Some basic economics: if you restrict the price of anything to a level below the market price, the result will be a shortage.
We would not expect people in any other trade to stay in business if price controls meant they could not make a profit. Why should landlords be any different?
And so every time rent control has been tried in Britain, whereby a local authority or a quango determines how much a landlord can charge, the result has been a shortage of accommodation, and the physical decline of the existing rented properties as landlords give up on maintaining them because they have no prospect of a return on their investment. The result is homelessness and urban decay.
Yet now the Labour party are once again toying with the idea of reimposing the policies of the 1960s and 1970s. Jack Dromey, Labour’s housing spokesman, was recorded saying his party would introduce them “without hesitation.” His spokesman added they would be a “new model that works for both landlords and tenants”.
The reason cited is the rise in rents, which have gone up sharply in London in particular. Landlords are simply buying up all the existing properties rather than building new ones, it is claimed.
And so the solution, apparently, is to stop them making money. But those who advocate rent controls deal with the symptom – rising rents – rather than the disease. The disease is not landlords, or the buy-to-let industry, but the shortage of housing caused by our planning laws.
Last year Britain had the lowest number of new housing starts of any country in Europe. France built three times as many. It is this shortage of housing and the prohibitive cost of small building projects due to planning laws that forces up rents, and house prices, and stops small landlords building new properties as well as buying old ones.
Germany is often quoted as a country that has rent controls and a plentiful supply of rented housing. But Germany also has much less restrictive planning laws and a presumptive right for people to be able to build on their own land in urban areas, and as a result they do not have a shortage of housing, and so rent controls are much less harmful in their effects.
But if we return to the rent controls of the mid-twentieth century, as Labour appears keen to do, there will be little or no new property to rent, and existing properties will decay and fall into ruin.
Read the original article here.