Rent controls: a response to Generation Rent
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Dr Kholodolin can be reasonably described as one of the world’s leading authorities on the subject. He has tracked down pretty much every study on rent controls ever done, and conducted what has to be the most comprehensive review of the economic literature done to date. His IEA briefing summarises his main findings in ultra-condensed form.
I was familiar with some parts of that literature before I came across Dr Kholodolin’s work; in particular, I remembered Blair Jenkins’s paper Rent Control: Do Economists Agree?, published in the Econ Journal Watch in 2009, which reviewed over five dozen studies on the subject, and concluded:
“My review of the rent-control literature […] finds that economic research quite consistently and predominantly frowns on rent control. My findings cover both theoretical and empirical research on many dimensions of the issue, including housing availability, maintenance and housing quality, rental rates, political and administrative costs, and redistribution.”
Dr Kholodolin’s work, however, goes way beyond that, and not just in the sense that it includes a greater number of studies (although the sheer volume – around 200 studies – is in itself impressive). The literature that I had seen thus far was heavily biased towards North American housing markets, and the quarter-century or so from the early 1980s to the mid-2000s. Dr Kholodolin’s work, on the other hand, spans a period of over half a century, and covers most of the globe.
His findings are not, in themselves, novel or surprising. Rent controls lower the supply and quality of rental properties, decrease mobility among tenants, lead to a misallocation of the housing stock, and in the longer run, to lower housebuilding numbers. You knew that. I knew that. But it’s best to make sure, and Dr Kholodolin really, really has made sure.
It is worth highlighting how unusual this is. Economics is not an exact science, and it is quite rare in economic research to observe such a high degree of consistency. What we see in the literature on rent controls is the opposite of the “replication crisis” we see in other disciplines: a consistent replication streak.
If I were an economic interventionist, I would simply cut my losses on this one, and pick another battle. But that is, of course, not how economic policy debates work. It did not take long for some of the usual suspects to confidently declare that mountains of empirical research are all wrong, and that they have worked out the truth on the basis of Twitter vibes.
“The Institute of Economic Affairs (IEA) has released a report claiming to be a comprehensive review of rent controls”, tweeted The i paper’s Housing Correspondent Victoria Spratt. “However, there are some problems with their research as Generation Rent’s [Ben Twomey] outlines in this thread…”.
Let’s see what those “problems” are. Twomey opens:
“As calls for controls on rents become stronger, the attacks on the policy are intensifying. Even as rents continue to outstrip wage growth, the Institute for Economic Affairs (IEA) has put out claims to oppose the policy. They are wrong, and here’s why…”
Why is that?
Rent controls and controlled rents
“The first finding of the IEA’s own research is that rent controls do in fact protect renters from unaffordable rent rises where we live – across England this would mean 12 million renters better protected from poverty and homelessness. That is seriously major.”
It would not mean that at all. The first finding of the paper is simply that rent controls control rents. That is almost tautologically true. I say “almost”, because we could imagine versions of rent controls that are so poorly enforced, or that contain so many loopholes, that they have little effect in practice. That is why, before checking whatever other effects rent controls may have, it is necessary to double-check whether they even do what it says on the tin. It turns out that, yes, in the main, they do. That is a necessary precondition for the rest of the paper, but it is not in itself a spectacular finding. Nor is that what the dispute between supporters and opponents of rent controls has ever been about.
Rent controls and homeownership
Twomey goes on:
“Listed among the IEA’s apparent down-sides of rent control is ‘forcing…tenants to become homeowners’… Erm…yes please! That’s what so many of us would want and are unable to do because of soaring rents – are they really threatening us with a good time?”
It is indeed true that some studies show that rent controls can increase home ownership rates. More precisely, out of 22 studies that have specifically examined this link, 13 find an increase in homeownership, 5 find a decrease, and 4 find no change either way.
Given the strong cultural preference for homeownership in the UK, this may seem like a self-evidently good thing. But it is not. Homeownership rates are driven by both pull factors and push factors. They can go up when homeownership becomes more attractive or accessible, but they can also go up when the alternatives become less attractive or accessible.
If a 1930s-style housebuilding boom led to a decrease in house prices, and if more people who would otherwise have been private renters were able to buy their own home as a result, that would be a great thing. But if the rental market dried up, and if more people felt compelled to buy their home earlier than they otherwise would have because of that – it would be a bad thing. Changes in tenure are not per se good or bad. It depends on what is causing them.
Rent controls and mobility
Twomey continues:
“The briefing also mentions how rent controls could reduce ‘residential mobility’, which might be a problem in other countries but in England the typical renter spends less than 3 years in their home so more stability to put down roots would be a welcome change.”
