Rent Controls - The Swedish Experience

HAMISH_MCTAVISH

With Corbynmania enveloping a portion of the English left, and Sturgeon already having mentioned rent controls as a good idea for Scotland, now might be a good time to look at the evidence from elsewhere to remind us all of why it's such an incredibly idiotic thing to actually do.

As I have frequently noted, rising rents and house prices are how the market rations goods in scarce supply. Rising rents force more people to live together, and without that, you just end up with waiting lists as too many people can afford something that there is not enough of for them all to have.

Without the mechanism of price to ration those goods, people have to resort to other means, such as lotteries or long waiting lists... Or worse, corruption, bribery and even murder.

Like in Sweden, where rent controls have caused there to be a 9 year waiting list in Stockholm to get a private rental apartment....

The nation needs at least 76,500 new homes a year until 2020 to keep up with population growth.

It doesn't help that rent-control laws make housing an unappealing investment. The urgency is most obvious in Stockholm, where the line for apartment rentals has swollen to more than half a million people, with 30,000 added this year. The waiting time is now an average of about 9 years.

Last year only 12,000 people landed apartment rental contracts in Stockholm. That’s driving people to pay as much as 200,000 kroner ($24,000) per room under the table to cut the line.

It's gotten so bad that it's become deadly -- Stockholm police say they have connected five murders with the illegal trade, which may be tied to organized crime.

http://www.bloomberg.com/news/articles/2015-09-07/one-chart-that-will-keep-sweden-s-central-bank-up-at-night

So the outcome of rent controls in a modern social democratic country then.... They worsen housing shortages, cause 9 year waits to rent a place, huge bribes to cut the line, and result in an increase of murders/organised crime.

A concept so economically illiterate only a socialist could have thought it was a good idea. :cool:

martinsurrey

but if we limit rents we can all afford to live in Notting Hill, so everyone's living standards increase as Notting hill is a nice place, if you cant see that you're an idiot!

(sarcasm mode off)

Generali

If you want to see another example of what rent controls can do for organised crime take a look at what Mr Rachman actually did.

ruggedtoast

A better solution would be to tax the rich until they squeak. Especially for anyone with spare homes. The rich will then have less money to push up property prices and we can also then use the money to build more houses.

No need for private rent controls then.

Also I dont think it would be a bad idea to have an extra bedroom tax for homeowners who have spare bedrooms.

I am pretty sure Jeremy is with me on this one.

:money::beer:

Graham_Devon

Hamish, the article you link to cites many issues in Sweden.

You've only started quoting from the article once they mention rent controls.

The second paragraph of the article highlights other issues. Rent controls are not the main issue - all they actually say on rent controls is that it makes housing an unappealing investment (presumably because the high cost in the first place means you can't get a decent yield). The article then continues on from the first few paragpraphs and you have spun it to make out it's all about rent controls when clearly it's not.

The worsening housing shortage -- exacerbated by record immigration -- and surging house prices reveal that deeper financial instability risks lie ahead. The combination of already too-high household debt and negative rates ``may ultimately be very costly for the economy,'' the central bank said last week in its monetary policy report

There is one line in the whole article which mentions rent controls, and it's this:

It doesn't help that rent-control laws make housing an unappealing investment.

The rest of the article is not talking of rent control.

CLAPTON

sadly the usual journalistic clap trap

surging house prices don't cause a housing shortage

a housing shortage causes surging house prices.

martinsurrey

http://www.iea.org.uk/sites/default/files/publications/files/Verdict%20On%20Rent%20Control.pdf

There is a good empirical analysis of rent controls.

"Their common message is simple, but devastating in its criticism of policy. It is that in every country examined, the introduction and continuance of rent control/restriction/regulation has done much more harm than good in rental housing markets—let alone the economy at large—by perpetuating shortages, encouraging immobility, swamping consumer preferences, fostering dilapidation of housing stocks and eroding production incentives, distorting land-use patterns and the allocation of scarce resources"

It was as true in 1971 as it is today.

MPD

Sounds very similar to the effect of selling 30% plus of new developments to foreign investors and giving tax breaks to BTL.

Still the living wage should chip away at affordability issues unless of course wage increases just go straight into bidding wars at the bottom end of the market pushing prices yet higher.

CLAPTON

MPD wrote: »

Sounds very similar to the effect of selling 30% plus of new developments to foreign investors and giving tax breaks to BTL.

Still the living wage should chip away at affordability issues unless of course wage increases just go straight into bidding wars at the bottom end of the market pushing prices yet higher.

mandated increases in wage rates will increase unemployment so will probably not improve net incomes

MPD

Did that happen last time?

CLAPTON

MPD wrote: »

Did that happen last time?

what last time was that?