Rent control is one of those policies so simple that politicians are drawn to it in every generation. No matter how many times its practical results are seen, they are still seduced by its promise. Rents are too high, people complain, so politician pass laws to limit them. It’s very straightforward and very wrong.
When rents are limited by law, landlords sell up and move their investment to where it brings greater returns. The supply of rental properties decreases. Since returns are limited, they try to cut costs by economizing on maintenance. Plumbing and electrical faults take longer to be fixed, broken windows to be replaced. The quality of rental properties declines.
The latest lesson is from California
“A team of economists at Stanford University recently studied a 1994 ballot initiative in San Francisco that brought in rent protections for small multi-family housing built before 1980. The policy inspired landlords affected by it to convert their units into condos or redevelop their buildings, reducing their supply of rental housing by 15% and pushing up rents by 5% across the city.”
The policy, although disastrous in practice, appeals to politicians because those who rent have votes, and they vote for those promising lower rents. Those who might rent in future do not have votes. The economist Assar Lindbeck described rent controls as the most effective way to destroy a city, short of bombing.
In the UK, Jeremy Corbyn promises rent controls, bidding for the votes of the present generation of renters at cost to future renters or would-be renters. The effect will be the same as it has been elsewhere. It will reduce the supply of rental properties, and the quality of those left in the market.
At the heart of this policy lies the delusion that all problems can be solved if politicians pass laws to fix them. Alas, sometimes market forces produce incentives and outcomes that can thwart the intentions of politicians, and rent controls provide a classic example. No matter how appealing the policy seems, practice has shown that it doesn’t work.