Tuesday, 28 April 2015

The missing homes conundrum; outright lies

Labour's timid ideas about modest rent controls/tenant protection have provoked the usual Homey backlash.

Top of the list of counter-arguments is the missing homes conundrum:

Labour was accused on Wednesday night of attempting to introduce rent controls like those blamed for damaging the property sector during the 1960s and 1970s.

The Conservatives said the policy had been tried unsuccessfully by Socialist governments in Venezuela and Vietnam, and would result in low quality accommodation and fewer homes being rented out.

What damage to the 'property sector'? We were building a lot more houses than now and a lot of people were buying them for affordable amounts. Rent controls simply made housing more attractive to owner-occupiers than to landlords, which is why the number of households renting privately fell from 90% to 10% between 1900 and 1990.

Unlike the author of The Telegraph article above, the Tory housing minister couldn't even be bothered to look up rent controls on Wikipedia comes out with this:

Conservative housing minister Brandon Lewis dismissed the plans, claiming only building more homes would lead to affordable rents. 'Rent controls never work - they force up rents and destroy investment in housing leading to fewer homes to rent and poorer quality accommodation,' he said.

For sure, the quality of rented accommodation might go down, but so what?

People are happy to put up with a few years of slumming it when they leave home, get their first job, go to Uni etc. What's really important here is reversing the decline in owner-occupation rates. Among the 24-35 age group, owner-occupation rates have collapsed from a two-thirds fifteen years ago to only one-third today.

To round this off, more bollocks from the end of the first article:

Grant Shapps, the Tory Party chairman, said: “Evidence from Britain and around the world conclusively demonstrates that rent controls lead to poorer quality accommodation, fewer homes being rented and ultimately higher rents – hurting those most in need.”

He is just making this up as he goes along. There is no real life evidence for any of this. We could present counter-evidence from Germany, which does have implicit and explicit rent controls and much better quality housing.

Sam Bowman of the Adam Smith Institute said: "Rent control is a stunningly bad idea that could devastate Britain’s cities and clobber renters. To paraphrase the socialist economist Assar Lindbeck: the only thing worse for cities than rent control is bombing them."

Rent controls do not 'clobber renters', they turn them into owner-occupiers, which I thought we all agreed was A Good Thing? Further, cities recover surprisingly quickly after being bombed or struck by an earthquake, provided the economic conditions are right. Even by his own admission, rent controls have a lot less impact than that.

Simon Walker, Director General of the Institute of Directors, said: "Basic economics tells us that if you artificially hold down the price of something, you get less of it in the market. This is as true for housing as it is for anything else. At a time when we appreciate there is a housing shortage, this policy is particularly short-sighted."

"Basic economics" tells us that there will indeed be less to rent, but the amount of housing is fixed, and there is no shortage in an absolute sense, so when landlords try to sell up, prices will fall to a level which former tenants can afford. Sorted.

(Obviously, shifting to LVT would sort this out much better, but that's not under discussion here).


Lola said...

There is some evidence that poorly applied rent controls lead to owners abandoning property, notably in some New Your boroughs. Not sure of the full facts of just why, though.

Lola said...

Mind you, Sam Bowman's remark is daft. But, I personally think he has just been clumsy with his language, rather than downright stupid.

Mike said...

Boris Johnson on rent controls in the Telegraph:

"All experience, in Britain and around the world, has shown that rent-controlled landlords let their buildings decay; and far from holding down rents, the three-year freeze would simply encourage landlords to whack them up sharply at the beginning and the end of the tenancy. This policy means higher rents, fewer homes, and general dilapidation."

Why on earth would landlords neglect or abandon their properties if they can use the 3-year freeze as an excuse to jack up rents at the beginning and end?

Which is it, destructive to rental supply, or ineffective at controlling rents? Really can't be both.

Lola said...

This looks like it is worth a read...http://www.cato.org/pubs/pas/pa-274.html

Bayard said...

Of course, what is really causing high rents is low interest rates,but no-one is allowed to say this, so instead they come out with the sort of crap that Messrs Shapps and Lewis come out with. (Do they actually believe this rubbish or are they simply saying what they've been told to say?) Basic economics tells you that if something is not rationed by price, it has to be rationed by other means, such as a waiting list, as can be seen by looking at the type of rented accommodation already subject to rent controls, social housing.

"which is why the number of households renting privately fell from 90% to 10% between 1900 and 1990"

90% was too high, but 10% is too low. When the supply of rented accommodation is restricted to that extent, then people who want to rent, can't because there's nowhere available. It's a modern myth that all tenants are frustrated homeowners. When interest rates go up again and the magic money tree gets (c)ash dieback disease, there will be a lot more people seeing renting as a good idea.

Mark Wadsworth said...

L, I've read it, it's nonsense. Sod the US and their clearly patchy rules, we know two simple facts from the UK.

1. When we had rent controls, the number of rented homes fell and the number of owner-occupied homes increased. That's the point.

2. Since rent controls were lifted, rents have gone up quite a lot, and house prices with them (this is not just the RIcardo effect which is secondary).

The third fact, that rent controls means that rented accommodation is lower quality is true for the UK, but so what? Who cares? If it's cheap to buy your own place, nobody cares.

And if we are going to drag other countries into the debate, then many European countries have rent controls, higher building standards and good quality rented accommodation with secure tenancies. It's all perfectly do-able.

M, that's the beauty of Home-Owner-Ism, you can believe two entirely opposite things at the same time and contradict yourself within a paragraph. Each bald claim is supposed to stand on its own merits, logic or consistency has nothing to do with it.

B, no, low interest rates do not cause high rents. Rents are the maypole around which house prices dance (depends on interest rates and credit availability etc).

Why is 10% not enough? You leave home at 18 and live an adult life of fifty years or something, five years renting in total is quite long enough for renting, then you settle down and buy somewhere.

And there's always the safety net of social housing. In an ideal world there would be a separate category of 'social housing' available short term for 'market' rents for people between houses.

Bayard said...

"Why is 10% not enough?"

Because I and everyone I knew had a bastard of a time finding anywhere to rent when we left home.

Mark Wadsworth said...

B, did you?

You are the only person who's ever said that to me.

Bayard said...

AFAICR, there really was a housing shortage in those days: unless you were fairly well off or had a good job, you couldn't afford to buy and there really was very little to rent, because of the protection the Rent Act gave to tenants effectively meant that if you rented out a place unfurnished you were as good as giving it to the tenant. When I bought a house in Somerset in the '90s, there were tenants in the same street paying £5 a week rent. Some of them were more than six months in arrears.