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New project: Reviewing rent control

In this blog, Professor Alex Marsh and Professor Ken Gibb introduce the new UK Collaborative Centre for Housing Evidence (CaCHE) project which will review the rent control literature produced over the last thirty years. 

Government regulation of rents in the private rented sector was central to the birth of active housing policy in the UK and elsewhere. In a world where the private sector had almost exclusive responsibility for housing provision, governments felt obliged to intervene in rent setting with the aim of ensuring affordability and preventing landlords from exploiting situations of shortage to extract unreasonably high rents. The implementation of rent control set in motion a whole series of developments including the birth of municipal landlordism.

But rent control has always been a hugely contentious policy. While it is favoured by many politicians and pressure groups, it is strongly disliked among economists. Much of the criticism is directed not at the motivation behind the policy but at its negative side effects. These have been argued to include discouraging landlords from letting properties; causing reductions in stock holdings, property maintenance and property standards; and, ultimately, increased homelessness. The case against rent control can conflate detailed arguments about the incentive effects of specific regulatory mechanisms with broader arguments about landlords responding negatively to increased political risk.

There is a substantial academic literature on rent control and rent stabilisation policies. Much of this literature is generated from the study of a relatively small number of housing market contexts. Yet, the impact of the policy intervention is likely to depend on how a rent control mechanism of specific design interacts with a housing market with specific institutional characteristics. The question of how far we can sensibly generalise existing results to other housing market contexts is not generally a primary consideration.

This literature is reviewed – more or less systematically – at reasonably regular intervals. But these reviews come to different – occasionally diametrically opposed – conclusions regarding the impacts of rent control and therefore about its desirability as a policy instrument.

The UK Collaborative Centre for Housing Evidence (CaCHE) is starting a new project reviewing the rent control literature produced over the last thirty years. This is an opportune moment to be doing so. Not only is there considerable policy interest in the issue at the moment but also the evidence base has been enriched by studies of recent policy changes including cities imposing new rent controls, while elsewhere rent controls have been unwound. Scotland has introduced rent pressured zones, modelled on the Irish approach, but at the same time, Scottish Labour is coming forward with a proposal for as ‘Mary Barbour Law’ which, among other things, includes a cross-the-board cap on rent increases. A core aim of our study is to review the key empirical findings that have been produced in the literature on the economics of rent control. But we also intend to capture empirical findings that have been produced in other social science disciplines.

We are also aiming to examine some broader questions about the construction of the evidence base – the way in which policy design and housing market institutions shape the relevance and applicability of the findings – and the theoretical perspectives that economists have applied to the issue. There is a branch of the literature that is largely theoretical: it demonstrates that the assumptions about how the housing market operates will shape the conclusions one reaches about the impact of rent control. Much of the literature assumes that the private rental market can be characterised – as an approximation, if not literally – as a perfectly competitive market. But is that the right starting point for the analysis? And even if it is plausible in one context or country, is it plausible elsewhere? If we change our starting point – for example, if we start from the assumption that the market is, at best, imperfectly competitive – then does that materially affect our conclusions about the desirability, or otherwise, of rent control? This discussion raises some important foundational questions: questions of ontology and epistemology; questions about how our models of housing markets map on to housing markets in the real world. While we cannot promise to offer definitive answers to those questions, we are aiming to provide a clearer map of the territory and to communicate why these issues are important.

This project is now underway. A structured search of the literature has been carried out and the resulting evidence base is being reviewed. We expect the project report to be published later in the Spring.

Professor Alex Marsh is a Co-Investigator at the UK Collaborative Centre for Housing Evidence and leads the ‘governance’ theme. Professor Ken Gibb is Director of the UK Collaborative Centre for Housing Evidence. 

 
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Date: February 11, 2020 11:51 am

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