Rent controls cause damage to tenants, new research argues

New research has claimed that rent controls hurt tenants by drying up the supply of rental homes and in some cases increasing rent.

With the Mayor of London, Sadiq Khan, previously calling for the powers to introduce rent controls across the capital, an analysis of existing research by the Residential Landlords Association (RLA) on the impact of rent controls around the world claims to show the harm they can cause.

The research pointed to Los Angeles and San Francisco, two US cities where forms of rent control exist. A paper for the California Budget and Policy Centre has reported that tenants are ‘substantially more likely to struggle with housing affordability than homeowners’. 

It goes on to say 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.” 

Meanwhile, a further paper for the National Bureau of Economic Research revealed that in San Francisco, landlords affected by rent control reduced rental housing supply by 15%.

The latest RLA research also points to a study for the National Multi Housing Council in the US, which 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’.

Additionally, a document prepared for the European Commission has warned that rent controls appear to have a significant destabilising impact on ‘the aggregate housing market’, increasing the volatility of house prices when ‘confronted with different shocks’. 

The paper goes on to add: “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.”

Do rent controls lead to rent rises?

In 2015, a rent control mechanism was introduced across Germany – a country which has embraced rent controls more than most.

The RLA research cites evidence showing that between 2015 and 2017 rents in central Berlin rose by nearly 10%. This compares to the period before the introduction of the control, when they had been rising by just 1-2% each year. 

Research by the German Institute for Economic Research has, as a result, concluded: “Contrary to the expectations of the policymakers, 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, meanwhile, a paper written for the Centre for the Analysis of Public Policies found that the private supply of rental properties dropped dramatically after a law regulating rent levels was enforced in 1978.

A further paper has revealed that, in the decade between 1998 and 2008, market rents in Italy grew by 57% compared to an increase in household income of only 31%.

Lastly, in Sweden, the RLA research cited a report by the International Money Fund (IMF) earlier this year, which concluded that 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,” it said.

The latest research comes a short while after a senior academic warned the Greater London Assembly that Khan’s proposals for rent controls would have ‘really dramatic unintended consequences’.

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

Furthermore, the Centre for Cities think-tank warned earlier this year that rather than helping make London open to everyone, strict rent controls would close off the capital to new residents and divide the city’s renters into winners and losers.

David Smith, policy director for the RLA, said the research shows clearly that rent controls are not a ‘panacea for tenants’.

He said that, far from making renting cheaper, experience from 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,” Smith added. “Increasing supply is by far the most effective way of keeping rents down.”