Young people and immigrants will be hit hardest by Labour's rent controls

‘In many cases rent controls appears to be the most efficient technique presently known to destroy a city – except for bombing,’ socialist economist Assar Lindbeck declared in 1972.

Labour’s Manifesto released last week commits to cap rent increases to inflation, while giving cities power to cap rents even further. 

Rent controls transfer the mechanism for setting rent prices from the market to the state. They result in lower rents for those who currently have a rental apartment and are happy to stay in them. But for everyone else it makes them worse off. It drives up shortages that, depending on the exact policy, results in longer waiting lists or much higher prices for those entering the market. It is the property equivalent of pulling up the drawbridge when you get in. Corbyn might profess to be for the many, but this is a policy that is only ever for a privileged few. 

Rent control fails everywhere it is tried. . Take Sweden, in Stockholm the council has had a policy of rent controls for decades. It takes an average of a decade, and up to 30 years, to get to the top of the waiting lists for apartments. This prevents young people and immigrants from being able to find a home. It also greatly restricts those who want to find a bigger place as they start a family. It’s worth noting too that Stockholm capped rent controls above the level of inflation, Labour doesn’t want to do even that and is planning to go further to lock controls to inflation. This will mean more people locked out of moving to our great cities, it will mean even more shortage, and even more substandard accommodation. 

Most private renters’ gripes come down to issues with accomodation: a broken fridge that has taken too long to get fixed, a damp wall, or a boiler on the blink. Well, rent control doesn’t fix this — it makes it worse. Because property developers realise that they cannot get a sufficient reward for building new properties due to restrictions on rents, new home building collapses and investment in properties already in the market dries up. This makes the shortages even worse while the quality goes down. 

It’s not just in Sweden of course — equally self-promotingly progressive San Francisco also has rent controls. A study by Stanford University found that between 1994 and 2010 those who were already living in rent-controlled properties had benefited from lower rents by about $2.9 billion between them. This however had been at the identical expense of an additional $2.9 billion to those who came to the city later who experienced higher rent because of a shortage of available housing. Rent controls added up to a transfer of benefit from young people and immigrants to those who are already tenants. 

Tinkering with the price of rent does not identify the real underlying problem behind the housing crisis: the fact that there are too few homes. Heavy restrictions on building new homes have stifled building by both the state and the private sector. Council procedures as well as national planning legislation currently results in housing that inefficiently uses space. It also takes years to obtain permission for large developments. With our politicised and democratised planning system we’ve ended up making property an asset class with a few winners at the expense of everyone else. We should not replicate that shortage in rentals too. 

The Conservatives have gone some way to help deal with this by easing restrictions on building extensions. Current Conservative housing minister Rob Jenrick has proposed some good reforms. such as allowing owners of detached homes to build two extra storeys without planning permission which could then allow the property to be split into flats. 

However, both parties need to realise that current planning procedures are not fit for purpose in order to bring about more homebuilding. If not, then no level of tinkering will prevent shortages, high prices and long waiting lists that come with that — and the last thing Britain needs is the explosive economic impact of rent controls.