Sharp elbows and controlled rents

The news that rents in London will soon be double what people pay in the rest of the country has led to a campaign to get the Mayor of London take action.

This comes at the same time as a highly commented on article in the American magazine The Atlantic on rent controls. The argument is a familiar one but is worth re-stating;

at best, rent control does little harm but probably not much good and, at worst, it has negative impacts on landlords and tenants.

 

I have already written here about the fact that too much discussion of rent controls does not consider the importance of public housing. In short, having rent controls and little to no public housing is very different to having rent controls and well funded public housing.

But it’s also worth noting that there are different varieties of rent controls. New York city, for example, is famous for having some apartments that are “rent controlled” and others that are not. What effect does this have?

This study found that tenants in rent controlled properties were not anymore likely to be on low incomes than tenants in other properties. The authors also looked at how much money different types of people saved by getting rent controlled properties. They found that middle class households  saved a lot more on rent by securing rent controlled units (when compared to other middle class households) than lower income households did.

This is an important aspect of partial or voluntary legislation. When there are no rules controlling access and when take up is voluntary or partial middle class households often disproportionally benefit.

Take the example of conservation areas. The idea behind conservation areas is that certain areas have distinct or special architecture and therefore additional restrictions apply when developing new houses or altering existing one.

An area is designated as a conservation area through a complex set of negotiations. Often middle class home owners are better at pressing for this designation. They are then rewarded by increased property prices. In fact, a recent report by English Heritage found that houses in conservation areas sell for 37% more than other houses.

Similarly, while it is still early days for ‘neighbourhood planning‘ based on my own experiences in Camden, I would hazard a guess that more middle class areas are further along with developing neighbourhood plans. I would also guess that in mixed income areas middle class views on what should be included in the plans is taking precedent over the views of working class residents.

What does this mean for rents in London?

I think it means that there is a risk that middle class households will disproportionally benefit from reforms which lead to some properties being rented out at controlled prices while others are not, if there is no control over who gets these tenancies.

 

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