The economic and social case for rent and landlord regulation
The fundamental aim of controlling rents for a sizeable part of the rented property market is to improve affordability of rental apartments especially for vulnerable groups on lower incomes including large working families on low wages and the elderly who rely on pensions and state welfare assistance. Maximum prices are often justified on grounds of equity and fairness.
Just recently the left-wing Labour MP Jeremy Corbyn was campaigning for maximum rents in his constituency of Coventry arguing that the rapid rise of private sector rents and cuts in housing benefits were causing misery and huge inconvenience for many of his constituents. Lower rents in the city ought - in theory at least - to allow more people to live closer to work or to their extended families, and give them more flexibility about where they can live and find a job. Rent controls are often accompanied by laws offering tenants security of tenure, something that are important when people are trying to settle into a new area and build some roots.
Regulations are also need to protect tenants against landlords who are very reluctant to repair or improve the properties and who in some cases allow their properties to worsen into a dangerous, life-threatening state.
The next set of analysis slides takes us through what can happen when maximum rents are introduced.
Critical Evaluation:
Here are some of the key criticisms of rent controls as an intervention policy:
Here are some of the key criticisms of rent controls as an intervention policy:
1. Rent regulations can create larger shortages on rented property in the longer term
2. Landlords get a smaller return from upgrading and maintaining their houses - they spend less on their properties
3. There are negative externalities (external costs) from the deterioration in the quality of the rented housing stock
4. Rent caps increase the incentive to build luxury apartments only - developers can build luxury housing that doesn’t come under rent control
5. Caps encourages people the live alone which increases the shortage of properties
6. People spend more time searching for the dwindling supply of properties available - an opportunity cost of lost time
7. People in capped apartments have an incentive to stay - limiting supply for people moving into the city
8. Caps are often ineffective - in New York City, lots of people living in rent-regulated apartments have a second home in the suburbs
9. The maximum rent does not address the fundamental problem which is a lack of good quality supply of rented apartments
2. Landlords get a smaller return from upgrading and maintaining their houses - they spend less on their properties
3. There are negative externalities (external costs) from the deterioration in the quality of the rented housing stock
4. Rent caps increase the incentive to build luxury apartments only - developers can build luxury housing that doesn’t come under rent control
5. Caps encourages people the live alone which increases the shortage of properties
6. People spend more time searching for the dwindling supply of properties available - an opportunity cost of lost time
7. People in capped apartments have an incentive to stay - limiting supply for people moving into the city
8. Caps are often ineffective - in New York City, lots of people living in rent-regulated apartments have a second home in the suburbs
9. The maximum rent does not address the fundamental problem which is a lack of good quality supply of rented apartments
The general consensus would seem to be that rent controls / maximum rents generate problems of
(i) Allocative inefficiency
(ii) Equity issues especially when there are rich families in New York living for decades in rent-capped apartments
(iii) Unintended consequences - for example the possible stifling of new building for rent
The result is government failure all of which can make the shortage of affordable apartments worse in the long term. For example, the share of free-market rented properties in New York has grown over the years and must be set to continue.
