Price controls make shortages worse. Rent control is, notoriously, no exception to that principle. And still rent control is put in place again and again, normally because the electoral rewards it generates for the politicians who advocate it outweigh (to them) the economic mess that rent control leaves in its wake, a mess made worse by the fact that once put in place, the same political incentives make it very difficult to remove them.
And so to the Netherlands.
Cagan Koc and Sarah Jacob, writing in Bloomberg:
Two years ago, Nine Moraal and her two children moved into a one-bedroom flat near the Dutch city of Utrecht, a comfortable spot close to family and friends. Although she had only a two-year lease, she expected to be able to extend it and stay until she could get one of the Netherlands’ many rent-controlled apartments.
But last spring, her landlord told her she’d have to move out in November, because renting the flat was no longer profitable. . . .
Moraal is among the growing number of Dutch people struggling to find a rental property after a new law designed to make homes more affordable ended up aggravating a housing shortage. Aiming to protect low-income tenants, the government in July imposed rent controls on thousands of homes, introducing a system of rating properties based on factors such as condition, size and energy efficiency. The Affordable Rent Act introduced rent controls on 300,000 units, moving them out of the unregulated market.
The Netherlands has the highest proportion of rent-controlled properties in Europe. Eighty percent of those were rent-controlled before the new law was introduced. Now the total is 96 percent.
The law (which, among its provisions, bans fixed short-term leases) is a consequence of the fact that the Netherlands’ population is increasing (a good thing, allegedly). Native-born deaths exceed births, so this is driven by immigration. To keep up with population growth, the country needs to build roughly 100,000 new homes a year, but is only managing two-thirds of that.
Koc and Jacob:
Backers of the regulation say it’s a needed response to years of soaring rents and increasing privatization of the housing market. The goal was to protect lower- and middle-income residents from unscrupulous landlords, who had become increasingly predatory, according to Hugo de Jonge, the former housing minister who introduced the legislation. “We have to straighten something out that has grown crooked,” he told a local radio station in June. “That can’t be done without pain.”
The existence of a massive rent-controlled sector and the resulting stifling of the price mechanism was what gave these “unscrupulous landlords” (numbers, naturally, unspecified) their chance to exploit tenants fighting for the remaining space. And anyone believing that there were not all sorts of under-the-counter deals going on within the controlled sector has little idea of how rent controls work.
De Jonge, a centrist (more or less) conceded that the “reform” would mean “pain.” And in that respect his “reform” has delivered. Landlords are selling up; others are abandoning expansion plans.
Koc and Jacob:
ASR Nederland NV, which owns about 15,000 apartments across the country, has called on the government to rethink the measure. Almost its entire portfolio was shifted into the regulated segment on July 1, spurring it to abandon plans to purchase more rental properties, says Jos Baeten, ASR’s chief executive officer. “There are other investment categories that are more appropriate,” he says.
Dick Schoof, the Dutch prime minister at the head of the country’s new populist-right government says that he is evaluating the situation:
“In a year, probably people will take to the streets to complain about this situation, because it’s getting harder and harder to find a rental property. . . . The price will increase in the liberalized market because the demand is so high.”
Koc and Jacob report that prices are already increasing, “People at the lowest income levels will benefit from the tight rent caps, those a bit higher on the economic ladder are being squeezed into a dramatically smaller private market.”
And, in the end, those at lower income levels will be hurt as the system sinks ever deeper into stagnation, with limited incentive for builders to build more rental housing.
Rent control does what it does.
One of the early steps taken by Argentina’s Javier Milei on taking office was a major liberalization of the country’s restrictive rent control regime. The liberalization had an almost immediate positive effect, lowering prices, and increasing supply, as I discussed here, but how are things going now?
The law aimed to provide tenants with more financial security, but by the end of last year, an estimated one in seven homes in Buenos Aires was sitting empty as landlords chose not to rent them out in Argentine pesos. Deposits were capped, and it was nearly impossible to end tenancies early.
For many locals, finding a new apartment had become “mission impossible.” But after the repeal, Buenos Aires saw a doubling of available rental units, and rental prices have stabilized. Under the new rules, landlords and tenants have more freedom to agree on lease terms. If the duration isn’t specified, it defaults to two years.
“We’ve seen a significant increase in rental apartments, and in some cases, we had to lower prices in pesos because of fewer viewings,” Soledad Balayan, head of the real-estate agency Maure Inmobiliaria, told Argentine newspaper La Nación.
Since Millei’s repeal of rent control laws took effect on December 29, the supply of rental housing in Buenos Aires has jumped by 195.23%, according to the Statistical Observatory of the Real Estate Market of the Real Estate College (CI).
The Argentinian and Dutch stories are different versions of the same endlessly repeated lesson.
It will probably still go unheeded, because the political rewards for doing so are worth it.