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Commenting on Labour’s pledge to cap above-inflation rent rises for three years, Deputy Director of the Adam Smith Institute Sam Bowman said:
Rent control is a stunningly bad idea that could clobber renters.
Rent caps come in two forms. The ‘first generation’ kind, which simply puts a ceiling on rents, can utterly destroy entire districts as landlords have no incentive to maintain their properties. These have been deemed by the Swedish (socialist) economist Assar Lindbeck to be “the most efficient technique presently known to destroy a city except for bombing”.
‘Second generation’ rent controls are what Labour seem to be proposing, and are less harmful, but shift risks from landlords to tenants. They incentivize landlords to price in expected rent rises at the beginning of the tenancy, so if rents fail to rise as quickly as expected, the tenant is left paying more than they would need to.
Labour has unwittingly announced a policy that could devastate Britain’s cities and exacerbate the housing crisis. If Labour want to reduce housing costs for renters, it should advocate planning reform to increase supply so that the price of housing drops in real terms.
Notes to editors:
The Adam Smith Institute is an free-market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.