Again – that depends entirely on what is causing it. At the moment, with demand so vastly outstripping supply, landlords know that when a tenant leaves, they can immediately find a new one again. They therefore have little incentive to invest in a long-term tenant-landlord relationship. If an increase in housing supply meant that tenants could become pickier and choosier, landlords would face a non-trivial risk of a property remaining empty for months between tenancies, meaning months of foregone rental income. They would then act very differently, and if this resulted in a longer average duration of tenancies, that would be great. But, again, there are push and pull factors which affect the duration of tenancies. If alternatives dry up, it would also cause tenants to stay longer with a given landlord – but in that case, it would be a bad thing.
Rent controls and housing quality
Twomey then says:
“The IEA also claims the quality of homes will not improve or may get worse under rent control models. About a million privately rented homes don’t meet the decent homes standard and more than 1 in 10 private renters are living with potentially life-threatening hazards. All this is happening in the absence of rent controls”
Dr Kholodolin’s paper shows that there are 20 studies which have specifically examined the link between rent controls and housing quality. Out of those, 15 have found a negative effect, 5 have not found any effect, and none have found a positive effect. He is not saying that in the absence of rent control, every rental property will be of a superbly high quality. Low-quality homes can exist for other reasons.
It is the equivalent of a medical study which shows that excessive alcohol consumption causes headaches on the next day. This does not mean that if you refrain from excessive alcohol consumption, you will never experience a headache in your life: more than one thing can cause headaches.
Generation Rent vs YIMBYism
Twomey concludes that “more affordable homes need to be built where people want to live, but renters on low and middle incomes need breathing space now.”
This encapsulates my main problem with, not specifically Twomey, but with what we could call the “Generation Rent mindset” in general.
These arguments are not new. I first became aware of Generation Rent about 10 years ago, when I had the occasional (good-natured) spat with their then director Alex Hilton (see e.g. here). Hilton later wrote a paper called How To Repair The Housing Market Quickly – A Crisis Response, published by the Communication Workers Union (CWU), which proposed a version of rent control for the UK, and which also contained a critique of that proposal written by me. The details have changed, but that paper is still illustrative of the differences between the Generation Rent mindset on the one hand, and (what we would now call) the YIMBY mindset on the other hand.
My main issue with Hilton at the time was not that we disagreed on rent controls. It was the fact that he treated the supply side of the housing market as almost an afterthought. He mentioned supply-side factors in passing, but those passages were so tangential to his argument that he might as well have left them out entirely. He did not think of the housing market in supply-and-demand terms; he thought that landlords just inexplicably had all this market power from somewhere, which had to be curtailed through government regulation. In contrast, I was convinced that Britain’s housing crisis was, first and foremost, a crisis of insufficient supply (which is why I use the terms “housing crisis” and “housing shortage” largely interchangeably), which could only be solved by a supply-side revolution.
That still remains the fundamental disagreement today. A brief glance at Generation Rent’s publications catalogue shows that they clearly have no interest in supply-side arguments. They may mention it here and there, but it’s not what gets them out of bed in the morning. Worse: some of them even actively deny that there is such a thing as a housing shortage, or that building more housing will make it more affordable. No wonder, then, that the rise of “YIMBYism” – which an organisation that claims to represent the interests of tenants should have been at the forefront of! – has entirely passed them by.
Alex Hilton and I never agreed on much, but when I wrote my response to his rent control proposal, I nonetheless did not think of Generation Rent as my opponents. There was no YIMBY movement back then, so for me, anyone who highlighted the problems of the British housing market was, in the broadest sense, an ally, even if we profoundly disagreed on the solutions. (Hilton saw it that way too: “Niemietz is not just an unashamed neoliberal but he is proud of being such. He is hopelessly ideological in his faith in markets and opposition to state intervention, however, […] he accepts the housing crisis exists and is as genuinely concerned as I am about its economic and social impacts.”)
The situation is very different today. Highlighting the problem is no longer good enough. Thanks, in no small part, to the efforts of YIMBY campaigners, almost everyone is aware of the problem now. The challenge now is to turn YIMBYism into an actual policy agenda.
Rent controls are not just a bad idea in their own right. They are also a distraction from the YIMBY revolution that Britain needs so badly.
The emergence of a YIMBY coalition has been one of the most promising developments in British politics in recent years. Generation Rent could easily have been part of it. Instead, they chose to ignore it, and waste their time with pointless distractions like rent controls and other forms of tenancy regulations. They have done nothing to support the rise of YIMBYism, and to the extent that they had any involvement in it at all, they have actively stood in the way, by boosting the voices of contrarian supply-side deniers. If Britain ever makes any progress towards improving the situation of renters, it will be despite, not because of organisations like Generation Rent.
Recommended reading:
- “Rent Control: Does it work?” by Konstantin A. Kholodilin (2024)
- “How To Repair The Housing Market Quickly – A Crisis Response” by Alex Hilton (with a counterpoint by Kristian Niemietz) (2016)
- “Verdict on Rent Control” by Friedrich Hayek, Milton Friedman, George J. Stigler, Bertrand de Jouvenel, F. W. Paish, Sven Rydenfelt and F. G. Pennance (1972)