With the election result looking tight, Labour have reached into the bag labeled ‘superficially attractive policies whose flaws won’t become evident before May 7th’ and pulled out rent controls.
Now to be clear, I agree rents are too high. But rent controls are a terrible way of dealing with that.
That’s the consensus amongst economists and not just right-wing ones either. Paul Krugman – Princeton professor, Nobel laureate, Republican flayer and Gordon Brown cheerleader – had this to say about it back them back in 2000:
The analysis of rent control is among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial. In 1992 a poll of the American Economic Association found 93 percent of its members agreeing that ”a ceiling on rents reduces the quality and quantity of housing.” Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go — and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable. Bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out….and constantly proliferating regulations designed to block those strategies? Predictable.
But as Krugman warned:
”Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.”
The problem with the housing market is not that prices are high but that the quantity supplied is constrained artificially. That in turn leads to high rents but that’s a symptom. Whatever you do to stamp it out the fundamental problem of there being too few homes for the population will still need a solution.
That solution would of course be to build more homes. However, doing so would require taking on the ranks of organised NIMBYism: the CPRE, the Telegraph and the National Trust. But that would require precisely the kind of boldness Ed Miliband has shown himself to completely lack. So instead he’s gone for something out of the
‘superficially attractive policies whose flaws won’t become evident before May 7th’ bag.