Commenting on Labour's election pledge to impose rent controls and three-year tenancy standards, Research Director of the Adam Smith Institute Sam Bowman said:
"Labour’s announcement that it will impose rent and tenancy controls is one of the worst policy decisions of recent years. It goes against one of the only true consensuses that exists among professional economists. No doubt with the best of intentions, Labour has unwittingly announced a policy that would devastate Britain’s cities by creating massive slums and exacerbate the housing crisis.
"Rent controls fail the most basic test of supply and demand. A price ceiling on rents leads to a reduction in the quality and quantity of places to live – as the market-clearing price rises above the price ceiling, the quality of existing stock degrades, eventually turning into slums. New construction is disincentivised and available housing becomes scarce. In Britain, this would escalate the housing crisis to an unprecedented level.
"The evidence bears this out: In a 1968 study by Paul Niebanck, 29% of rent-controlled housing in the United States was in a deteriorated state, compared to only 8% of uncontrolled housing. (http://www.walterblock.com/wp-content/uploads/publications/RentControlMythsRealities.pdf p. 68)
"Rent control is not a left-right issue: rent controls are opposed both by right-wing economists and left-wing economists like Paul Krugman and Emmanuel Saez. A confidence-weighted 2012 survey of economists found that 95% thought that rent controls had done damage where they were applied. (http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_6upyzeUpI73V5k0)
"The very announcement of this policy will probably do some damage: if there’s a danger that your investment might be subject to punitive state-imposed price ceilings, it’s probably better to play it safe and invest in something else.
"The only good way to lower rents is to allow more construction in places people want to live. We simply must build more.
"Rent control is a stunningly bad idea that could devastate Britain’s cities and clobber renters. To paraphrase the socialist economist Assar Lindbeck: the only thing worse for cities than rent control is bombing them."
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The Adam Smith Institute is an independent libertarian think tank based in London. It advocates liberal public policies to create a richer, freer world.