HOMES Manifesto

JP Floru is PPC for Bermondsey and Old Southwark, and a Westminster Councillor.

The Labour Party is now trying to win the election by promising renters an even greater shortage of housing. Yes, you heard that right. Because that is what rent controls have led to in every country and at every time they have been tried: longer waiting lists.

Rational thought has never stood in the way of a politician smelling electoral advantage. Rent controls sound good. Nobody likes paying rent. So promising reduced rents will land Labour votes. And by the time renters wake up and smell the coffee and ask for the removal of rent controls, the present Labour lot will have long gone.

We should rebuff and reject demands for rent controls. Urgently.

It is quite amazing that the fallacy of price controls is still around today. The economics are simple. If government forces landlords to rent their properties below market value, demand will outstrip supply.

More will want the cheaper flats (e.g. children will be able to move out of their parents’ homes; people who share a flat will want a flat alone; etc.); but fewer flat owners will be willing to let them (perhaps preferring to keep them empty; or turn them into other uses). When rental yields reduce due to rent controls, investors switch to other investments: e.g. to commercial property, bonds, shares, or rentals abroad.

So fewer rental properties will be built. Rent controls result in shortages. Always.

Rent controls have been tried in Sweden since the 1960s. Those who enjoy low rents in properties in attractive locations never want to move. Even when their children have fled the nest and the flats are too big. Stockholm residents have to wait for years on public waiting lists before they can hope to live in an attractive area or an attractive flat.

In other words: rent controls in Sweden have created a privileged class of sitting tenants, and an underclass of new house seekers.

Rent controls also discourage builders from building properties for rent. This has not only resulted in a shortage of rental properties, but also in sky-rocketing house prices. Sweden now only builds about half the number of houses its citizens need.

Rent controls have been tried in New York since 1947. Today 70 per cent of the city’s apartments are either rent-stabilised or rent controlled.

Because the rent controls have been in place for decades, many of the original tenants or their heirs see them as an entitlement. Most simply refuse to move, even when the apartment has become too big. Aimed at helping the poor and the middle classes, quite a few very wealthy people have landed themselves rent-stabilised apartments.

When good rent-controlled apartments come on the market New Yorkers usually have to know somebody or pay somebody (e.g. a broker) to get it – so the advantage of a lower rent is undone.

Owners of rent-controlled apartments have no incentive to pay for the upkeep – resulting in dilapidated housing.

Just as in any other aspect of life, failing government interventions are met by politicians with demands for more intervention. In 2008 Mayor Michael Bloomberg pushed a $7.5 billion Affordable Housing Plan that offered tax-exempt debt to anyone who built affordable housing.

Only three weeks ago Mayor Bill de Blasio unveiled a plan to build 200,000 more affordable houses at a cost of $41 billion. And who pays for these Great Plans? Why, taxpayers, of course. What many gain in lower rent they lose in higher tax.

The list of countries with failing rent controls is quite long. Most economists believe rent controls are destructive. The ills they associate with rent controls are always the same:

  • the creation of a privileged class of sitting tenants;
  • the near impossibility for new tenants to obtain flats in desirable locations;
  • instead of the poor it is often the rich who benefit;
  • cronyism and bribes to obtain rent-controlled flats;
  • illegal subletting by sitting tenants or their heirs; and
  • reduced supply of new rental flats by builders and investors.

In almost all instances the housing shortages resulting from rent controls are met by politicians with demands for more intervention. Typically by way of increased social housebuilding paid for by higher taxes on the same tenants the politicians claim to want to protect.

The mere anticipation of rent controls tends to have a chilling effect on house building. Even though they may not be able to form the next government, Labour’s treat to introduce rent controls may therefore already have the effect of decreasing new for-rent house building.

The evidence of the pernicious effect of rent controls is widely available. Yet is seems as if we in the Conservative Party are not countering Labour’s populist and destructive demand for them.

We should robustly reject rent controls before it is too late.

100 comments for: JP Floru: Rent controls have never worked, ever

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