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Peter Lewis: Rent control is not the answer to fairer housing

Thursday, June 01, 2017


We sometimes hear advocates for residential tenants claim that rents should be subject to price control. They say that rent controls provide long-term security for renters, and tilt the balance of power away from landlords towards the tenants. This, in their view, makes for a fairer housing market in which households with lower incomes cannot easily be pushed aside by landlords keen to upgrade their property to a higher specification with a commensurate rent increase.

The opposing point of view is that rent control reduces the supply of lower-end property to the market because there is no money in creating affordable housing if landlords can never raise the rent to market rates. Slower supply growth then exacerbates the basic pricing problem. Those landlords who do rent out rent controlled properties tend to do minimal maintenance because, when supply and turnover in the market are limited by rent caps, landlords have little incentive to compete to attract tenants. Rent controls also mean that landlords may also become choosier, and tenants may stay in properties longer than makes sense as when they move to another rental property they may lose the benefit of the less-than-market rent that they have been paying.

Once people move into a rent-controlled place, they are incentivised to never move out, because it is so cheap. A family may move into a large rent-controlled property. Over the years the kids grow up and leave, the husband dies. But the widow stays on alone in the property that is now far larger than what she needs, she stays on because it is cheap. In doing so she denies that property to another family that actually needs the space. Rent control doesn’t work. It doesn’t help the poor. It helps the middle class. There is some evidence that those living in rent-controlled flats in New York tend to have higher median incomes than those who rent market-rate apartments.

Overseas experience shows that stringent enforcement of rent control results in largely adverse outcomes such as undersupply, long waiting lists for tenancies, black market activity, little maintenance of rental properties, urban decay, and sometimes even eventual abandonment of such buildings.   Not convinced, take a look at the video below by Nicole Gelinas from the Manhattan Institute on why price ceilings on rent will only hurt renters.

In the local context, this proposal ignores the current law that restricts landlords to only charging a rent that is commensurate with other rents for a similar property within the area, and that tenants have the statutory right to appeal to Tenancy Services if they feel that their rents are unreasonably high.


 

Peter Lewis is the Vice President of the Auckland Property Investors' Association.


 

 

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