereas bombing kills people as well as destroying houses.  It could be argued that it is worse than bombing.

Rent controls are politically attractive because they promise to peg rents for those already in rental accommodation.  They do so at the expense of the people who do not have, but wish to have, rentals themselves.  The present renters vote, the future ones do not, so the politician promising rent controls gains the votes of the former without losing votes from the latter.