Why the Establishment Hates Rent Controls

The establishment thinks rent controls will 'destroy' our cities – but the truly destructive force is the unchecked power of landlords.

People protest in support of Berlin's overturned rent cap in April 2021. Credit: Tobias Schwarz / AFP via Getty Images

Arguably one of the starkest areas of uniformity within the economics profession concerns the question of rent controls. It is not without justification that The Washington Post referred to it as ‘the one issue every economist can agree is bad’ in a recent op-ed. Polling of the profession has consistently shown large majorities against rent controls: over 80 percent of those surveyed, per 2018 figures; in a 1992 American Economic Review survey, a staggering 93 percent of economists asked were against rent controls. Indeed, the Swedish economist Assar Lindbeck is well-known for his infamous assertion that ‘rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.’

Yet, recent developments—not least in Berlin, where the newly successful Enteignen (Expropriation) campaign emerged, at least in part, from rent controls being ruled unconstitutional—show that technical models offer little succour to tenants at the raw edge of rising rents and a resurgent rentier class. This clash between economic orthodoxy and the reality facing tenants in cities with skyrocketing rents has prompted a hectoring tone across much of the business press. To peruse, even in passing, the respective house journals of neoliberalism on either side of the Atlantic is to be bludgeoned with assertions of the counterproductive nature of rent controls—and the foolishness of those advocating it.

A textbook example of a well-intentioned policy that does not work… [rent controls] are snake oil,’ opined The Economist in September 2019. In March of this year, the newspaper argued Berlin’s rent cap—prior to being ruled unconstitutional—’has managed to make Berlin’s housing shortage even worse—and poisoned relations between tenants and their landlords. Already in July of 2019, it appeared the same publication was already running short of ways to phrase their opprobrium—simply titling one piece ‘Europe embraces rent controls, a policy that never works.’

Perhaps unsurprisingly, similar sentiments are shared in the pages of Bloomberg. With the part-conversational, part-patronising affect beloved of a certain type of American liberal, a 2018 piece concluded ‘Yup, rent control does more harm than good.’ A further piece, analysing changes in rent prices and supply in Berlin following the initial rent passage of rent controls, concluded that ‘Berlin’s rent controls are proving to be a disaster.’

On what basis was this conclusion reached? Although rents fell markedly in newly rent-controlled properties, they rose rapidly in apartments which had escaped the rent-control regulation. At the same time, listings of rent-controlled apartments fell off a cliff, with unregulated units unable to pick up the slack.

The interesting factor here is that the economists are not entirely wrong. Introducing rent controls—without making further fundamental changes to how the housing market operates—can indeed cause the kind of bifurcation witnessed in Berlin. Yet this is self-evidently not a reason to ignore rocketing rents—or to blithely argue that simply building more houses will sort everything out.

Indeed, it is worth thinking through this example. There are a couple of strands to pick up here. What we are witnessing is in part, of course, the enduring neoliberal axiom that the state cannot—and should not—itself be actively engaged in the building of social housing. We have seen this markedly in the United Kingdom—a graph I created for a previous Tribune piece, ‘Rentier Island’, demonstrates how the neoliberal paradigm saw the state moving from building council houses at scale to subsidising landlords: a policy switch which has had deleterious results. We do not have to venture too far into the past—as Isaac Rose and I noted for Greater Manchester Housing Action in 2020—to see that the love-in for landlords has not always been a liberal priority: from Paine, to Mill, and even Winston Churchill, ‘an anti-landlord, anti-rentier sentiment was not unusual.

Perhaps more pertinent here, however, is what is known in the housing literature as ‘housing regimes’. Broadly speaking, developed nations can be grouped according to two housing models—dualist and unitary systems. In the former—characterised by, for example, the United Kingdom—there are two rental systems which broadly have little to do with one another: a subsidised, social housing sector; and a privatised, financialised, scarcely regulated private housing sector.

Unitary systems, more common across, for example, Scandinavia, have a degree of competition between the private and social sectors: with much less of a gulf in rental prices and tenant rights. What Bloomberg regards as a ‘disaster’ is, in reality, an encapsulation of the reality of the dualist housing regime that predominates across much of the developed world: islands of genuinely affordable apartments, in a sea of unregulated rents.

How one responds to this phenomenon is therefore crucial. If one has little interest in limiting the power of rentiers, these issues are elided. Perhaps unsurprisingly, we have seen this mode of thought take off in the UK in recent years. A motley crew of think-tankers, neoliberals, Conservative MPs, and property developers have sought to argue the issue is not that of power, tenure, and ownership, but solely a question of supply: the posited solution, therefore, is widespread planning deregulation; letting the market rip.

The alternate view—advanced by an emergent group of writers, campaigners, and activists (many of whom are regular contributors to Tribune)—is that we need to pay much greater attention to the specific political economy of housing; and recognise the contemporary balance of forces in considering and formulating what needs to be done to genuinely solve the vagaries of the housing question.

As I have noted before, rent control should ideally be seen—and utilised—as a temporary measure that expedites private landlords leaving the market entirely. Unsurprisingly, this is not a notion entertained by much of the mainstream literature on housing. Instead, rent control is perceived solely as an inefficient impediment to a normally functioning market. But housing, by its very nature—a fantastic primer here is Rethinking the Economics of Land and Housing, by Josh Ryan-Collins, Toby Lloyd, and Laurie Macfarlane—is not a normally functioning market.

How we think about rent control is crucial. If it is solely a way to minimise the profits of landlords—whilst allowing them to maintain their power, influence, and ownership—it may well have deleterious consequences. (No more deleterious, it is worth noting, than those of the pre-eminent housing regime across the majority of Anglo-Saxon economies.) A far better way to utilise it, therefore, is as a signal to landlords—not that their profits will take a hit, but that the party is over: with, ideally, the state well-placed to buy up their properties and convert them to social housing. It is notable that this goes some way to describing the strategy the Berlin landlord expropriation campaign have proposed – and won a referendum on.

There’s a reason the Right seek to wilfully ignore this point—but it is one the Left needs to hone in on. The Economist may well decry the poisoning of relations between tenants and landlords. But such animosity is merely a natural consequence of the oppositional relationship that unsurprisingly arises between landlord and tenant; rentier and renter. The only way to work through them to the benefit of the millions of renters subsidising their landlord’s lifestyle is to seek to decommodify the sector: not just to cap landlord profits; but to fundamentally change the power relations that determine our collective access to housing.