Thanks but no thanks, Sadiq – Why rent controls are a terrible idea
The battle lines for the race for London Mayor are already being drawn with both Sadiq Khan, the incumbent, and Shaun Bailey, the Tory hopeful, setting out housing policy initiatives this week. The one that has caught the most attention, of course, has been Khan’s demand for an overhaul of tenancy laws in the capital, and it is his proposal for rent controls that looks set to be one of the cornerstone’s of his re-election campaign in 2020.
To give some credit to Khan, it is great to see renters at the forefront of policy-making and this is not before time. For too long, politicians have simply framed housing policy around the question of ‘How can we make it easier for people to buy a home?’ To answer that, a plethora of sticking-plaster policies have been pushed such as Help to Buy, adjustments to stamp duty and countless broken promises on the number of new homes to be built. The only announcement we have heard from PM in waiting, Boris Johnson, has also been on stamp duty, with his proposal to switch the payers of stamp duty to the homeowner surely being counter-productive anyway as it will lead to less older homeowners selling up and downsizing.
These solutions ignore the point that for a growing majority of people aged 20 to 39, owning a home is not on the horizon. In London, a recent PWC study pointed out that by 2025, just 26% of people in this age bracket would own a house. So something dramatic clearly has to be done to make life more affordable and give greater security to this age bracket.
Some of the ideas raised by Khan would also be useful, such as establishing a universal register of landlords to access valuable data as well as enforce standards. Unfortunately, though, the central piece of his proposal, namely bringing in rent controls smacks of desperation and political posturing.
For a start, the Mayor of London has no power to implement such a policy and will not be granted for the foreseeable future. Secondly, he pointed to City Hall polling that showed two-thirds of Londoners were in favour of caps being placed on the level of rent they had to pay. Again, this is evidence of the most blatant form of populism and polling manipulation. Asking people if they want to pay more for rent is the equivalent of asking turkeys if they want Christmas Day to happen every month – of course no-one is going to say yes!
The job of a politician is to find credible, long-lasting solutions to often complex problems, however, and the unintended consequences of bringing in rent controls are so obvious and damaging to renters that it would be hugely irresponsible to bring it forward. Almost every economic study conducted in this area highlights the long-term damage for renters. Indeed, the conclusion is used as an example by many A-Level Economics teachers:
While rent control appears to help current tenants in the short run, in the long run, it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighbourhood.
We do not just need to look at textbooks to find evidence of this policy failing spectacularly. If we look to the US and San Francisco, which had similar challenges to those faced by London at the moment when they introduced rent controls, a Stanford University study in 2017 found the measures introduced led many landlords to convert their properties into expensive apartments. This drove out people with lower incomes, led to a shortage of housing and drove rents up by a collective $2.9bn.
At a time when landlords have already been squeezed and are being pushed out of the market, bringing a policy into London would drive more good quality landlords out of the market, curtail investment into London (which has started picking up through institutional Build to Rent developers such as Grainger and Greystar), and end up pushing up rents in the long-term.