Wednesday 26 October 2016

Only bombs destroy a city more quickly than rent controls

Lorraine Courtney

Published 04/06/2015 | 02:30

Sweden has the lowest number of people per household and in Stockholm rent controls discourage landlords from putting property on the market.
Sweden has the lowest number of people per household and in Stockholm rent controls discourage landlords from putting property on the market.

The Attorney General has cleared the way for temporary rent controls to stabilise the market and help those who have been hit with repeated increases.

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It's thought that rent increases will be linked to inflation and Minister Alan Kelly is expected to seek Cabinet approval for the measures over the next few weeks.

If rental prices are going up, that only means that there is a scarcity of available homes to let. The only sensible way to tackle the issue is either to reduce demand or to increase supply, or both. Controlling rents would have the very opposite effect.

It would increase demand by keeping rents down and reduce supply since it would be less worthwhile for landlords to let out homes.

A survey of 464 economists in the May 1992 issue of 'American Economic Review', found that 93pc agreed that "a ceiling on rents reduces the quantity and quality of housing available." Countless other surveys agree.

Just look at Stockholm, for examples, for the harm that a rent ceiling can inflict on a city. Rent controls there mean affordable rents, but controls also discourage landlords from putting their property on the market. So Stockholm now has a chronic shortage of legitimate housing and a thriving, highly expensive black market.

The city wait list for a new apartment is currently a whopping 15 years on average, and seven and a half years in the Greater Stockholm region. Stockholmers tend to live alone. Totally alone.

In fact, Sweden has the lowest number of persons per household in the OECD, with just 1.99 persons per household, compared to the OECD average of 2.63. Although, the average household size is 41sqm, which is the same as other countries.

Or take Manhattan, where the rent-stabilised apartments mean that it's the only city in the world where the young scan newspapers' death columns for clues about apartments coming onto the market.

The controls also seemed to help the wealthy far more than the city's poor. There was the situation of Mia Farrow's sprawling 11-room apartment overlooking Central Park for which she used to pay a piddling $2,300 a month.

Rent-controlled landlords let their buildings decay. Fact. Landlords who are no longer allowed to raise rents don't have any incentive to improve their properties and so the properties are left in disrepair and only the worst, least desirable properties tend to be let out. And far from keeping rents down, freezing rents because of longer leases would only encourage landlords to whack them up sharply at the beginning and the end of the tenancy.

You see, controlling rent prices, as with controlling prices of anything, only creates lengthy waiting lists and massive shortages. Our problem of unaffordable housing can only be dealt with by increasing the supply.

According to the latest research on the property market, Dublin's population may grow by as many 100,000 families during the 2010s but, halfway through the decade, fewer than 10,000 new homes have been built in the capital.

The false notion that vacant homes and ghost estates somewhere in the Midlands are a substitute for vacant homes where they are actually needed still lingers and so we still aren't building.

But restricting prices below market levels will only make supply even scarcer. Builders, developers and landlords wouldn't have any incentive to supply new housing if they can't make decent profits.

In the city centre, year-on-year rent increase stands at 17.2pc. And when my rent jumped 20pc in one single swoop, I'd no option but to move out of the city centre.

I don't want my rent controlled though. The economist Assar Lindbeck, a housing expert, once said that "rent control appears to be the most efficient technique presently known to destroy a city - except for bombing." True.

The only answer is to build more homes in places they are actually needed.

With the pressures now on the housing market, it would be madness to introduce policies that would actively stop new building and suffocate the rental market.

Besides, how can we allow a Government to order lower prices? Isn't that kind of thing that was tried in the Soviet Union?

Irish Independent

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