Semantron 23 Summer 2023

Rent controls in London

these homes over the two-year period. Demand for London rental property would therefore increase as these properties become comparatively cheaper throughout the two-year freeze. Upon the expiry of the rent freeze, tenants would see a sudden spike in rent as market equilibrium is re-established.

This distortion is temporary and will only delay an inevitable upsurge in prices. This could cause thousands of tenants to simultaneously face imminent eviction as they are unable to pay the new going rate. With tens of thousands of people suddenly out of their homes, they will have to look for accommodation elsewhere. With their current jobs, family, and friends to be considered, regions surrounding London would be the likely destination for these tenants. Demand for property in these areas would therefore surge, causing a knock-on effect where tenants in this region also have to pay higher prices. This surge in rental costs may be evidenced by Potsdam, bordering Berlin, which saw the highest rise in rental prices in all of Germany fol lowing the Berlin government’s rent cap expiration in early 2020. 13 The deadline date that would come as part of a temporary rent freeze would result in a sudden change in pricing and need for new accommodation instead of a gradual trend of people leaving the city as prices get too high, causing demand to fall slowly, resulting in another gradual decline of rent. A temporary distortion of the market created by rent controls would interfere in the normal boom and bust cycle, creating a potentially more dramatic one than anything left to market mechanisms, a classic example of policy myopia. Moreover, as well as the rent freeze distorting demand it may also drastically harm the supply and quality of rental housing. With a freeze on rent prices, not only would landlords and prospective landlords be disincentivized to increase supply due to a cap on potential profit, but they would also have reduced business confidence. A rent freeze, even if temporary, would be an infringement on both freedom of contract and freedom of alienation. 14 These two rights are fundamental to the property rights that our economy is based upon. Infringement of these rights could set a precedent, allowing further breaches, reducing the confidence of investors and businesses alike. The rent freeze could scare away potential landlords, who would have no certainty in knowing whether these measures would be extended or reimposed at a later date. Established landlords might question if they wished to continue in the industry. Discouraged landlords might simply hand their tenants notice in the case of an assured shorthold tenancy and place their houses up for sale. This would reduce the overall supply of rental property, with no new landlords entering the market. This reduction in supply would further drive up the equilibrium price of rent in London, which would be reverted to at the end of the proposed two-year freeze, worsening the problem that it was meant to fix.

Landlords who are unable to end a tenancy without cause, as with fixed term tenancies and assured tenancies, 15 are likely to reduce their maintenance spending on the properties, reducing the quality of

13 A disaster foretold. rent-control-is-a-failure 02/09/22. 14 Acquisition and transfer of property interests. transfer-of-property-interests 02/09/22. 15 Private renting for tenants: tenancy agreements. landlord-wants-to-end-your-tenancy 02/09/22.


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