Here’s why rent control might make the housing crisis worse

New York City, where rent control may have backfired. Image: Getty.

At Labour Conference last month, Jeremy Corbyn made one big announcement on the party’s plans for tackling the housing crisis in our cities – rent controls. However, while Labour argue that this would help to make living in high-demand cities like London and Oxford more affordable, these plans actually run the risk of deepening the housing crisis rather than solving it.

We don’t know yet exactly what form of rent controls Corbyn has in mind, but we can reasonably assume they will go further than Ed Miliband’s proposals in 2014, which capped rent increases to inflation within three-year tenancies but left them uncapped between renewals. In stating that “Rent controls exist in many cities across the world and I want our cities to have those powers too”, Corbyn may be seeking to emulate the recent reform in Berlin, through which all landlords are barred from increasing rents by more than 10 per cent of the local average.

But despite the stated aim of supporting people with lower incomes to live in high-demand, expensive cities, this policy may actually have the opposite effect. The root of the housing crisis in British cities is that we are not building enough homes, particularly in the most successful cities – and rent control could make this problem worse. Paradoxically, it would push some of the costs of housing up.

That’s because rent control would shut off the pipeline of private investment in rented housing. Some 55,000 homes in London have been or are in the process of being built through ‘Build to Rent’ schemes as well as hundreds in cities like Bristol, Reading, and Slough. These new homes would not exist with rent control, as it would make these investments unprofitable.

As a result, not only would the potential residents of such housing lose out from this construction disappearing; so would the rest of the city, as those residents are then forced to live or move into the existing housing stock, therefore crowding out and displacing other city-dwellers.

The location of ‘Build to Rent’ schemes hints at which cities would feel the impact of rent control the most. The UK’s high-productivity, high-housing demand cities such as Oxford, London, York, Brighton and Reading all have average house prices more than nine times the average income, and so also experience very high rents. Cities with weaker economies such as Blackburn and Hull may not feel the effects of rent control as sharply, but only because they have less demand for housing overall.

Undoubtedly, rent control will make some rented housing in these expensive cities cheaper, but with the unintended consequence of introducing new costs – financial and social – into the housing market. For example, for decades New York City has prioritised rent control over house building, with the result that it has failed to keep up with demand for new homes.

As such, rent controlled luxury apartments in elite neighbourhoods in Manhattan have been rented out for decades at less than £100 a month, but average one-bed apartments without rent control in working class parts of Brooklyn cost upwards of £1,300 a month. Rent control in Stockholm sees locals wait decades for new rent-controlled flats. And Berlin’s experience of rent control has not achieved their stated goal of stopping gentrification and has caused some rents to spike as landlords respond to the new incentives.

All the international evidence shows that rent controls divide renters into the privileged and the outsiders. Those already in rented flats when controls are introduced do well, but the city’s young people and migrants from the rest of the country and abroad are penalised as they need the new homes that are not being built. The shortage of housing then makes it harder for cities to attract the workers and firms they need to be successful.


Expensive cities like Cambridge have to manage the costs of growth by building more housing and using the new tax revenues to fund more infrastructure in the key locations that have lots of jobs and opportunities. Rent controls will make this more difficult and worsen the inequality of growth within successful cities.

Labour is also promising a big expansion of social housing, and it could be argued that this would balance out any negative effects of introducing rent control on the private housebuilding industry. This is unlikely. London needs roughly 50,000 homes a year, and is currently building 20,000, mostly privately. Even at the peak of municipal social housing in the 1960s London Boroughs were not building more than 30,000 a year.

The expansion of the social housing programme would have to surpass the historic peak London reached, and would put huge construction and maintenance burdens onto local government at a time when capacity within the sector is at its lowest point for more than a decade, just to keep prices stable. As such, Labour’s plans are not viable.

Ultimately, Labour’s enthusiasm for rent controls is misplaced, and its focus on replacing private rented housing with social housing should be a lower priority than simply building more homes. If Labour wants to make housing more affordable for the many not just the few, Corbyn should promise to commit to green belt reform that could unlock 1.4m homes within 25 minutes’ walk of existing train stations around our ten least affordable cities, all on just 5 per cent of the total green belt.

Fixing our broken planning system should be the priority for cities that want to help renters, not introducing new problems.

Anthony Breach is an economic analyst at the Centre for Cities, on whose blog this post first appeared. 

 
 
 
 

Everything you ever wanted to know about the Seoul Metro System but were too afraid to ask

Gwanghwamoon subway station on line 5 in Seoul, 2010. Image: Getty.

