Sadiq Khan yesterday re-heated his counter-productive campaign for rent-controls in London. His policy announcements and broadcast rounds conveniently took the media spotlight just as new GLA figures highlighted the Mayor’s failure to meet his homebuilding targets.
The figures show Sadiq has started work on just 2,415 new affordable homes. He promised to build 116,000. To give him some credit, this was up from the astonishingly meagre 764 starts in the previous quarter. If the Mayor was to meet his own targets, he would need to start 21,821 homes in the next six months. One can only hope…
To make matters worse, Khan has been given £5 billion in public funding to deliver on his promises. Instead of trying to give taxpayers some value for money, he’s convening emergency rent summits and parroting the same policy platforms that have failed wherever they’ve been tried. If only there were an easy way to increase housing supply.
Andrew Boff, the GLA Conservatives housing spokesman, said:
“Rent controls would wreck the market, causing a mass shortage of homes. The only way to solve this crisis is to build more homes, and yet Sadiq Khan is failing to spend the billions he received from the government and has fallen far behind on his house building targets. What Londoners need from this Mayor is not more meetings, but more action.”
A Labour politician failing to spend taxpayer money, now there’s a first…
Sadiq Khan has once again called on the Government to allow him to impose rent controls. Co-conspirators will no doubt be aware of the implications of this policy; in Berlin and Ireland they’ve decreased supply, increased demand and were circumvented by informal ‘black market’ landlord-tennant arrangements; in Scotland they immediately halted the development of 11,000 new affordable homes. The definition of insanity is doing the same thing over and over again and expecting a different result…
Sadiq has clearly not been keeping pace with developments in his own pet policy area. On Good Morning Britain this morning he actively cited the Scottish rent control rollout as an example of where it’s been enforced to prop up his argument. He even claimed credit for it on Labour’s behalf. To reiterate, this is the same policy that prevented a £1 billion housing project to help house 11,000 of the country’s worst-off. Thankfully Guido predicts even this ideologically sloppy government won’t be giving him the powers any time soon…
First Berlin comprehensively proved that rent controls are disastrous for the housing market; then Ireland followed suit destroying their housing supply with their “rent pressure zones”, resulting in one case of a 150-person queue for a three-bedroom home in Dublin. Despite these real-world cases of rent controls doing exactly what free market theorists warned they’d do, last Thursday the Scottish Government ignored all the warnings and pushed through legislation freezing public and private rental prices until the end of March 2023. What was it Einstein said about insanity?
It appears the chickens have come home to roost in less than a week. Today The Times reports that as a direct result of the rent freeze, Lord Haughey has halted a £1 billion plan to address the housing crisis by building 11,000 affordable homes.
Can the SNP-Green coalition able to dodge blame in any way? Is Lord Haughey being vague in his blame? Not quite…
“Patrick Harvie’s rent freeze is a big part of my decision [to halt the project]. The housing market is in absolute crisis and without any plans on how to address it that crisis can only get worse.
“I planned over the next ten years to build 11,000 houses – houses that people can be proud of. I was trying to build communities and I wanted to build 1,200 sq ft homes that people would rent for about £695 per month with maintenance bills included to help people keep their energy costs down. But two things happened,” he said, alluding to a notification from his bricks supplier that costs had increased by 28 per cent.
“Add to that Patrick Harvie’s rent freeze bill and I am going to put things on hold. There is no incentive whatsoever to try to make a difference.”
“Patrick Harvie will go down in history as the man who stopped investment and added to the calamitous lack of housing we have in Scotland, 100 per cent. Don’t take my word for it — the house associations are calling for [the Bill] to be scrapped.”
Guido can guarantee you this third example of market failure following rent caps will do nothing to stop Sadiq pursuing the calamitous policy in London…
In March this year Sadiq once again asked ministers to devolve him the power to introduce a rent cap in London. Thankfully the government has not acquiesced. We’ve already how badly the policy worked in Berlin, however despite the evidence the London mayor continues pushing for rent controls. Berliners had a miserable time at the hands of their rent cap; real estate analysis revealed it crashed supply by 41% and drove demand up to 172%. It also led to the phenomenon of ‘shadow rents’ where landlords and tenants would agree one rent complying with the cap, and a separate rent significantly above it, sometimes paid in cash.
Thankfully the cap was ruled unconstitutional by Berlin’s courts and scrapped. If Sadiq and socialists still think the cap would do anything to alleviate the housing and renting crisis in the capital they could take a look west to the Republic of Ireland. The country introduced multiple rent pressure zones between 2016 and 2020, with 55 local authorities being allocated the status. In December 2021 those houses inside the zones had rent rises capped by 2%. Unsurprisingly the rental market has gone exactly the same way as Berlin’s.
A report commissioned in May this year by the Institute of Professional Auctioneers and Valuers concludes the attempt to control rent rises has “backfired”, with landlords leaving the market and rents rising as a result of the policy. The latest DAFT survey found “The number of homes available for rent across Ireland has dropped to a new all-time low and led to a further spike in rents around the country”:
“In Dublin, 712 homes were available to rent at the start of this month, less than one-quarter of the average seen for February over the last two decades.
Outside of the capital, DAFT notes that availability is less than one-third of the pre-pandemic level of February 2020 with 685 homes available to rent.
The average rent nationally now stands at €1,524 per month, an average of 10.3% higher than the same period in 2020.”
This devastating market effect isn’t just seen in statistics, it’s felt in real life. Last week 150 people were photographed queuing for a three-bedroom house in Dublin.
There are now just 716 properties to rent in the whole country according to property website DAFT, with the country’s largest private landlord on Thursday saying he could have recently filled a new apartment block 30 times over. As Einstein said, insanity is doing the same thing over and over and expecting a different result. Is Sadiq Khan insane?
Berlin’s infamously disastrous rent control policy has been overturned by the country’s constitutional court, which considers the absurd policy incompatible with the country’s Basic Law. Declaring the law null and void, the court said the federal government had already passed laws to regulate the rental market, therefore no further action was needed by regional authorities. The states can only legislate so long as the federal government hasn’t made use of its powers.
The year-long legal fight and victory is also a blow to Sadiq Khan, who is using his mayoral re-election campaign to push for rent controls – over which he has no legal competence. In 2019 he announced his plans to bring them in during his second term, actively citing Berlin’s experiment. Last November it emerged the German capital’s cap had resulted in supply falling 41%, and demand rising 172%; five months on, the experiment is dead in the water. Khan will try to claim he has a mandate for rent controls when he is returned to office. He won’t and the policy would be a disaster, he should focus on building more homes…
The pet housing policy choice championed by the Labour Party but decried by economists left and right alike, rent control, has further wrecked the housing market of yet another city. Back in March, Sadiq Khan announced that “I am making the mayoral election on 7 May a referendum on rent controls” – and cited Berlin as a successful example after the German capital imposed a ‘rent cap’ in February. Sadly for Sadiq, real estate analysis has now revealed that as a result of Berlin’s rent control policy, supply is down 41% and demand is up 172%.
The experience has generated the phenomenon of ‘shadow rents’, where two separate rents are agreed between landlords and tenants – one complying with the rent cap and one ‘shadow rent’ significantly above it – sometimes for cash. While those shadow rents have been rising, more and more property is being taken off the market – the opposite of what needs to happen to genuinely lower rent. As Swedish economist and socialist Assar Lindbeck famously said, “rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”