A briefing paper by the Institute of Economic Affairs (IEA) on rent control concludes that it has more negative consequences than benefits.

This letter has been published as calls for the introduction of rent controls in the UK in response to the housing crisis have grown.

London Mayor Sadiq Khan, a recent report commissioned by the Labour Party and the Greens support the idea.

In Scotland, there was a cap on rent increases until March 2024, and tenants can still challenge some increases.

With rent control, the state sets the rent, which is usually below the market value.

The paper, authored by Dr. Konstantin A. Kholodilin, senior researcher at the German Institute for Economic Research (DIW Berlin), examined 196 studies conducted over a 60-year period and covering nearly 100 countries on all inhabited continents.

The briefing paper highlighted that there is a strong consensus in the academic literature on the effects of rent control.

According to Kholodilin, rent control benefits existing tenants but comes at a significant cost to society as a whole.

This leads to lower maintenance costs, conversion to condominiums and a lower number of newly built properties, which ultimately leads to a further worsening of the housing shortage.

According to Kholodilin, rent controls can also lead to “excessive demand” for housing.

This can make it difficult for new arrivals to find housing, resulting in reduced labor mobility, increased discrimination against marginalized groups, and an increase in black market activities.

This regulation can also lead to people staying in their existing housing longer than intended. For example, they may stay in a large building with rent control after the family has moved out and the building is no longer needed.

The lack of movement leads to a “misallocation” of available real estate and thus to further economic damage.

Kholodilin said: “Rent control effectively reduces rents in the controlled sector, but it comes at a high price.

“Tenants who live in rent-controlled apartments benefit the most, at least in the short term, while newcomers lose out due to rent control.

“In the long run, rent control can harm the rental sector by forcing landlords to convert their housing and turning tenants into owners.”

Dr Kristian Niemietz, IEA Editor-in-Chief, said: “Economists are a notoriously divided profession: ask three economists and you will get four opinions.

“But there are exceptions, and the study on rent control is one of them.

“This is an area where the empirical evidence really overwhelmingly points in the same direction.

“The finding that rent controls reduce the supply and quality of rental housing, reduce housing construction, reduce the mobility of private tenants and lead to a misallocation of the existing rental housing stock is as close to a consensus as is realistically possible in economic research.”

Ronan Lyons, Associate Professor of Economics at Trinity College Dublin, said: “Dr Kholodilin’s comprehensive analysis of the literature on rent control will be enormously useful, not only for academics but also for policy analysts and policy makers, as many cities in high-income countries struggle with housing shortages.

“Given the challenge of affordable housing, the resumption of rent controls over the past decade is perhaps politically understandable.

“But as Konstantin’s detailed overview shows, the economic costs of such policies can be significant.

“The key evidence gathered in this review will enable policymakers to make more informed decisions on rental affordability policy.”