Rent controls do ‘more harm than good’ – IEA

Rent controls do far more damage than benefit tenants, according to a comprehensive global review.

A new briefing paper from the Institute of Economic Affairs (IEA) has poured cold water on calls for rent controls in Britain, finding overwhelming evidence of negative consequences.

The paper by Dr Konstantin Kholodilin, analysed 196 studies spanning six decades and almost 100 countries.

While rent controls may initially lower rents for existing tenants, the review found they typically lead to higher rents in uncontrolled sectors, and reduced housing supply and quality.

Tenants can also face difficulties finding homes, while landlords may be discouraged from building new properties.

Rent controls come at a high price

Dr Kholodilin said: “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.”

Sadiq Khan and the Greens push for rent controls

The findings come as politicians, including London Mayor Sadiq Khan and the Green Party, push for rent controls in response to the housing crisis.

Scotland recently ended a rent increase cap, but tenants can still challenge some increases.

Dr Kholodilin warns that rent controls can create ‘excess demand’ for housing, leading to discrimination against marginalised groups and increased black market activity.

The policy can also result in people staying in homes longer than needed, causing a ‘misallocation’ of properties.

The study of rent controls

The IEA’s editorial director, Dr Kristian Niemietz, said: “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.”

Realities faced by renters

However, Generation Rent has hit back at the report, claiming that the IEA’s findings are out of touch with the realities faced by renters.

Its chief executive, Ben Twomey, said: “The IEA’s own research is that rent controls do protect renters from unaffordable rent rises where we live – across England this would mean 12 million renters better protected from poverty and homelessness.

“Listed among the IEA’s apparent downsides of rent control is ‘forcing…tenants to become homeowners’… Yes, please!

“That’s what so many of us would want and are unable to do because of soaring rents.”

Declining housing quality under rent controls

Mr Twomey also dismisses concerns about declining housing quality under rent controls, pointing to a ‘million’ of private rented homes that already fail to meet basic standards.

He said: “More than one in 10 private renters are living with potentially life-threatening hazards – all in the absence of rent controls.

“The idea that desperately needed rent control protections for renters would be outweighed by the so-called harms above is completely out of touch with the pressures facing tenants right now.”

He adds: “Rent controls will not solve everything, and more affordable homes need to be built where people want to live, but renters on low and middle incomes need breathing space now.

“A fair and common-sense approach to stop rents rising faster than our wages or inflation is not going to drive landlords into poverty and homelessness, but it would protect so many renters from that fate.”

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