Rent controls seem an attractive policy but don’t be fooled: they would mean fewer new homes, fewer properties on the market and they’d risk turning London into a closed city, writes Matthew Lesh
Londoners are facing even more monstrous rents. According to Rightmove, the average asking price in the capital has jumped to £2,480, a 15 per cent annual increase. In response, London mayor Sadiq Khan has reiterated demands for the power to freeze rents.
Rent controls are deceptively attractive and it is easy to see why. An immediate freeze would initially reduce financial risks to the over 1 million people currently renting in London. This is an understandably popular – perhaps even a populist – idea among London renters facing the risk of stiff increases.
But do not be fooled. Henry Hazlitt’s classic book, Economics in One Lesson, emphasises the importance of “looking not merely at the immediate but at the longer effects” of any policy. In this respect, rent controls are consistently and unquestionably an unmitigated disaster. Rent controls would worsen the underlying issue, the lack of housing supply, while reducing the quality of accommodation and making London even less accessible to newcomers.
It doesn’t require an advanced degree in economics to realise that when you set a price floor, forcing a supplier to sell something below the market price, they will produce less of the product, resulting in a shortage. Housing is no different. Rent control would discourage housebuilders from constructing, meaning fewer places for people to live. This will exacerbate the underlying housing crisis – driven by the UK building 4.3 million fewer homes than necessary, compared to the European average.
Rent controls would also encourage landlords to take their properties off the rental market – as has happened in Ireland and Scotland. This would particularly hurt the likes of students and migrants, who lack the capital to purchase a property. The result will be hundreds of people lining up for viewings, as was the case last September in Dublin as students scrambled to find an apartment or in Stockholm where it takes an average of 11 years to get a rent-controlled apartment.
London is a dynamic, entrepreneurial and highly mobile city. People come and go. Brits beginning their careers in the capital. Foreigners coming to take high-powered roles in the city. Lifetime locals upsizing and downsizing throughout their lives. This drives economic growth, as the most productive workers move into the capital.
Rent controls would make this significantly more difficult. Immigrants would find moving into the capital far harder, both since the new housing supply would be scarce and existing tenants would opt not to move to maintain their favourable rents. Thus rent control would turn London into a closed city, much less accessible to outsiders. London would not be “open,” as Khan declared during the Trump era, but almost entirely “closed”. The only alternative would be a black market, as has developed in Stockholm, with the lucky or connected few getting access to apartments.
Proponents claim things will be different next time. They speak about well-designed rent control. Sadiq Khan used to point to Berlin, which introduced rent control in 2020. The German capital’s rent control, which only applied to older apartments, resulted in a halving of new apartments coming onto the market. In the unregulated sector, rents were even higher.
Assar Lindbeck, the socialist Swedish economist, once described rent control as “the most efficient technique presently known to destroy a city—except for bombing.” It ranks somewhere between farce and tragedy that we consistently fail to learn this lesson.