Rent control is the wrong answer to high rental prices

Everywhere rent control has been tried, it has ended in chaos and absurdity. In New York, wealthy heiresses with multi-million-dollar fortunes pay token rents on palatial upper-east-side apartments while struggling artists, retail workers and designers have to commute in from Brooklyn. Rent control is intended to help lower income households, but rich, well-connected tenants who know how to game the system always end up being the winners because artificial market distortions always create unfairness.

Why, then, is rent control so popular? A poll this week from lobbying group Generation Rent, reported in the Telegraph, showed that 59 per cent of households in the UK are in favour of capping rental income. Perhaps the answer is as simple as: everyone’s feeling the pinch. But it’s probably also that young renters, resentful they can’t get on to the property ladder given today’s high property prices, quite like the idea of giving their landlords a bit of a bloody nose.

If that’s the case, they are being short-sighted. No one benefits from rent control in the long term, not least because it reduces the incentives for landlords to look after their existing stock. Why, as a landlord, bother sprucing the place up when you’re prevented from getting a fair market rate for it? Rent control also creates a two-tier market, with some properties rent-controlled and regulated, and others uncontrolled and unregulated. Those sorts of markets are never good news for ordinary people: some win and some lose for the most arbitrary of reasons.

More to the point, rent controls don’t solve Britain’s number one housing problem: we don’t have enough homes for our growing native population and our many immigrant workers to live in. It’s particularly a problem in London and the South East, which has a massive shortage of all kinds of houses.

We don’t need rent control. We just need to build more houses – perhaps with a review of green belt limits in the South East. That will make some people uncomfortable, particularly those who live in already-crowded areas in Kent, for example. But there isn’t much alternative when so many people want to live and work in one end of the country.

Since it is nigh-on impossible, unless you’re very wealthy, to buy a house in your twenties if you live in London, giving the first-time buyers of these new homes a few breaks – say, with a stamp duty cut – would help too.

These aren’t politically expedient policies like rent control promises to be, so governments have do far shied away from doing what’s really needed. But it’s simple supply and demand: young people can’t afford to buy homes because prices are so high, so they rent, pushing rental prices up. Thus we get renters, and rent lobbying groups, remain adamant something must be done about these costs – using occasionally overheated language about “rent slavery” and “lifetimes of exploitation.”

According to Generation Rent director Alex Hilton, “The high level of support [for rent control] from home owners indicates concern and sympathy from an older generation for a largely younger generation condemned by high house prices to a lifetime of rent slavery. Private sector renters are now spending upwards of 40% of their incomes on rent.”

The experts are unanimous, though: rent control is a terrible solution to the problem of high rental costs, if high costs are even a serious problem. “All the evidence suggests that rents are coming down in real terms, not rising, while the increasing numbers of tenants can mostly be explained by mass immigration and the explosion in higher education,” says the Telegraph‘s Matthew Lynn.

Merryn Somerset Webb of MoneyWeek agrees, explaining that the real problem in the UK housing market isn’t rents or renters at all, it’s those first-time buyers. How, she asks, does rent control help people who want to buy? “And if that’s the case, surely rather than pile bad policy on bad policy, it would be better to remove some of the distortions that prop up house prices in the South East?”