Thursday 23 August 2018

Rent controls - the case for teaching everyone basic economics


That rent controls are a bad idea is one of the few things that nearly all economist agree on - here's Paul Krugman (not exactly a hard right ideologue):
The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial. In 1992 a poll of the American Economic Association found 93 percent of its members agreeing that ''a ceiling on rents reduces the quality and quantity of housing.'' Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand.
This doesn't stop politicians everywhere from seeing controlling rents as something that will, in some way, 'fix' problematic housing markets (without upsetting the important NIMBY constituency). And it seems that the public think price controls are a good thing too - reinforcing the cynical outlook of politicians like New York's current mayor in shovelling up votes by promising cheap rents.

Here's the public view (in the UK) from a survey by pollsters, Survation:



You can see why us politicians love a price fix! The problem, however, is that fixing the prices won't fix the problem - you end up with either huge subsidy, fewer homes to rent, or rented properties that are very poor quality. Indeed, if you're a connoisseur of the UK's council housing, you'll know it's not that hard to achieve all three of these policy disasters.

Maybe we should teach more people basic economics - as Krugman points out the problem with rent controls is right near the front of the book, pretty easy stuff. If more people were told that price fixing doesn't work, there'd be fewer politicians like John McDonnell or Bill de Blasio prepared to lie to people about how rent fixes will solve the housing crisis.

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3 comments:

Mark Wadsworth said...

All these theories are bollocks and ignore real life.

In real life, what happens is that rent controls drive landlords out of the market, so you end up with more owner-occupiers who tend to look after their homes better than landlords/tenants.

So step one in increasing the number of owner-occupiers, which most people in the UK (including me) think is A Good Thing, is to discourage landlords.

Funding public services (which drive up land values) out of taxes on the thus created land values (instead of subsidising land values with taxes on earnings and output, for crying out loud) is the most obvious way of doing this - it's just like a service charge; rent controls are a second best but better than nothing.

Mark Wadsworth said...

And while we mock council housing, at the time it was built, it was far better and cheaper than what private landlords had to offer. That's why there was huge demand for it. And council housing still made a modest surplus for local councils. Win-win.

Anonymous said...

The housing crisis has been directly created by politicians and is something which even the most basic of arithmetic could have foretold.

If you deliberately increase the population by a net 300,000 per year, yet do not provide parallel volumes of additional accommodation, then price inflation will occur in both the purchase and renting sectors. No amount of controls after the fact will ever reverse that situation.

Quart into a pint-pot springs to mind. Who allowed/encouraged the extra 'pint' to arrive?