Rent controls have been introduced in many countries over the years. But are they actually a good thing?
The logic is that they prevent landlords from charging too much to tenants, but this isn’t how it often works out. In fact, according to new research, rent controls can actually hurt tenants.
Rent Controls Affect Supply
Rent controls have been in the news a lot lately, mainly because the Mayor of London is keen to introduce them in London. Living in London is very expensive for renters, and the idea is that introducing controls on the amount of rent that landlords can charge will help tenants who are finding it hard to afford somewhere to live.
But according to research from the Residential Landlords Association, there are many examples of how rent controls actually do more harm than good. This happens because they have an impact on the supply of homes, so there are fewer properties available to rent. In some circumstances, rent controls have actually been found to increase rents in some circumstances.
Effects of Rent Controls Around the World
The research highlights different situations around the world where rent controls have been introduced and shows how they have not worked in many cases.
For example, the National Multi Housing Council in the United States released research stating that the supply of rental housing was reduced partly due to rent controls.
A European Commission document also suggested that there were unintended consequences of rent controls and that they affected the stability of the housing market.
When rent controls were introduced in Germany in 2015, over the next two years rents in central Berlin went up by nearly 10%.
A paper released for the California Budget and Policy Centre about rent controls in Los Angeles and San Francisco stated that renters are more likely to struggle with affordability compared to homeowners, and that over half of households renting paid over 30% of their income towards their rent.
Referring to the situation in London, Kath Scanlon, who is an assistant professorial research fellow at the London School of Economics, said that rent controls could have unintended consequences. And the Centre for Cities said that landlords would not rent their properties, and this would close off the city to new residents.
Are Rent Controls the Right Solution?
Rent controls do not always have the intended consequences of making renting cheaper. Rent controls have been tried all over the world, and they have been shown to make renting more expensive and more difficult for people looking for a place to rent.
According to many people in the industry, the answer is to work with the landlords and find out what they need to increase the number of homes to rent. By increasing supply, it is argued that this is the best way to keep rents down.