Published:

41 comments

Thomas Mawson is a member of the Kensington, Chelsea and Fulham Conservatives. Originally from Australia, he works as a lawyer in the City.

The hard-left ideology of Jeremy Corbyn’s Labour Party has seemingly reared its head once again, with the Mayor of London, Sadiq Khan, announcing a plan to develop a form of rent control that could interfere with private property rights in London, aimed apparently at addressing housing affordability. In a flight of whimsy, the Mayor has stated “the arguments for rent control are overwhelming,” while at the same time lamenting his “lack of powers” to implement such a scheme. However, a recent study suggests that rent control policies may be counterproductive and counteract the very goal they pursue, pushing up prices in the long-term. What has been announced, then, is an idea to formulate further ideas for which no substantive argument has been advanced, to implement a policy the Mayor has no power to implement.

A recent paper, from Stanford University, draws on substantial data available from San Francisco’s experience with rent controls to demonstrate that while there might be some short-term benefits for the small group of established renters, rent controls ultimately led to long-term negative effects for renters more generally, directly in opposition to the stated aims of such policy.

Unsurprisingly, the initial cohort to whom the law applies was found to generally value the policy, and this cohort is more likely to remain within the city, with the effect stronger for certain minorities. However, this small group of initial beneficiaries are likely the only group positively impacted by the rental controls. Indeed, younger people, a key group for whom housing affordability is a crucial issue, may find it more difficult to benefit from rent control at all since they might more often move as a result of personal reasons. A short-term policy for the few, at the expense of the many, and at the expense of the future.

Significantly, the study, by Rebecca Diamond, Tim McQuade, and Franklin Qian, demonstrated that property owners actively responded to the imposition of rent controls, including by seeking ways in which their properties would become exempt from regulations, whether through conversion, redevelopment, or even owner-occupation. Landlords might also try to evict tenants or have tenants move out.

This reminds me of a story related by a friend of a post-war world where rental caps were initially introduced to protect returning veterans and, in certain cases, widows. One such widow had remained in a rent-controlled flat for many years, paying the same capped rent for over a decade. The price of the dwelling in which she resided was depressed as a result of being subject to the regulations, although the neighbourhood was becoming more affluent. An increasingly frustrated landlord, who generally provided a minimum level of maintenance and who had repeatedly tried to remove his tenant, finally succumbed to a request to paint the apartment, for which the widow gladly relocated for a few days. However, upon returning to her apartment the widow found it had been painted floor to ceiling in thick, deep, total black. She promptly moved out, and the property was no longer subject to the rent control regime. No doubt her next property was far more expensive to rent, especially as she had been out of the market for so long. This anecdote shows just some of the consequences of rent control at a personal level.

Overall, as a result of landlord responses to the rent control laws in San Francisco, Diamond, et al. found the supply of available rental housing was reduced by 15 per cent. As well, housing supply was shifted towards less affordable, increasingly gentrified housing, aimed towards those with a higher income. On the one hand the reduction in rental supply “likely increased rents in the long run” at the expense of future renters, while the gentrification of housing supply, contrary to the stated policy goal of rent controls, “increased income inequality in the city…”. Not, perhaps, the desired outcome for long-term housing affordability and sustainability in London.

Ultimately, stemming from a reduction in available rental housing supply, higher rental prices in the long-term, and an increase in income inequality, the authors conclude that “forcing landlords to provided insurance against rent increases can ultimately be counterproductive.” This is not to comment on the negative effects on a city and housing affordability if a rental control policy is adopted and subsequently abandoned, as was the case in the Boston metropolitan area, a topic that is itself the subject of other studies.

This is but one recent study, although compelling, and detractors may attempt to point towards certain examples of limited success, although undoubtedly not in cities like modern London. So instead of following the rabbit down the red tape-filled, heavy-handed, state-regulated, bureaucratic rabbit hole that is the imposition and maintenance of rent controls, perhaps there are other more appropriate ways to address issues of housing affordability that not only focus on the immediacy of an electoral cycle, but which also meet the long-term needs of a sustainable London.

There has been a repeated call, for example, urging the Mayor to more effectively use the powers he does have to unlock additional housing supply. While we have seen some hot-air from City Hall, there has been little take-off and prices continue to balloon. The Mayor should be less concerned with powers that his office does not have, but wishes to acquire, and more concerned with the coherent application of those powers currently in his possession.

A policy of rent control is essentially a blueprint for Government to interfere with the rights of private property owners. It is said, “an Englishman’s home is his castle,” and it remains a key tenet of this property-owning democracy that an individual holds private property securely and safely, without fear of interference and overbearing regulation and control from Government.

A plethora of alternative measures may be explored to limit the negative impact of unjust increases in rent upon those who can least afford it. They need to strike a balance that protects tenants without harming a landlord’s property rights and making it less attractive for a landlord to rent out their property – thus decreasing supply and pushing rents higher in turn.

Diamond et al. suggest that “less distortionary” forms of assistance could include subsidies or tax credits. Such measures, among others, are worth careful consideration and discussion to ensure that a robust safety net continues to protect the poorest members of our society and those who need such protection most, without encroaching unnecessarily upon the sacred private property-owning rights of all individuals, including aspiring owners, especially by way of implementing policies shown to achieve the opposite of what they intend. But heavy-handed rent controls are clearly not an appropriate or viable long-term solution to assist the many existing and future renters of this dynamic and global city, nor the most vulnerable, nor the future homeowners for that matter.

This sensationalist, short-term-thinking, uninspired and self-indulgent policy appears to be somewhat of a demonstrably counterproductive power-grab, which benefits a handful of current voters at the expense of future renters. This is not a policy designed for modern London, but instead for a short-term poll-bump. Ultimately, the Mayor’s policy, seemingly drawn from the Book of Corbyn, seeks to benefit a few at the expense of the many.

41 comments for: Thomas Mawson: Khan is wrong to claim “the arguments for rent control are overwhelming”

Leave a Reply

You must be logged in to post a comment.