What are rent controls, and who do they benefit?

A housing protest in London, 2015. Image: Getty.

New York, San Francisco and Stockholm have them. And now some Londoners are calling for them to curb rising rents. But what are rent controls and how do they work?

Rent controls can come in many flavours but they are all a form of price ceiling to cap the level of rent that landlords can charge. Generally, price ceilings lead to underproduction and black markets. Producers, where possible, switch their efforts to alternative goods that fetch better prices. Shortages and illegal trading of the regulated goods often follow.

Housing is a durable good, however, and most renters do not live in new homes. So it is tempting to think of the rental stock as rather fixed and therefore largely immune to the normal pernicious effects that price controls have on supply.

To some extent, this is true – in the short run. But over the long run, it is generally not. Shortages in quantity and quality will eventually occur, though their manner and degree depends very much on the particulars of the rent control policy. The particulars also determine who wins and who loses.

Different types

Rent controls must grant renters greater security over their tenancy and also regulate the rents that they pay. Both are necessary, as otherwise landlords could force tenants to leave in spite of any security by raising their rents prohibitively.

Typically, the rents are controlled by a local rent board which decides on an annual basis how much a tenant’s rent may permissibly be increased. Almost always, these increases are lower than the growth rate of unregulated, market rents in the area. This keeps rents, for existing tenants at least, “affordable”.

It would be arduous (and boring) to create a taxonomy of all rent controls. But rent control is one of the few policies in economics where there is little disagreement over their unintended consequences – the effects are readily observable in the many markets where rent control has been enacted.

A key issue is whether rents are regulated for existing tenants only – or for new tenants as well. In San Francisco, rents are unregulated for new tenants, but incumbents have the right to renew at a regulated increase in rents. In New York City or Stockholm, apartments themselves are regulated; rents are more or less determined by a board and are (more or less) independent of the length of current tenancy.

This difference in approach is reflected in the market. In San Francisco, rents for new tenants are very high, in part because landlords know that they may not be able to increase them later. In NYC and Stockholm, rents for regulated apartments are quite low. And in NYC only a fraction of the rental stock falls under rent control. Many rentals are completely unregulated.

Finders keepers

Both approaches heavily disincentivise renters from relocating. In San Francisco, for example, a tenant who has been living in their apartment for years would likely have to pay a substantially higher rent should they move to a different apartment and begin a new lease.

In Stockholm and New York City, rent controls have had unintended knock-on effects on the market as a whole. For different reasons, in both cities there is a shortage of rent controlled apartments. In Stockholm, apartments are rationed by the government. Waiting lists for apartments are long. In New York, landlords have greater autonomy over who they rent a controlled apartment to: it is “finders-keepers”, and the finding is very tough.

Disrepair

Shortages are not always immediately apparent. Suppose a city, London, were to impose controls on all rentals. At first, there wouldn’t be much of a change in the rental stock; perhaps a slight reduction in the number of buy-to-lets.

Over time, though, the rental stock would decrease. From the beginning, regulated rentals will be under-maintained. Because landlords are poorly compensated for any improvements under rent control, they lack the incentive to upgrade or even perhaps make repairs. In fact, disrepair may help them get rid of an incumbent tenant – an attractive option under San Francisco-style controls.

There are also knock-on effects for the owner-occupied housing market, which is not regulated. If rent is capped, the buy-to-let market would likely cool down. Owner-occupiers, because of the value they get from living in their home, would be willing to pay more than prospective landlords. Rental homes, where and when possible, would be sold into owner-occupancy as a result.

NYC has long rent control waiting lists. Image: Scott Davies/Flickr/creative commons.

In NYC and Stockholm, where much of the regulated rental stock is in multi-storey buildings owned by a single legal entity, conversion to owner-occupancy is relatively rare. In London, however, where much of the rental stock is individually owned, homes would move rather easily into the owner-occupied sector. This may be good for renters who are willing and able to buy a similar home, as house prices will generally be lower. But it will be much tougher for those not ready to buy.


Fewer options

The consequences of rent control are not as simple as, “Renters win, landlords lose”. This is sort of true, initially. But would-be landlords – investors who have not yet bought – lose nothing. They can move their money to alternative investments if the return on being a landlord is not high enough.

Meanwhile, future renters lose. Investors have many choices over assets to invest in, but renters have fewer options; they either rent or own. For many renters, switching to owning is not possible or would be financially difficult. And so they will end up bearing the costs of the price ceiling.

Of course, rent control need not lead to scarcity if the government is willing to step in and subsidise construction. But then it becomes the public purse that bears the costs of rent regulation.

There are times and places where rent control may nevertheless be good policy. It may be warranted in war time, particularly if other parts of the economy, such as housing construction, are being simultaneously regulated. In fact, both NYC and London had rent controls during World War II. But this may lead to those renters that enjoy the controls during the war becoming a vocal constituency for maintaining the policy, with the long-term unintended consequences this brings.

The Conversation

Jonathan Halket, Lecturer in Economics, University of Essex.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 
 
 
 

Barcelona’s car-free “superblocks” could extend lives. So will they catch on elsewhere?

