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Imposing rent controls 'do nothing' to resolve 'housing crisis'

Published 15/09/2016

High rents
High rents "signalled" a need to build more homes, the report said

The "housing crisis" would be worsened if rent controls were imposed, a report from the Institute of Economic Affairs (IEA) argues.

While the idea of controlling rental prices has become "increasingly popular", putting this in place would restrict the supply of rental properties further, as many landlords may decide to leave the market after seeing their incomes reduced, the report warned.

At the same time, it could encourage more tenants into the market in the belief there was a healthy supply of homes available, making the mismatch between demand and supply worse.

Tenants in the UK are spending 10 to 20% more of their incomes on rent than their European counterparts, the report said, and average rents were nearly 50% higher than those in the Netherlands, Belgium, Germany and France.

But the report said high rents simply "act as a signal that we need to build more homes".

The document pointed to the idea of rent controls being raised within the Labour Party as well as by the Communication Workers Union (CWU) as evidence that it is "firmly back on the political agenda".

The report argued that instead, the UK's planning regime should be shaken up to enable more homes to be built.

It said g reenbelt status should be abolished and replaced with a system in which land is protected selectively on the basis of its environmental quality and amenities.

Economic incentives around house building should change, the report argued.

It said local authorities should receive most of their revenue from a local income tax and land value tax. This would mean the increase in land value when planning permission was issued would be fully retained locally.

Report author Dr Kristian Niemietz, head of health and welfare at the IEA, said: "The housing crisis is borne out of, and perpetuated by, the severe lack in supply of houses.

"Trying to tackle this problem by imposing rent controls will do nothing to address the root of the problem and will only cause adverse effects for landlords and prospective tenants alike.

"The housing crisis has become the single most important driver of poverty in the UK and so it is crucial that policymakers look to improve affordability by scrapping restrictive planning schemes and encouraging development.

"An increase in supply of houses will allow house and rent prices to fall - much more so than any government-set price."

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