3 thoughts on “Rent controls: popular but wrong”

  1. Posted 05/01/2017 at 17:07 | Permalink

    While the “price signal” argument here is correct analysis, there is one issue that is overlooked here. In response to the financial crisis, we re-introduced caps on mortgages, which put a restriction on borrowing for those who wanted to be owner-occupiers, but did not also re-introduce rent controls, hence we now have the situation that someone who would choose to buy is deemed to not be able to afford it, but they are deemed to be able to afford the rent.

    The issue that needs sorting out relates to fair access to land for housing, which we each should have as our birthright (otherwise we are arguably born into “rent slavery” if we are unfortunate enough not to be born into wealth).

    There are two factors that I would say need addressing. First is the unearned incomes (economic rent) that accrue to the already wealthy because they own desirable land in an area of economic success created not by them, but by society at large (people, businesses and governments). This should be taxed as is recognised by many, in the form of a Land Value Tax (or as I prefer to call it, a Location Value Tax).

    The other is fair access to land on which development is permitted. The housing supply market is a stitch-up. We need to change how land is released for development so that there is fair access allowing an improved response to the market signal of high rents/location values.

    While a transition to a meaningful LVT and the Citizen’s Dividend that should go with it, there are things we could do now.

    We could, for example, eliminate the planning gain windfall and developer stitch-up by taking democratic control of land purchase and master-planning at the local authority level. Use compulsory purchase at a little above agricultural rates when there is a change of use, and then either: auction off the land to a developer, or do the master planning, and then sell off plots to both developers and those wanting to build their own homes.

  2. Posted 06/01/2017 at 15:25 | Permalink

    Economists are quite rightly against rent controls because they act as an implicit subsidy to tenants, leading to misallocation and over consumption of immovable property.

    However, most economists then fail to apply that logic to freeholders, who unlike tenants pay no rent(as tax) for their right to exclude others from valuable locations. Thus, they are in receipt of an implicit State subsidy worth a market distorting £200bn per year.

    Which not only causes vacancy, under occupation and a widening North/South divide, but is then capitalised into rental incomes, which in turn raise selling prices by over 200%.

    Without a 100% LVT, markets cannot be fair and efficient, and cannot therefore match supply with demand. Until we do have such markets, no one can possibly say whether or not the UK has a shortage of housing. Its just bad, dishonest economics to say we have.

    It’s also bad economics to mix up selling prices/rents with costs. As location values makes up the majority of rents/selling prices, it is pure transfer payment, not a cost in terms of labour/capital expenditure. Therefore building more homes in order to reduce selling prices will actually increase costs rather than reduce them, even if the aim of reducing transfer payments is a noble one.

    By dealing with the transfer payment at source, a 100% LVT would not only be far more effective in lowering selling prices and increasing the discretionary incomes of typical UK households, but by rationalising our existing housing stock it would lower costs rather than increasing them.

    Affordability issues in the UK are due to the concentrated nature of locations values in London/SE, relative to the distribution of income and capital throughout the UK as a whole and how they are taxed. It has nothing to do with lack of supply, planning, immigration or any other such nonsense.

  3. Posted 28/09/2017 at 13:49 | Permalink

    Price floors and ceilings are one the basic first things one learns in economics lessons. On my degree economics only took up a few modules but even then it was enough time to cover the consequences of these interventions.

    I would have more respect for rent control supporters if they came out and said we support the policy however, there are consequences such as shortages. Likewise, if they said raising minimum wage creates more unemployment and hurts small businesses but it may benefit those who keep their minimum wage jobs. But we are not dealing with people like this, nor are any of the major media outlets going to explain these fairly digestable economic processes – the pros and cons, so that people can weigh these consequences and make an informed decision.

    No, the people we are dealing with will flat out deny any problems are caused. Their supporters will buy that line while others may be swayed due the paucity of coverage on offer. The BBC preferred to dedicate more time to the ‘can Corbyn inspire more people’ narrative and had a floundering economic illiterate pay lip service to the problems created by rent control.

    Your article was very good but for the most part you are preaching to the converted and sadly, will not win others over this way. I understand that it is easier to market pie in the sky guff on emotion, but it also worries me that organisations like the IEA (amongst others) who are so in favour of the concepts of free markets, enterprise, innovation etc. are so bad at marketing them.

    IEA are by no means the worst, by the way. The Adam Smith Institute refer themselves as neo-liberals – marketing suicide!

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