New study finds rent controls fail tenants and landlords
A new study of the Irish property market has found that the introduction of rent controls fails tenants, landlords, and homeowners. DJ Alexander Ltd, part of the Lomond Group which is the largest lettings and estate agency in Scotland, looked at recent research by economist Jim Power and commissioned in the Republic of Ireland by the Institute of Professional Auctioneers & Valuers and the Irish Property Owners’ Association.
The research (which covers many of the changes which have occurred and are proposed for the private rented sector in Scotland and the rest of the UK) found that constantly changing regulations and more punitive tax regimes led to more individual landlords leaving the market and being replaced by institutional landlords and that rents, rather then reducing, actually rose as a result of the new policies.
The report found that there was evidence that the creation of Rent pressure Zones created a two-tier rental market reducing the amount of quality accommodation whilst also impacting on the value of all private properties in an area. Rent control areas were found to reduce property values for all owners not just landlords and had limited impact on the levels of rent charged.
It found that the legislative and financial changes resulted in individual and small-scale landlords leaving the market and being replaced by institutional landlords who charge higher rents than were previously in place with no evidence of a net gain of the number of properties on the market. This resulted in rents which are at least as high, if not higher, than they were before controls were introduced.
This report reiterates findings from earlier research by the Washington-based Brookings Institution, which states that: “While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spill overs on the surrounding neighbourhood.”
Brookings found that rent controls limit the availability of suitable rental properties on the market as well as subduing wider property market values concluding “the effect of rent control had been to reduce the whole neighbourhood’s desirability. The result is that owners of never-controlled properties actually mostly bear the capital cost of rent control. Rent controlled properties create substantial negative externalities on the nearby housing market, lowering the amenity value of these neighbourhoods and making them less desirable places to live.”
David Alexander, the chief executive officer of DJ Alexander Scotland, commented: “It is fascinating that this new Irish analysis and the earlier Brookings review have both come to the same conclusion that rent controls don’t benefit tenants, landlords, or homeowners. Tenants suffer because they limit appropriate supply and so rents, rather than falling as a result of the policy, actually rise in many cases.”
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