Yes, London Has A Housing Problem: Let's Not Make It Worse With Idiocy Like Rent Controls
05-12-2016
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I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.
The author is a Forbes contributor. The opinions expressed are those of the writer.
It’s seriously astonishing how terrible, lousy, no good and idiotic economic policy keeps turning up in
response to the same old questions. Even when near the entire economics profession tells everyone no, that’s not the solution that will make things work, there’s still well meaning folk who stumble over the old and rejected “solutions” again and again. My assumption is that it stems from people simply not grasping the basics of the subject. Here the point is about the price of housing. The suggestion is that we should thus artificially lower the rent on housing. The thing being ignored here (or if you prefer, the ignorance being shown) is that prices are not just the price someone has to pay for something. Nor are prices something to be arbitrarily changed. They’re information and they’re also the method of rationing a scarce resource which works best.
But, here we are again:
We don’t need to hear how bad the crisis is any more. We need it fixing, especially in London. This would dampen down the whole of the south-east housing market, and in turn the rest of the UK. So how can the new mayor go about addressing this issue?
Khan should start by explaining that London’s housing problems have not been caused by immigration, but rather by the housing laws of the UK. Laws that allow landlords to charge tenants so much for such low-quality homes. Laws that encourage others to hoard housing, leaving more and more of it empty in the very heart of the capital. London urgently needs rent regulation of its private sector.
No, simply no. Housing is expensive in London because more people want to live there than there are houses for them to live in. We’d therefore rather like someone to go out and build some more. That prices are high is an incentive for people to do this. And no, artificially cutting the price someone can sell or rent a house for does not magically produce more houses for people to live in. Far from it: cut the price of living in London and more people will wish to do so. This really is Econ 101 and yes, it really is one of those areas where Econ 101 is correct.
And please, riddle me this. If you cut the rent people can charge this encourages them to rent out the housing they are hoarding in what manner?
What’s worse is that that was written by a professor at Oxford University. OK, so he’s one of geography but before this appointment he was one of economic geography at Sheffield. He really ought to know the general economic attitude towards rent controls. So should we all in fact, neatly summed up here:
Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.”1 Similarly, another study reported that more than 95 percent of the Canadian economists polled agreed with the statement.2 The agreement cuts across the usual political spectrum, ranging all the way from Nobel Prize winners Milton Friedman and Friedrich Hayek on the “right” to their fellow Nobel laureate Gunnar Myrdal, an important architect of the Swedish Labor Party’s welfare state, on the “left.” Myrdal stated, “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” His fellow Swedish economist (and socialist) Assar Lindbeck asserted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”
It’s undoubtedly true that London has a housing problem: the solution to which is building more houses. What is not the solution is the imposition of rent controls.
Consider what they’re actually saying. If we lower the price of housing this will increase the supply of housing. No, not in this universe it won’t and to think it will is idiocy rather than a useful addition to public policy.