Barcelona. Image: Getty.

The world’s biggest cities have larger populations and higher economic outputs than some countries. But as they grow in size and complexity, cities are also facing thorny challenges that threaten the health and happiness of residents. Congestion, pollution and a lack of community spaces have become major drags on people’s aspirations and experiences of urban living.

In response, cities must manage their resources and priorities to create sustainable places for visitors and residents, and foster innovation and growth. Enter Barcelona – the capital of Catalonia, in Spain – where a bold stroke of urban planning first introduced “superblocks” in 2016.

Image: ISGlobal/FAL.

Superblocks are neighbourhoods of nine blocks, where traffic is restricted to major roads around the outside, opening up entire groups of streets to pedestrians and cyclists. The aim is to reduce pollution from vehicles, and give residents much-needed relief from noise pollution. They are designed to create more open space for citizens to meet, talk and do activities.


Health and well-being boost

There are currently only six superblocks in operation, including the first, most prominent one in Eixample. Reports suggest that – despite some early push back – the change has been broadly welcomed by residents, and the long-term benefits could be considerable.

A recent study carried out by the Barcelona Institute for Global Health estimates that if, as planned, 503 potential superblocks are realised across the city, journeys by private vehicle would fall by 230,000 a week, as people switch to public transport, walking or cycling.

The research suggests this would significantly improve air quality and noise levels on the car-free streets: ambient levels of nitrogen dioxide (NO₂) would be reduced by a quarter, bringing levels in line with recommendations from the World Health Organisation (WHO).

The plan is also expected to generate significant health benefits for residents. The study estimates that as many as 667 premature deaths from air pollution, noise and heat could be prevented each year. More green spaces will encourage people to get outdoors and lead a more active lifestyle.

This, in turn, helps to reduce obesity and diabetes and ease pressure on health services. The researchers claim that residents of Barcelona could expect to live an extra 200 days thanks to the cumulative health benefits, if the idea is rolled out across the city.

Space to play. Imag: Mosa Moseneke/Unsplash.

There are expected to be benefits to mental health, as well as physical health. Having access to such spaces can stave off loneliness and isolation – especially among elderly residents – as communities form stronger bonds and become more resilient.

Stumbling blocks

It was Salvador Rueda, director of the Urban Ecology Agency of Barcelona, who first championed the introduction of superblocks – and he argues that the idea could be used in any city. Even so, authorities looking to expand the concept in Barcelona or beyond will need to be mindful of some concerns.

Changes like these require capital investment. Even as the car-free streets are transformed with urban furniture and greenery, the remaining major roads will likely have to accommodate heavier traffic.

Nothing comes for free. Image: Zvileve/Flickr/creative commons.

Further investments in local infrastructure – such as improving surrounding roads to deal with more traffic, or installing smart traffic management system – could be required to prevent serious congestion. Then the question remains, how to finance such investments – a higher tax rate is unlikely to be popular.


What’s more, whenever a location becomes more desirable, it leads to an increase in property demand. Higher prices and rent could create pockets of unaffordable neighbourhoods. This may lead to use of properties for investment purposes and possibly, displacement of local residents.

It’s also worth noting that Barcelona is an old and relatively well-planned European city. Different challenges exist in emerging global cities across Asia, Africa and Latin America – and in younger cities in the US and Australia. There is a great deal of variation in scale, population density, urban shape and form, development patterns and institutional frameworks across the cities. Several large cities in the developing world are heavily congested with uncontrolled, unregulated developments and weak regulatory frameworks.

Replicating what’s been done in Barcelona may prove difficult in such places, and will require much greater transformations. But it’s true that the basic principles of superblocks – that value pedestrians, cyclists and high quality public spaces over motor vehicles – can be applied in any city, with some adjustments.

Leading the way

Over the history of human civilisation, great cities have been at the forefront of innovation and social progress. But cities need a robust structure of governance, which is transparent and accountable, to ensure a fair and efficient use of resources. Imposing innovation from the top down, without consultations and buy-in, can go squarely against the idea of free market capitalism, which has been a predominant force for modern economies and can lead push-back from citizens and local businesses.

Citizens must also be willing to change their perspectives and behaviour, to make such initiatives work. This means that “solutions” to urban living like superblocks need to have buy-in from citizens, through continuous engagement with local government officials.

A man speaks at a public consultation on the Eixample superblock in Barcelona. Image: Ajuntament Barcelona/Flickr/creative commons.

Successful urban planning also needs strong leadership with a clear and consistent vision of the future, and a roadmap of how that vision can be delivered. The vision should be co-developed with the citizens and all other stakeholders such as local businesses, private and public organisations. This can ensure that everybody shares ownership and takes responsibility for the success of local initiatives.

There is little doubt that the principles and objectives of superblocks are sound. The idea has the potential to catch on around the world – though it will likely take a unique and specific form in every city.

The Conversation

Anupam Nanda, Professor of Urban Economics and Real Estate, University of Reading.

This article is republished from The Conversation under a Creative Commons license. Read the original article.