Like any price ceiling, Labour’s pledge will reduce available supply, as rents are capped below their market level. Economists call such policies rent controls, and they are a rare area of academic consensus.
A 2012 poll of influential economists found that 95 per cent believed they had a negative impact where applied locally, in cities like New York and San Francisco. Miliband is proposing to roll out that failure at the national level.
If introduced, the policy will make rental properties increasingly scarce. Putting a cap on rents will reduce the price signals necessary for investment in new homes, and blunt the incentives for landlords to maintain current stock.
In New York, research by Gyourko and Linneman found that the effects of rent control on apartment quality “has been quite substantial”. In Manhattan, properties that are rent controlled are nine per cent more likely to be in unsound condition.
Moving to new property also becomes more difficult under a regime of rent controls, as the general scarcity of homes means incumbent tenants face strong incentives not to move out of their homes. For those who are already struggling to get their foot on the housing ladder, such policies can make it harder to find somewhere to live at all.
The UK already faces a chronic shortage of homes, with the issuance of construction permits at a 50-year low. As the decline in permits implies, construction of new homes is tightly limited, making it difficult for investors to expand the UK’s stock. Research done in 2011 by Sanchez and Johansson ranks the UK’s supply of housing as one of the OECD’s least responsive to changes in price.
To liberate tenants from high housing costs we must free up the land on which politicians are preventing new building. The UK can build itself up, out, and away from scandalously high prices. But rent controls will leave us with even fewer options.