For the umpteenth time: Rent controls don’t work.

The Guardian newspaper has reported that “Rachel Reeves is considering imposing a one-year rent freeze on private sector homes...”

Rent controls are generally accepted by economists to be very bad policy. Reducing rents disincentivise landlords, reduces the supply of new rental properties and so in the long run drives up rents for any properties not covered by the cap.

Following basic supply and demand theories, the real way to reduce rents is to increase the supply of rental properties (build more or encourage buy-to-let) and/or decrease demand for housing (reducing mass immigration is the obvious target for that). Sadly, building more housing and reducing immigration appear to be put in politicians’ ‘too difficult’ box.

So why does the bad idea of rent controls keep reappearing? Well, the incentives regarding the imposition of rent controls are mostly short term and entirely related to the politicians promoting them. There are over five and a half million rental properties in the UK, making up about 20% of all households. That is a large number of potential votes, and while rental controls will penalise anyone looking for a place to live, for those already in place they could benefit for as long as they remain in place. So short term popularity for the politician, long term economic harm for the country. A perfect incentive for a politician facing a local election.

There can be no doubting that rental (and housing costs generally) are far too high in the UK. This impacts standards of living and diverts investment and savings away from more profitable sectors of the economy. That housing costs are too high is uncontroversial, why they are is due to decades of policy failure - a subject politicians have a vested interest in not answering:

Immigration has grown the population and has not been met by housebuilding.

House building is unpopular at a local level, and the sum of local decisions leads to low housebuilding rates. Politicians have favoured high immigration and high housebuilding, yet neither are popular.

Quantitative easing and lax money supply kept interest rates too low for too long, and while inflation (the inevitable cause of lost money) did not appear in most sectors of the economy, excess liquidity went into assets, notably housing, creating house price inflation.

‘Populist’ policy decisions aimed at landlords specifically reduced the incentives for landlords to rent out properties. These range from higher rates of SDLT, the removal of tax relief on interest and the Renter’s Rights Bill.

The sum total of all these measures resulted in increased costs for all housing but rented housing in particular.

For historically literate politicians history is not lacking in examples of rent controls not working. In the UK, rent controls brought in during WWII left many landlords with rents so low that they failed to cover basic maintenance. The rental market collapsed, between 1951 and 1961 the sector reduced from 45% of the housing stock to 25%. For landlords unable to maintain their properties due to low regulated rents they also faced the jeopardy of condemnation followed by compulsory purchase for pennies, leading to the demolition of many areas of rented housing. The situation was so bad these rules were scrapped for new properties in the 1980s.

If the record in the UK is bad, it has also never worked in any other country it has been tried in. New York is an obvious example, where memories of its failure have faded just enough for a new New York Mayor Zohran Mamdani to again propose it - the inevitable boomerang policy of the left that comes back to hit you. He should look at New York’s experience. New York’s history of rent controls started again in WWII and left a two-tier market. A severe restriction in supply with one section enjoying artificially low rents but deteriorating undermaintained properties and one for newcomers, forced to pay the resultant artificially high market rates.

Argentina is an even more stark case study. After decades of stagnation and a dysfunctional housing market in December 2023, Argentina’s President Javier Milei abolished the country’s strict rent-control system by Presidential decree. The results were unsurprising. The estimated 200,000 vacant properties came back onto the market – in Buenos Aires supply increased by over 170%. Real rents fell sharply by about 40%.

While rent control failures cover the globe examples of how to repair a housing market are also on display. The City of Austin, Texas, on the back of major planning reform added 120,000 new homes from 2015 to 2024. Rents unsurprisingly declined even though the population rose by 18,000. For apartments rents fell 7%. Rents also declined about 11% in older buildings.

So why do politicians attempt the same thing over and over again and expect to get different results when all the evidence points in the other direction?

The politicians are not necessarily irrational but are governed by their own incentives. A short-term popularity boost they can bank in an election at the expense of a long-term policy.

It is time to break this cycle. What Britain needs is a functioning housing market that delivers affordable high-quality houses, that means a healthy balance of supply and demand. More supply – housebuilding – and less immigration fuelled population growth. Rebalancing the cost of housing.

A functioning housing market should also accept that people will need to move houses and should not be penalised in the tax system for it. Be in it stamp duty or policies that deliberately constrict the supply of rental houses. History is replete with lessons in how to destroy a housing market, but also one in how to repair it – will our politicians learn from history?