By – The Economist (Author N/A)
Published: August 31st, 2015
This article looks at the effectiveness of rent control in a variety of locations as well as their other effects.
Alternative solutions are also presented.
Author – N/A
● Carl Weisbrod, the chairman of the New York City planning permission
● Paul Krugman of the New York Times
● Kath Scanlon of the London School of Economics
● McKinsey & Company Management Consultant
Analysis of Potential Bias
The Economist is known for its highly factual reporting that is typically consumed by a more liberal audience. This article views rent control as ineffective, but it is not heavily biased, and provides sufficient evidence.
Rent controls are one approach to increase or maintain affordable housing options. They have the potential to redistribute power in the tenant-landlord relationship in favour of the tenant. Germany is a case used to support arguments for rent control, where currently it is illegal to charge more than 20% higher than rent for similar properties. Germany’s policy appears effective, with 50% of people currently renting, however, this could be due to other effects such as its declining population or relatively low housing prices.
On one side of the argument, rent control is a way to keep the rich from increasing the property values and rents in a certain area and therefore pressuring lower-income households out of an area. But, evidence has shown that in reality, those living in rent-controlled apartments tend to have higher median incomes than those renting at the market rate. This is likely due to available resources of the individual, as those with higher incomes have more time, and likely connections to find the desirable, rent-controlled dwellings. Rent controls may also lead renters to stay in one residence for more than would be practical.
Economists from various backgrounds disagree with rent control policies. Many believe that a more effective solution to reduce the gentrification of neighbourhoods would be to support the construction of more housing. Rent controls will likely reduce the supply of housing, which would at least partially counter the intended effect. Having a price ceiling in effect decreases incentives for the suppliers to
prepare or maintain the residences. Additionally, they can be more selective with their tenants. Supporting the construction of additional housing would be a more functional form of government intervention, especially in locations such as London where 45% of land to be developed is currently idle.