A big debate about capping rents is underway in London and other global cities like New York and Berlin – but a think-tank is warning they don’t work.
Rent controls have been in place in Sweden since 1942, but a paper from think-tank Epicenter suggests the controversial measure only makes the rental market worse.
Summarising the results of years of research, the think-tank came up with nine reasons London and other cities should shun rent controls:
- Waiting lists for homes are horrendous – an average wait is 11.3 years for an apartment in the capital Stockholm and up to 30 years for subsidised flats
- Controlling rents pushes up costs for tenants
- Apartments are sub-let with rents often double the price the primary tenant pays
- Rent agreements are auctioned on a black market with organised crime moving in for a share of the profits. One in five young renters confess they have bought an illegal contract, while a rash of murders related to sub-letting apartments swept the city in 2014
- The cost of renting has skewed the market, with families outpriced by single tenants who now occupy large apartments while pushing families out of town and city centres
- Companies complain they cannot recruit because rents are too high compared with wages
- Costly rents have driven a wedge between highly paid and well educated renters who can afford to live where they want, while poorer tenants on benefits must put up with unattractive homes in the suburbs
- Instead of levelling the rental market, the wealthy dominate, with any apartment in Stockholm larger than 180 square metres rented by someone in the top 1% of earners
- Rents only go up when landlords improve homes, so landlords carry out costly refurbishments that are unaffordable for average earners
“The Swedish experience shows how rent regulation has many unintended consequences. Therefore, it can serve as a warning for other countries tempted to pursue the same policy path,” says Gustav Fritzon, author of the report Rent Controls: How they damage the housing market, the economy and society
“The Swedish rental market is dysfunctional. It has hampered economic development and social mobility. It has caused housing shortages in cities by reducing the stock of apartments and by impeding the efficient utilisation of that stock. This has diminished the ability of Swedish companies to recruit and limited Sweden’s overall economic output.”