Rent controls have a number of negative effects. They lead to excess demand for housing, which is worse in the long run than the short run. They create a deadweight loss (a loss of economic welfare overall). They reduce the quality of rental housing (to the extent that rent controls have deadly consequences), and increase the quantity of vacant housing. They may even increase inequality (see here and here). In fact, the Swedish economist Assar Lindbeck (who passed away in 2020) was quoted as saying:
“Rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”
And yet, despite the overwhelming evidence of the negative effects of rent controls, people still advocate for them. Or, they or argue that we need to re-examine them based on flimsy reasoning. For example, in this article in The Conversation, Tom Baker (University of Auckland) asks us to have an open mind about rent controls. An open mind couldn't fail to see that the evidence is strongly against rent controls as a way of helping low-income tenants. We don't need to rely on an economic model for this - the empirical evidence (in the posts linked above) supports it.
Fortunately, not everyone has starry-eyed views of rent controls and is unwilling to consider the weight of the evidence. This article in The Conversation by Ameeta Jain (Deakin University) concludes that:
While freezing rents would appear to be a simple method to increase rental housing affordability, the unintended consequences of any such move will have a long-term negative impact on the total availability of rental housing stock, reducing the quality of housing and increasing a black market in rental housing.
Global experience suggests that improving supply, by easing building restrictions and scrapping red tape for new developments, is likely to be a more effective policy tool in Australia.
As for helping low-income tenants, I said it best in this post in 2015:
This excess demand can have a range of negative effects, depending on how it is managed. Perhaps the excess demand is managed by waiting lists of various flavours (as in Stockholm or Copenhagen), which means that potential tenants have to wait years for a rent-controlled space to become available. Instead, perhaps landlords are left to manage the excess demand on their own, in which case the rent-controlled housing is more likely to be rented to higher income tenants. Why? The landlord has a lot of choice over tenants now (because of the excess demand). If they can choose to rent their house to the professional couple with two incomes, or the solo mother with no job and three young children, it doesn’t take an economics PhD to work out who is going to miss out. So in this case the rent control actually hurts the very people (low income tenants) that it was designed to help.
On top of that, landlords might be willing to accept side-payments (bribes) to ensure access to rental housing. Tenants are willing to pay the bribes to ensure they don't miss out on a place to live. This further stacks the rental market against low-income tenants.
The very tenants that rent controls are designed to help, end up being the tenants that are most hurt by the policy. If we are worried about low-income tenants, perhaps we should do something about their low income, or do something that raises supply of rental property (which would increase competition among landlords and reduce the equilibrium rent). Rent controls are a policy failure on so many dimensions and are best forgotten.
Read more:
- Why rent controls have worse effects over longer time horizons
- The deadweight loss of rent control
- The deadly consequences of rent control in Mumbai
- Rent control and inequality in San Francisco
- Rent control and the redistribution of wealth
- Rent control and vacant properties in India
- Rent control according to Seinfeld
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