Rent controls are attractive for an obvious reason: when rents are rising rapidly, limiting how much landlords can charge promises immediate relief. However, decades of international experience point to fundamental problems. Attempts to design around these problems create new distortions of their own. Ultimately, while rent controls can change the price some people pay for housing, they fail as a genuine solution because they fail to address why housing is expensive in the first place: scarcity.
Private rents in England rose by 9% in the year to March 2024, the fastest rate on record. In London, the average private tenant spends around half of their take-home pay renting a one-bed flat. Against this backdrop, it is no surprise that rent control is back on the political agenda. But before policymakers reach for this lever, it is worth looking at how rent control has worked elsewhere in the world.
Rent control policies tend to spring up in places where housing costs become unaffordable for many people. Since World War 1, most countries have tried a version of rent control. Over time, regimes have tended to become more flexible as governments attempt to address some of the unintended consequences of rent control.
When supply shrinks
Analysis of rent control has tended to find that it damages the supply of housing. Partly this happens by discouraging construction, but it falls just as readily through removal of existing stock from the market. However, there is some disagreement about whether this is a fundamental problem of rent control or a problem that can be designed out of the system. Disagreement tends to flow from differing analysis techniques, time periods and metrics, as is the case for research into the supply effects under rent control in Catalonia.
Berlin introduced ‘hard’ rent controls in 2020. Rents were frozen in the city at 2019 levels for five years, with maximum rents set, per metre square, depending on location and amenities. Rents in the city did fall, but so too did the number of housing options.
Rental advertisements halved, from 600 per week before the announcement to 300 per week following the policy’s implementation. The number of properties that were converted from rental to owner-occupied, increased from 12,700 in 2019 to 19,200 in 2020. Overall, the construction of new dwellings declined by 14% in Berlin over the same period, while across the rest of Germany construction increased by 5%.
San Francisco’s rent control policy, introduced in 1979, was ‘softer.’ To mitigate the damage to supply, rent controls only applied to buildings that existed when the controls were introduced and it was possible to reset the rent after tenancy. In 1994, rent control was extended to smaller landlords, meaning that small rentals built before 1980 were now covered by controls, and all after weren’t.
Facing a lower return than the uncontrolled market, landlords converted their units to homeownership or redeveloped buildings to create new units exempt from rent control. As a result, the rental supply in San Francisco dropped dramatically. Overall, landlords reduced the supply of rentals by 15%. Restrictions on redevelopment have tried to stop this but were found merely to result in building deterioration and abandonment as rents failed to keep up with maintenance costs.
Rent control breaks the usual link between income and housing choice, in which people weigh space, location and amenities against what they can pay. This gives incumbent tenants greater security and less pressure to move. For supporters, that’s a good thing as it prevents gentrification. But it also means tenants have every reason to stay put even when their needs change. An empty-nester keeps the three-bed flat; a growing family doubles up in bedrooms rather than lose their discounted rent. Glaeser and Luttmer found that about 21% of New York renters live in apartments that have more or fewer rooms than they’d chose in a city without rent control.
Who benefits?
Rent control policies often end up doing the opposite of what their supporters want. This is because rent controls tend to be introduced where the market is hottest – which usually means the most desirable parts of a city. As in Berlin, richer residents tended to live in these expensive, high-amenity locations. Predictably, Berlin’s rent control benefited richer households over poorer households.
That’s because rent control is not a needs-based welfare policy. When price no longer decides who gets a home, something else must. In Oslo, landlords would request specific characteristics like gender, age, religious affiliation, or services that tenants would provide themselves, such as renovation and garden work, snow clearing, or baby-sitting. Elsewhere, it’s simply your position in a queue: first-come-first-served.
In the 1970s, Nat Sherman, a tobacconist that produced hand-rolled cigars, gold-tipped cigarettes and $800 custom-made pipes, paid $355 a month for his six-room Central Park West rent-controlled apartment he’d had for nearly four decades. His response, when asked if it was fair, was that as he used the apartment so little the rent was reasonable. He spent about half the year in Florida.
These inequalities become baked in. In New York, controlled apartments are inheritable goods. Family members that have been living in the apartment as their primary residence for at least two years can take over the tenancy. While in Sweden, controlled tenancies are treated as individual assets. Rental contracts are sometimes bundled into property sales to reduce the headline price – effectively treating rent-controlled apartments as currency.
The rent control hydra
Supporters of rent control freely admit that the policy’s history is rife with bad outcomes. But they say that’s because it’s never been designed properly. Exceptions, licencing schemes, additional regulations and price-pegging measures are offered as sensible remedies to past design failures. But we have already seen that these fixes create more problems than they solve. In this way, rent control is a hydra.
None of this makes the people who reach for rent control wrong to be angry. The housing crisis is worsening people’s lives. But the core of the issue is scarcity. Rent control can’t prevent housing being scarce, no matter how many times the design is refined. The only thing we can do to address this fundamental problem is to build more homes where people want to live and invest in the success of other cities and places outside London, so that supply rises and demand is spread more evenly around the country.
Jenevieve Treadwell is a Policy Fellow at the London School of Economics’ School of Public Policy. Follow her work here.
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