Rent controls in London
rental property for existing tenants. This would be done as landlords would have less incentive to provide a quality service due to their diminishing profits. They would also be incentivized to encourage tenants to move out by reducing the quality of service. The difficulties of exiting fixed term tenancies would potentially encourage landlords as a collective to henceforth use assured shorthold tenancies which allows more flexibility but reduces tenants’ security, worsening the problems for those the apparent solution is trying the fix. An additional reduction in supply may arise if housing constructors, aware of this waning desire to rent out property, would halt construction efforts due to decreased demand for buy-to-let. With supply shortages increasing construction costs, demonstrated by a 9.6% increase in total construction costs forecast for 2022. 16 This further disincentive to build new homes is likely to lead to increasing house prices, again worsening the cost of accommodation in London, contrary to the freeze’s aim. A final argument against the implementation of a rent freeze is that the welfare of the landlords should be considered. There is a popular misperception that landlords are part of an elite extracting money from workers. In reality 60% of landlords in London only own one rental property and another 1/5 only own two. 17 A large portion of these landlords are elderly people using the rent as their retirement plan. A freeze on rent pricings would withhold money from those beyond retirement age who without increased rent income would see a substantial decrease in their real income due to the double-digit inflation. Work may be out of the question due to their age and consequently the remaining option would be for government assistance. If the government wanted to recover the cost, the tax increases would fall on the working age population who the renters largely are. Even with government assistance many of these people would suffer from reduced quality of life as the assistance would almost certainly be provided frugally. In conclusion, despite the seemingly obvious benefit of reducing costs for thousands during a period of high inflation, there are serious drawbacks. On balance, the policy would likely be more damaging than beneficial. As shown in examples such as Berlin, the imposition of rent freezes in London, even for a short two-year period, would be counterproductive. Atop of damaging the property rights that free markets are based on, it would limit the housing supply and worsen quality of life for elderly landlords and renters alike. It would cause market distortions with damaging longer-term effects. It may also impose costs on the rest of the UK that is not provided this apparent assistance or given a say in the London mayor’s actions.
16 Construction materials cost increases reach 40-year high. https://www.rics.org/uk/news-insight/latest- news/news-opinion/construction-materials-cost-increases-reach-40-year-high 02/09/22. 17 The Economics of (Housing) Rent Controls. https://www.tutor2u.net/economics/reference/the-economics-of- housing-rent-controls 02/09/22.
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