The Institute of Economic Affairs, a free market think tank, has undertaken an exhaustive review of rent control policies across the world and concluded that they produce far more negative problems than actual benefits.
It found that 56 out of 65 examples of rent controls did indeed lower rents as intended – but almost all produced unintended side effects such as deterring new homes being built, reducing quality of housing stock, limited tenant mobility, and a strategic misallocation of housing.
The IEA research has been led by Dr Konstantin A. Kholodilin, senior researcher at the German Institute for Economic Research in Berlin: he’s reviewed 196 studies undertaken over 60 years. They span almost 100 countries in all continents.
The IEA says: “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.”
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.
Kholidilin says: “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.”
And Dr Kristian Niemietz, IEA editorial director, says: “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.”
