In New York, rent controls apply only to large landlords with more than six properties, not to occasional landlords with fewer properties. The rent controls can make it harder to get a lease. Landlords who are not covered by the rules have more tenants competing for every available room and can therefore charge higher prices.
A lower return on capital could also discourage landlords from carrying out repairs, which in turn reduces the quality of available housing, the IEA report says.
The controls that can encourage tenants to stay in a property longer also lead to misallocation of housing, such as when single older tenants stay in a large but cheap house even though they no longer need the space.
Proponents of rent controls say they would give tenants more flexibility and make rents fairer. 30 percent of salary is usually cited as a fair amount.
Ben Twomey, chief executive of tenants’ initiative Generation Rent, said: “Rent controls will not solve all the problems and more affordable homes need to be built where people want to live, but low and middle income tenants need space now.”
In May, a report commissioned by the Labour Party proposed the introduction of a “double lock” that would link rent increases to the lowest local wage growth or inflation rate.
The report, written by Stephen Cowan, Labour leader of Hammersmith and Fulham Council, says rent increases should only be allowed once a year and tenants must be given at least four months’ notice.
However, critics allege that rent controls have led to a loss of investment, driven up prices for new arrivals and also worsened the quality of the housing supply.
Dr Konstantin Kholodilin, author of the IEA study, said: “Rent control effectively reduces rents in the controlled sector, but it does so at a high cost. Tenants living in rent-controlled housing benefit the most, at least in the short term, while newcomers lose out from rent control.”
Dr Kristian Niemietx of the IEA said the finding that rent controls reduced the supply of rental housing was “as close to a consensus as economic research can realistically achieve”.
The chief executive of the British Property Federation (BPF), which represents estate agents, told The Telegraph in June that rent controls introduced in Scotland had made the country a no-go zone for investors.
The SNP introduced an emergency rent cap under former First Minister Nicola Sturgeon in October 2022. The cap, intended as a short-lived measure to alleviate the cost of living crisis, was extended before expiring earlier this year.
Despite the end of the cap, a temporary framework for rent controls is still in place while the SNP finalises the Housing (Scotland) Bill, which aims to make rent controls permanent. The law is due to come into force in 2025.
The 3% cap on existing tenants meant that rent increases when reletting a property rose dramatically, rising by 11% – the highest annual rent increase of any country in the UK.
Melanie Leech of the BPF said: “Rent controls were introduced overnight and without consultation and that is the kind of thing that makes investors really nervous.”