Seoul’s metro system carries 7m passengers a day across 1,000 miles of track. The system is as much a regional commuter railway as an urban subway system. Without technically leaving the network, one can travel from Asan over 50 miles to the south of central Seoul, all the way up to the North Korean border 20 miles north of the city.

Fares are incredibly low for a developed country. A basic fare of 1,250 won (about £1) will allow you to travel 10km; it’s only an extra 100 won (about 7p) to travel every additional 5km on most lines.

The trains are reasonably quick: maximum speeds of 62mph and average operating speeds of around 20mph make them comparable to London Underground. But the trains are much more spacious, air conditioned and have wi-fi access. Every station also has protective fences, between platform and track, to prevent suicides and accidents.

The network

The  service has a complex system of ownership and operation. The Seoul Metro Company (owned by Seoul City council) operates lines 5-8 on its own, but lines 1-4 are operated jointly with Korail, the state-owned national rail company. Meanwhile, Line 9 is operated jointly between Trans-Dev (a French company which operates many buses in northern England) and RATP (The Parisian version of TfL).

Then there’s Neotrans, owned by the Korean conglomerate Doosan, which owns and operates the driverless Sinbundang line. The Incheon city government, which borders Seoul to the west, owns and operates Incheon Line 1 and Line 2.

The Airport Express was originally built and owned by a corporation jointly owned by 11 large Korean firms, but is now mostly owned by Korail. The Uijeongbu light railway is currently being taken over by the Uijeongbu city council (that one’s north of Seoul) after the operating company went bankrupt. And the Everline people mover is operated by a joint venture owned by Bombardier and a variety of Korean companies.

Seoul’s subway map. Click to expand. Image: Wikimedia Commons.

The rest of the lines are operated by the national rail operator Korail. The fare structure is either identical or very similar for all of these lines. All buses and trains in the region are accessible with a T-money card, similar to London’s Oyster card. Fares are collected centrally and then distributed back to operators based on levels of usage.

Funding

The Korean government spends around £27bn on transport every year: that works out at 10 per cent more per person than the British government spends.  The Seoul subway’s annual loss of around £200m is covered by this budget.

The main reason the loss is much lower than TfL’s £458m is that, despite Seoul’s lower fares, it also has much lower maintenance costs. The oldest line, Line 1 is only 44 years old.


Higher levels of automation and lower crime rates also mean there are fewer staff. Workers pay is also lower: a newly qualified driver will be paid around £27,000 a year compared to £49,000 in London.

New infrastructure is paid for by central government. However, investment in the capital does not cause the same regional rivalries as it does in the UK for a variety of reasons. Firstly, investment is not so heavily concentrated in the capital. Five other cities have subways; the second city of Busan has an extensive five-line network.

What’s more, while investment is still skewed towards Seoul, it’s a much bigger city than London, and South Korea is physically a much smaller country than the UK (about the size of Scotland and Wales combined). Some 40 per cent of the national population lives on the Seoul network – and everyone else who lives on the mainland can be in Seoul within 3 hours.

Finally, politically the biggest divide in South Korea is between the south-west and the south-east (the recently ousted President Park Geun-Hye won just 11 per cent of the vote in the south west, while winning 69 per cent in the south-east). Seoul is seen as neutral territory.  

Problems

A driverless train on the Shinbundang Line. Image: Wikicommons.

The system is far from perfect. Seoul’s network is highly radial. It’s incredibly cheap and easy to travel from outer lying areas to the centre, and around the centre itself. But travelling from one of Seoul’s satellite cities to another by public transport is often difficult. A journey from central Goyang (population: 1m) to central Incheon (population: 3m) is around 30 minutes by car. By public transport, it takes around 2 hours. There is no real equivalent of the London Overground.

There is also a lack of fast commuter services. The four-track Seoul Line 1 offers express services to Incheon and Cheonan, and some commuter towns south of the city are covered by intercity services. But most large cities of hundreds of thousands of people within commuting distance (places comparable to Reading or Milton Keynes) are reliant on the subway network, and do not have a fast rail link that takes commuters directly to the city centre.

This is changing however with the construction of a system modelled on the Paris RER and London’s Crossrail. The GTX will operate at maximum speed of 110Mph. The first line (of three planned) is scheduled to open in 2023, and will extend from the new town of Ilsan on the North Korean border to the new town of Dongtan about 25km south of the city centre.

The system will stop much less regularly than Crossrail or the RER resulting in drastic cuts in journey times. For example, the time from llsan to Gangnam (of Gangnam Style fame) will be cut from around 1hr30 to just 17 minutes. When the three-line network is complete most of the major cities in the region will have a direct fast link to Seoul Station, the focal point of the GTX as well as the national rail network. A very good public transport network is going to get even better.