Andy Burnham’s government could be entertaining to watch but disastrous for the country. Reports suggest that one of the options Burnham could announce to immediately tackle the cost of living is some form of rent control.
If true, he’s already lost the plot. He must surely know that rent controls do not work. They may immediately stop rents climbing in the subset of properties whatever controls he announces are applied to, but beyond that the result will be entirely predictable: a collapse in rental supply as landlords sell up and flee the market; staggering rent hikes when the freeze comes to an end; and trapped tenants because new lease prices will shoot up as landlords attempt to recoup losses from elsewhere.
He must surely know that rent controls do not work
Controls could send mortgage rates northwards again too. Drive landlords out of the market and suddenly buy-to-let mortgages look riskier. Riskier equals more expensive. Not exactly a cost of living win.
When Argentina’s Javier Milei repealed rent controls the supply of properties in Buenos Aires increased by more than 170 per cent. In real terms rents are down 40 per cent from cap-era highs too. In Berlin, the introduction of a rent cap in 2020 saw rental listings collapse almost overnight, only to surge again, at higher prices, once the policy was scrapped.
Thomas Sowell’s Basic Economics sets out a long list of similar consequences:
- Nine years after the end of the second world war, not a single new apartment building had been built in Melbourne, Australia, because of rent control laws there which made such buildings unprofitable.
- After rent control was instituted in Santa Monica, California in 1979, building permits declined to less than one tenth of what they were just five years earlier.
- During eight years of rent control in Washington during the 1970s, that city’s available rental housing stock declined absolutely, from just over 199,000 units on the market to just under 176,000 units.
- After rent control was introduced in Berkeley, California, the number of private rental housing units available to students at the university there declined by 31 per cent in five years.
And when English rent controls were extended in 1975, Sowell cites the below Times report:
‘Advertisements for furnished rented accommodation in the London Evening Standard plummeted dramatically in the first week after the Act came into force and are now running at about 75 per cent below last year’s levels.’
Worse still, turning to rent controls without setting out – in detail – the long-term reforms of the planning system that are desperately needed suggests this government might have already decided, on day one, that real supply-side reform is simply too difficult.
Rent controls would join a long list: Help to Buy, the Help to Buy equity loan, mortgage guarantee schemes, shared ownership, the First Homes scheme, Starter Homes, Right to Buy, the Help to Buy ISA, the Lifetime ISA, stamp duty cuts and holidays, and buy-to-let credit-expansion policies. All of which, whether directly intended or not, just ramp up demand while doing next to nothing to resolve the underlying supply problem that is driving the housing crisis. A problem we’re well aware of but for some reason continue to ignore.
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