New study finds rent controls fail tenants, landlords, and homeowners

rents grow

A new study of the Irish property market has found that the introduction of rent controls fails tenants, landlords, and homeowners. DJ Alexander Ltd, part of the Lomond Group which is the largest lettings and estate agency in Scotland, looked at recent research by economist Jim Power and commissioned in the Republic of Ireland by the Institute of Professional Auctioneers & Valuers and the Irish Property Owners’ Association.

The research (which covers many of the changes which have occurred and are proposed for the private rented sector in Scotland and the rest of the UK) found that constantly changing regulations and more punitive tax regimes led to more individual landlords leaving the market and being replaced by institutional landlords and that rents, rather then reducing, actually rose as a result of the new policies.

The report found that there was evidence that the creation of Rent pressure Zones created a two-tier rental market reducing the amount of quality accommodation whilst also impacting on the value of all private properties in an area. Rent control areas were found to reduce property values for all owners not just landlords and had limited impact on the levels of rent charged.

It found that the legislative and financial changes resulted in individual and small-scale landlords leaving the market and being replaced by institutional landlords who charge higher rents than were previously in place with no evidence of a net gain of the number of properties on the market. This resulted in rents which are at least as high, if not higher, than they were before controls were introduced.

This report reiterates findings from earlier research by the Washington-based Brookings Institution, which states that: “While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spill overs on the surrounding neighbourhood.”

Brookings found that rent controls limit the availability of suitable rental properties on the market as well as subduing wider property market values concluding “the effect of rent control had been to reduce the whole neighbourhood’s desirability. The result is that owners of never-controlled properties actually mostly bear the capital cost of rent control. Rent controlled properties create substantial negative externalities on the nearby housing market, lowering the amenity value of these neighbourhoods and making them less desirable places to live.”

David Alexander, the chief executive officer of DJ Alexander Scotland, commented: “It is fascinating that this new Irish analysis and the earlier Brookings review have both come to the same conclusion that rent controls don’t benefit tenants, landlords, or homeowners. Tenants suffer because they limit appropriate supply and so rents, rather than falling as a result of the policy, actually rise in many cases.”

“Landlords and individual investors suffer as they opt out of the private rented sector leaving the space free for institutional investors to come in with higher rents resulting in more expensive homes for tenants. Homeowners in areas with rent controls also experience substantial financial losses as these areas are devalued in the marketplace resulting in lower property values.”

David concluded: “This is another survey telling us what most in the UK sector have been saying for some time: rent controls don’t work. They damage the private rented sector in the long term which impacts on tenants, landlords, and investors, as well as affecting the value of individual homeowners in rent restricted areas. It is interesting that the First Minister, who recently spoke at the Brookings Institution on her trip to Washington, does not seem to be aware that their position on rent controls is diametrically opposed to that of the Scottish Government. I presume Nicola Sturgeon spoke at Brookings because it is an organisation which reflects her broad political position, but she seems unaware that this is an institution which fundamentally disagrees with one of her governments’ key policies in the current parliamentary session.”