Rent controls sound great. It’s simple – the cost of renting in London is way too high. We can’t build enough houses to keep up with demand. The poor and young are being squeezed in a terrible housing market run by greedy landlords. Solution: legislate to ban high rents, so that the poor and young can afford housing. Problem solved.
This argument fails for the same reason all price controls fail. They usually have the opposite effect to the one intended, and end up hurting the people (the poor and the young) whom they’re meant to help. To see this, consider a recent example in the Israeli book market (quotes from here):
A new Israeli law controlling the price of books and mandating guaranteed minimum compensation for writers has had the complete opposite effect of what lawmakers had intended, with book sales now in a free fall just one year after the law went into effect.
It’s called “The Law for Protecting Literature and Books,” but the impact on the industry has been so devastating that the head of a prominent book publisher has taken to calling the new mandate, “The Law for Hurting Literature and Books.”
The law banned the discounting of books over 18 months old, and mandated that a certain %age of the fee goes to the authors. All sounds great – authors don’t get paid enough, let’s legislate the price of books and make sure they do. But the effect it had was catastrophic:
The left-wing Israel newspaper Haaretz, which usually writes in favor of “social justice” issues, conceded that the law “has had the opposite effect its backer promised it would bring.”
Publishers told Haaretz that the law “has upset the entire literary food chain” with sales of new book titles down between 40 and 60 percent and down 20 percent for books overall.
So a law intended to benefit authors by raising the price of books… ended up harming authors terribly, by reducing their sales. Oops. Of course, the legislators who introduced this had the best of intentions:
Israeli lawmaker Nitzan Horowitz of the socialist-leaning Meretz party, who introduced the legislation, told Israel’s Army Radio last year that “we passed this law because of a market failure” and that the aim was “to ensure that consumers, readers receive good, high-quality books and that their authors will receive appropriate compensation.”
Rent controls would have the exact same effects. The core problem London faces is that demand for housing is booming, but we can’t build new houses/flats fast enough to keep up. (Excellent summary in this BuzzFeed, and this Shelter report contains more detail). Legislating the price of renting would have the following effects:
- Restricts the supply of rental housing. Landlords have a greater incentive to turn land into offices or sell it, as opposed to renting it.
- Those that do get the precious rent-controlled apartments will stay there for longer; the poor & young who are entering the property market will be even more screwed finding an apartment, because the non-rent-controlled rents will have gotten higher.
Rent control has been tried in multiple US cities. Google to see the results. Anecdotally speaking – both New York and San Francisco have had rent controls for ages, and anyone who lives there, or has tried to live there, will tell you how utterly insane the rental market there is. So if we want London to be more like NYC and SF, we should support rent controls. QED.
Apparently 59% of the public support rent controls. Which is bad, because if enacted, they will end up making everything worse.