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Rent Control – A Good or Bad Idea?

After speaking to a friend in London about the extortionate amount he pays in rent to live in the city I started thinking about my time living in London and then for a short while in New York. Whilst in New York in 2015 and working in the commercial property market I got the chance to learn about not only the huge amounts of rent people pay (in 2015 the price of living accommodation in New York was 17% higher than in London) but also the rent policies they have in place in certain areas.
Whilst there, I was lucky enough to be invited to a roof top party in Brooklyn complete with DJ and inflatable slip & slide where I got talking to the host, a teacher who was the same age as me. I was trying to work out how on earth he could afford to live in such a nice place just a stone’s throw from Manhattan when he mentioned that he was lucky to live in a rent stabilized building. He moved to Brooklyn over 10 years previous to our discussion when it was still pretty rundown and places were relatively cheap in comparison to Manhattan. Over the years Brooklyn underwent serious gentrification and rents increased by huge amounts, except in buildings that had rent regulations in place which limit the amount landlords can increase rent amounts by.

So should rent regulations be introduced in London?

If someone had asked me this question when I was living in my mouse infested flat in a rundown area of South London and paying through the nose for the ‘pleasure’ of doing so I would have said yes without a second thought. However, after looking into it further I have found little in support of these rent regulations and found that many US cities that had them in place previously have actually removed them.

Most economists are in agreement that the negative effects largely outweigh the positive. Landlords tend to push up rents in buildings that don’t have regulations in place to make up for lost money in buildings that do. Many studies have shown that regulations also prevent development. High rents are mainly down to the supply and demand of rental properties being in disequilibrium causing rents to rise as consumers compete for available space. This is a basic law of economics, excess demand equals higher prices and this in turn leads to increased investment in new developments and rehabilitation of older buildings until eventually demand and supply are in equilibrium at the market clearing price. Government intervention of a price ceiling limits investment in new developments of rental property as it reduces incentives for investors in the buy to let properties market. Basically, in the short term the introduction of rent regulations send the wrong signals to Developers and Investors. The lower rent prices tell developers to stop building and tells providers of rented accommodation to reduce their investments in the sector.  In the longer term people refuse to move out of their rented accommodation as they think they have a great deal which further reduces supply for new people looking to rent, landlords have less incentive to keep properties up to scratch and buildings deteriorate.

The introduction of Rent controls in London would be hard to maintain in just that particular city, as lower supply forces people to live further outside the city or move altogether pushing rent up elsewhere in the country until there is demand for regulated markets everywhere and thus reduced development and investment further reciprocating the problems previously mentioned.


Written By: Harry Haddaway


Author: Woolley
Published on: Tuesday, April 12th, 2016
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