‘The perils of loopholes and landlordism’

‘They don’t work. Next!” Raise the topic of rent controls with an economist, or anyone in the housing sector with a modicum of skin in the game, and this is almost always the response. Probe for an explanation and you’ll be met with an eyeroll and a patronising “It’s Economics 101”. Their reasoning is based on the law of supply and demand: rent controls drive landlords out of the market, leading to a scarcity of private rental properties and an increase in rates in non-controlled areas. Whack one mole and another three will pop up.
Research published last week by the Institute of Economic Affairs backs up these assertions. The think tank had the economist Konstantin Kholodolin analyse 196 studies that evaluated the impact of rent controls in numerous countries. Kholodolin found that while rent controls did result in lower rents, they were accompanied by a slew of other unintended consequences, including poorer housing quality within the controlled rental sector, rent increases for those living in uncontrolled areas and an overall reduction in housing supply and construction.
In short, critics of rent controls can draw upon plenty of real-world examples to justify their stance. In Argentina, president Javier Milei’s repeal of rent controls at the end of last year has resulted in a 195 per cent increase in rental housing availability in Buenos Aires, alongside a drop in rental prices.
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Closer to home, we have seen how a loophole in Scotland’s temporary rent controls was exploited by landlords to raise rents when drawing up new tenancy agreements. Since the price cap period ended in April, rent has soared for many tenants, presumably because landlords are preparing for the Housing (Scotland) Bill, which could create new rent control areas. Figures from Rent Service Scotland, which handles appeals to rent increases, show that tenants are contesting an average rent rise of 20 per cent. One landlord asked for 186 per cent more.
It’s not that rent controls can’t work — they can and, indeed, did in this country for several decades until the Housing Act 1988 deregulated private sector rents. But comparing Britain now with Britain then is pointless. We had more social housing stock, for a start. The composition of households was different. There are far more single-person and lone-parent households now than there were 50 years ago. Multiple homeownership wasn’t anywhere near as common. Buy-to-let mortgages didn’t exist. The property landscape bore little resemblance to the one we inhabit today, where one in every 21 adults is a landlord.
Disincentivising landlordism should absolutely be a long-term goal if we want to tackle the housing crisis and achieve social progress. But this only works when renters have good-quality, flexible social housing available to them, as and when they need it. Introduce rent controls without that safety net and we risk making an already perilous situation even worse.