Rent control would worsen London’s housing crisis while hurting the poor, immigrants, and minorities. Yet Sadiq Khan wants to make it the central plank of his bid to win re-election as London Mayor. Khan has said the case for rent control is 'overwhelming' and that 'Londoners overwhelmingly want it to happen'. But while some may see rent control as a way of capping the money going into the pockets of landlords, it would actually make London's problems worse. Rent control would lead to less home building—what London actually needs. On top of that it will mean lower quality housing and discrimination against the most vulnerable.
From San Francisco to Stockholm, Berlin and New York, rent control has proven disastrous in every place it has been tried. Let’s take a look at Sweden: in 2018, the wait time for a rent-controlled Stockholm apartment was up to 35 years, with an average wait of ten years. Strong demand, the long wait and inaccessibility has led to bribes, patronage, a black market, and poorly maintained apartments. This system benefits the best connected, the socially powerful. 'It is almost impossible for immigrants and new arrivals to penetrate this market – it is all about who you know and how much money you have,' explains Billy McCormac, the head of a Swedish property association.
The failure of rent control is why even left wing economists have expressed opposition. After seeing the consequences in his own homeland, Swedish economist and socialist Assar Lindbeck said that: 'In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.' The University of Chicago’s economics experts panel agreed: an astonishing 94 per cent of economists think rent control is a bad idea.
In a free market, the individual who is willing to pay the most rents a property. But introducing controls changes this dynamic to benefit those who are best connected, or who fit the right profile. Without being able to choose based on who is offering the most, landlords must pick tenants on arbitrary criteria. In a rent-controlled market, landlords could discriminate on your enthusiasm and dress style, or even the sound of your voice and the colour of your skin. Edward L. Glaeser of Harvard university found that tenants of rent controlled apartments in the United States are 'disproportionately white which suggests that in a market with shortages, apartments may not be allocated to the neediest applicants.'
As a new arrival to Great Britain from Australia, I have had plenty of recent experience with the peculiarities of London’s housing market. If rent control existed, the already difficult process finding a home as a foreigner would have proven impossible. If rent was pegged at a below market rate there would have been an overflow of applications for even fewer apartments. As I lack rent history or a credit rating in the UK, my application would have been put at the bottom of the pile. I would have ended up spending a lot more on temporary accommodation.
Rent control would also worsen London’s housing crisis by discouraging house building. The increasing cost of rent in London over the last decade sends a signal to developers that they should build more homes. If this wasn't the case, developers would simply stop building. Worryingly, the mere suggestion by Khan that rent control could be coming will have this effect because of the potential risk of less available rental revenue. Without even putting his barmy rent control scheme into practice, Khan is already making things worse for those trying to live in London.
It's not only big developers who will get put off. If owners receive less rent they will also take their properties off the market, converting them into commercial spaces and owner-owned apartments instead. This will hit younger and mobile Londoners who cannot yet afford or do not want to buy. It is no coincidence that the places with rent control have extremely high levels of homelessness. There are more than 125,000 homeless people in New York and a further 100,000 homeless people in California.
Rent control also reduces the quality of the housing for rent controlled units. There would be both less rental money coming in to spend on maintenance and renovation and no incentive for a landlord to improve quality—not when there is a long line of individuals waiting to move in and no opportunity to recoup the costs. Paul Niebanck found that rent-controlled housing is three and a half times more likely to be of bad quality compared to uncontrolled units.
Housing is expensive in London because of the failure to build enough homes to accommodate a growing population. In the last 20 years, London’s population has grown by 25 per cent, but the number of homes has only grown by 15 per cent. London needs real planning reform, not boondoggle thought bubbles. If the Mayor wanted to show leadership, he would talk about abolishing height and size restrictions, and allowing building on the Green Belt – much of which is not actually green. In recent years, Sadiq Khan has sanctimoniously jaunted around the world declaring that ‘London is Open’. Mr Mayor, rent control would tell the world that London is Closed to investment, the next generation, and new Londoners.
Matthew Lesh is the head of research at the Adam Smith Institute