Oct

RLA research says rent controls will hurt tenants

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Rent Controls:

The controversial issue of rent controls, as proposed by Labour and the Mayor of London, divide opinion in both the tenant and the landlord communities. Most landlords are against, while for tenants its often a tempting prospect.

However, according to a round-up of research by the Residential Landlords Association (RLA), rent controls hurt tenants by drying up the supply of homes to rent and in the long run, in many cases by actually increasing rents.

The Mayor of London is calling for the power to introduce rent controls across the capital. This, according to evidence sourced by the RLA, would have a negative impact on tenants. The RLA’s analysis of existing research from around the world it says reveals the harm they can cause. And it gives specific examples:

·
Forms
of rent control exist in Los Angeles and San Francisco. A paper for
the California Budget and Policy Centre has reported that renters are
“substantially more likely to struggle with housing affordability
than homeowners.” It goes on to note that: “More than half of
renter households paid over 30% of income toward housing in 2017, and
more than a quarter were severely cost-burdened, paying more than
half of household income toward housing costs.” A further paper for
the National Bureau of Economic Research has found that in San
Francisco, landlords affected by rent control reduced rental housing
supply by 15 per cent.

·
Research for the
National Multi Housing Council in the United States warns that rent
control and rent stabilisation laws “lead to a reduction in the
available supply of rental housing in a community, particularly
through the conversion to ownership of controlled buildings.”

·
A document prepared for
the European Commission has warned that rent controls “appear to
have a significant destabilizing impact on the aggregate housing
market, increasing the volatility of house prices when confronted
with different shocks.” It goes on to note: “The drawbacks of
rent controls in terms of unintended consequences for housing market
stability and negative effects on labour mobility would advise
against their use for redistribution purpose”.

·
In 2015, a rent control
mechanism was introduced across Germany. The research cites evidence
showing that between 2015 and 2017 rents in central Berlin increased
by almost 10 per cent. Before the introduction of the control they
had been rising by just one to two per cent each year. Research by
the German Institute for Economic Research has concluded: “Contrary
to the expectations of the policy makers, the rental brake has, at
best, no impact in the short run. At worst, it even accelerates rent
increases both in municipalities subject to the rental brake and in
neighbouring areas.”

·
In Italy, a paper for
the Centre for the Analysis of Public Policies notes that the private
supply of rental homes fell dramatically after a law regulating rent
levels was introduced in 1978. A further paper has found that in
Italy between 1998 and 2008, market rents increased by 57 per cent
compared to a growth in household income of 31 per cent.

·
In Sweden, a report by
the International Monetary Fund this year concluded: “Tackling
Sweden’s dysfunctional housing market requires reforms of rent
controls, tax policies, and construction regulation. In addition to
fully liberalizing rents of newly constructed apartments, there is a
need to phase out existing controls, such as by applying market rents
when there is a change in tenant.”

A
senior academic has warned the Greater London Assembly that the
Mayor’s proposals for rent controls would have “really dramatic
unintended consequences,” the RLA says of Kath Scanlon’s
intervention.

Addressing
the Assembly’s Budget and Performance committee, Kath Scanlon,
assistant professorial research fellow at the London School of
Economics, argued that: “Landlords would simply decide they were no
longer going to rent their properties.”

Further,
The Centre for Cities warned earlier this year that: “Rather than
helping make London open to everyone, strict rent control would close
off London to new residents and divide the city’s renters into
winners and losers.”

David
Smith, Policy Director for the Residential Landlords Association, has
said:

“This
research shows clearly that rent controls are not a panacea for
tenants. Far from making renting cheaper, experience around the world
shows it can make it more expensive and more difficult for those
looking for a home to rent.

“Rather
than resorting to simplistic and populist ideas which have shown
themselves to fail, the Mayor should instead work with the vast
majority of private landlords doing a good job to see what is needed
to stimulate the delivery of more homes to rent. Increasing supply is
by far the most effective way of keeping rents down.”

The
RLA PEARL research
paper
can be accessed here:
https://www.rla.org.uk/rent-controls-report.

Kath Scanlon’s comments are available here can be found here

The comments from the Centre for Cities can be accessed here

The government mulls the return of rent controls

London Mayor Sadiq Khan favours rent controls in re-election bid

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