A new briefing paper from the Institute of Economic Affairs (IEA)
provides a comprehensive global overview of the empirical
evidence on rent control policies, finding that they produce
significantly more negative consequences than benefits.
This briefing comes as calls to introduce rent controls in
Britain have mounted in response to the housing
crisis. London Mayor , a recent Labour-commissioned report,
and the Green Party have backed
the idea. Scotland had a rent increase cap until March 2024, and
tenants can still challenge some increases.
Rent control involves the government setting the price for rent,
usually below the market value. The paper, authored by Dr.
Konstantin A. Kholodilin, Senior Researcher at the German
Institute for Economic Research (DIW Berlin), reviews 196 studies
undertaken over 60 years. They span almost 100 countries in all
inhabited continents.
The briefing paper highlights the strong and enduring consensus
in the academic literature about the impact of rent control.
Namely, according to Kholodilin, rent control benefits existing
tenants at a significant cost to the broader society.
This leads to less maintenance spending, conversion to
owner-occupation, and the construction of fewer new properties,
ultimately exacerbating a housing shortage. This week, reports
emerged about the rental supply in Buenos Aires jumping by
195.2% following Argentina's President Javier Milei's
repeal of rent control laws.
According to Kholodilin, rent controls can also create ‘excess
demand' for housing. This can result in new residents finding it
difficult to locate places to live, which decreases labour
mobility, increases discrimination against marginalised groups,
and boosts black market activity.
The policy can also result in people staying in their existing
apartments for longer than they should, such as a widower
remaining in a large rent-controlled apartment long after her
family has moved out. The lack of movement leads to a
‘misallocation' of available properties, resulting in further
economic damage.
Dr Konstantin A. Kholodilin, paper
author and Senior Researcher at the German Institute for Economic
Research (DIW Berlin), said:
“Rent control effectively reduces rents in the controlled
sector, but does it a high price. Tenants occupying the
rent-controlled dwellings benefit the most, at least in the short
run, while newcomers lose from rent control. In the long run,
rent control can undermine the rental sector forcing landlords to
convert their dwellings and tenants to become homeowners.”
Dr Kristian Niemietz, IEA Editorial Director,
said:
"Economists are a notoriously divided profession: ask three
economists, and you get four opinions. But there are exceptions
to this, and the study of rent controls is one of them. This is
an area where the empirical evidence really overwhelmingly points
in the same direction. The finding that rent controls reduce the
supply and quality of rental housing, reduce housing
construction, reduce mobility among private tenants, and lead to
a misallocation of the existing rental housing stock, is as close
to a consensus as economic research can realistically get."
ENDS
Read a copy of Rent Control: Does it
work?
About the author
Dr Konstantin A. Kholodilin is a Senior
Researcher at the German Institute for Economic Research (DIW
Berlin). He holds a doctorate from the Universitat Autònoma de
Barcelona, Spain, and the title of Doctor habilitatus from the
Europa-Universität Viadrina, Frankfurt an der Oder, Germany. He
previously worked as a researcher at the Université catholique de
Louvain, Belgium.
