Saturday, February 9, 2019

Will Rent Controls Destroy the London Rental Market?

Camilla Cavendish reports in the Financial Times that rent controls may be coming to London:
One of the most eloquent arguments against rent control was made inadvertently by the screenwriter Nora Ephron, describing her love affair with her apartment on Manhattan’s Upper West side. The author of the script for the film When Harry Met Sally wrote hilariously in her memoir about the mice, the asbestos and the vast “key money” bribes paid to secure a place in the block whose landlords had, under rent control, no incentive either to maintain the building or play fair.

A policy which entrenched a Hollywood millionaire in an eight-room apartment at submarket rates doesn’t quite convince. Researchers at Stanford University found that rent controls in San Francisco in the 1990s protected established (and often older) tenants at the expense of newer (often younger) ones, partly because new building declined. That’s why economists sigh when politicians shout “rent control”. But Sadiq Khan, the mayor of London, is proposing it and the Labour party has pledged to legislate for it because it’s popular.
Cavendish has first-hand experience with mad London rental regulations that are already ion the books (my bold):
 I inherited my mother’s flat when she died. My first “tenant” was a fraudster who changed the locks, sublet the two bedrooms at double the price I was charging and then stopped paying. I couldn’t evict him because he had disappeared, and the bloke who was occupying the flat was a complete stranger, not the “tenant” with whom I’d signed the contract. It was illegal for me to enter my own property, because I would have been “trespassing”. 
The occupier, who eventually left of his own accord, told us that the fraudster had shown him several properties, not just mine, and claimed he owned all of them.
An acquaintance of mine had a similar experience in Washinton D.C.

He had sublet an apartment, with the approval of the landlord, but at the end of the lease the subtenant refused to leave and stopped paying rent. The original tenant, my acquaintance, was on the hook for continuing rent on the lease that had expired but couldn't legally enter the apartment.

Rent controls are vicious. They result in a distorted distribution of apartment dwellers.  And landlords, as Cavendish points out,  have no incentive to maintain the upkeep of their properties. And it kills the incentive for builders to build rentals.

Economist Walter Block writes:
Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, another study reported that more than 95 percent of the Canadian economists polled agreed with the statement. The agreement cuts across the usual political spectrum, ranging all the way from Nobel Prize winners Milton Friedman and Friedrich Hayek on the “right” to their fellow Nobel laureate Gunnar Myrdal, an important architect of the Swedish Labor Party’s welfare state, on the “left.” Myrdal stated, “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” His fellow Swedish economist (and socialist) Assar Lindbeck asserted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”
Indeed, much of the Bronx, in the 1970s, did look like a bombed city because of rent controls.

Will this become the future London?


1 comment:

  1. Price-ceilings cause shortages (and price-floors cause gluts)---one of the many valued lessons I learned from reading, as I recall, Hazlitt's "Economics in One Lesson" in the mid-90s...