Sinn Fein’s Rent Freeze Bill will reduce the quantity and quality of housing further
The playwright, George Bernard Shaw, once said: “If all economists were laid end to end, they could not reach a conclusion.” Economists often disagree with each-other but there is a topic that is both well understood and garners a consensus of opinion: Rent freezing.
Sinn Fein’s Rent freeze bill (with support from Fianna Fáil) has reached the committee stage in the Dáil. It contains a proposal to freeze rent on all existing and new tenancies for the next three years. The Bill’s champion, Eoin Ó Broin said “rents are completely out of control” and that “It is time to give renters a break.”
A 2012 survey of American Economists asked whether they agreed that rent freezes had a positive impact on the quantity and quality of housing. 81% of them disagreed.
An MIT Professor added: “Unless all the textbooks are wrong, this is wrong.” a Chicagoan Professor quipped “Next Question: Does the Sun revolve around the Earth?” Even Nobel Prize winner Paul Krugman, a self described liberal and social democrat agrees that rent freezing is terrible public policy.
But you don’t need to ask a Nobel Prize winner to know this, virtually every textbook pitched at leaving cert level dedicates a special section to rent control and its unwelcome consequences. (usually right after the bit explaining supply and demand.)
Rents are soaring because supply is outstripping demand. There are too few units available in the market and as a consequence potential tenants attempt to outbid each, the landlords selects the highest bidder. Why does the market simply not respond by supplying more rental units?
Over regulation and increased taxation by the government since the crash have disincentivised landlords and investors from supplying new units.The increased costs and dwindling returns don’t justify the risk. Landlords and the investors are leaving the rental business in droves, and they’re taking existing properties with them.
A country wide rent freeze would lower incentives further and increase demand relative to supply. The very situation we’re trying to avoid.
If a nationwide rent freeze does go ahead many more landlords will withdraw existing units from the market. Where will evicted tenants go? Incumbent renters who are lucky to benefit from capped prices have no reason to move out. Also spare a thought for the thousands who were already looking to rent, a rent freeze will leave thousands of people locked out of the rental market and worsen the homeless crisis.
Incumbent renters whom this bill was designed to benefit will face a raft of additional charges. Many landlords will will make it a condition of the lease agreement that tenants have to rent furniture and other household equipment. Accessing the garden may even incur an additional charge. Cumulatively these additional charges could make up the difference between the capped price and the true market value of the property.
Many landlords will also refuse to maintain their properties. Renters could do the repairs themselves but this is just paying rent by other means.
Sinn Féin may argue that these measures are only temporary, but the experience of New York City and Los Angeles show that once a rent freeze is in place it’s rarely reversed. This bill will lead to the creation of a huge (and voting) tenant-advocacy group, a special interest group if you will. Three years from the bills enactment this advocacy group will vociferously demand an extension of the rent freeze (cue emotive news footage of worried tenants.) Fearing being turfed out of their home on Kildare Street, politicians will find it impossible to resist extending the duration of a rent freeze.
We will face decades of nationwide rent freezes and all of dire consequences they entails: poor quality units, reduced supply and an interminably prolonged housing crisis.
This is all entirely predictable, if only our politicians would consult our Leaving Cert Economics Students.