Would rent controls actually work for Aotearoa? Here we take a look at some of the FAQ and common myths about rent controls.
1. Can you provide an example of rent controls that work?
13 out of 36 OECD countries implement some form of initial price rent controls. 24 of 36 regulate rent price increases.
- In Luxembourg, the yearly rent level cannot exceed 5% of the invested capital in the rental dwelling.
- In Colombia, the monthly rent cannot exceed 1% of the commercial value of the dwelling or of the part of it that is leased; further, the dwelling’s commercial estimate cannot exceed the equivalent of two times its current CV.
- In Sweden, the level of rents as well as rent increases are based on annual collective bargaining at the municipal level between the Swedish Tenants Union, the municipal housing company and representatives of private landlords determining reference rents.
- In the Netherlands, there are maximum rent increases and other regulations (e.g. rent reductions in case of quality issues).
- In Germany, regulated rents apply to rental dwellings in areas where there is pressure on the housing market,
The top performing economies in the OECD successfully implement rent controls. This is not a radical idea that has never been tried before. The majority of countries in the OECD implement rent controls, it’s time we do too.
2. Isn’t the solution to greatly increase the supply of housing?
No one has ever claimed that rent controls solve the mis-match between supply and demand. What they can do however is ensure that renters are not being exploited by their landlords in a supply restricted market while the government drastically increases supply. In an economist’s perfect world the exorbitant prices for rentals would reduce the overall demand for them and move the market to equilibrium. We’ve seen after 35 years that this isn’t the case because housing is not like other commodities – demand is a constant factor of population, rather than a consumer choice.
3. Why didn’t they work in San Francisco?
San Francisco’s rent controls were designed to fail. Their policies targeted specific areas and buildings, while leaving others untouched. The landlords then dropped out of the market in places that had rent controls because they could be more exploitive in those areas and buildings that didn’t have those same controls. What we are proposing are controls that apply to every single rental in NZ. All properties will be on an even playing field.
4. Do rent controls disincentivize new builds, and therefore keep the cost of rents high?
The majority of NZ’s rental stock were not new builds, and by and large landlords themselves do not invest in the construction of property in NZ. The majority of landlords purchase existing homes and rent them out. The government has multiple incentives for landlords looking to build a home as a purpose built rental.
5. Do rent controls lead to a reduction in rental supply?
The numbers on reduction in rental supply are often questionable at best, usually basing their claims on the number of rentals listed in the market. The reason these numbers drop drastically, sometimes by half, is because rent controls give people more security in their home, leading to longer tenures and fewer listings for that property on the market.
In the cases where there has been a small reduction in the supply of rentals, the stock of housing, and growth of that stock has remained unchanged.
6. Aren’t rent controls good for the haves, and bad for the have nots?
Economists will argue that the implementation of rent controls will lead to a decrease in rental supply, making housing more scarce. When a rental property is removed from the rental market it isn’t removed from the total renting stock. That house then becomes available for someone who has the savings to purchase it, likely moving them out of the rental market and freeing up the property they were in.
Rent controls need to be implemented alongside an increase in supply of public housing. You can’t have one without the other. The government has a mandate to intervene when human rights are being exploited, they need to implement rent controls and increase supply of public housing to protect those most vulnerable.
7. Do rent controls disincentivize maintenance and improvement?
The rent controls we are proposing are linked to maintenance and improvement. The rent controls that we are proposing incentivise improvements to the properties because it would be the only way to increase the rental price charged.
8. Won’t rents just increase between tenancies, leading to more terminations?
We are proposing rent controls that ensure the rent charged between tenancies remains unchanged, and transparent to all parties involved. Although the enforcement is not perfect, tenants are currently protected by the law, which requires the landlord give a pre-approved reason for termination.
9. Won’t landlords will just sell up if rent controls come into effect?
When a landlord sells up it does not remove their property from the housing stock. Someone will be able to purchase that home and live in it, or continue to rent it out.
10. Will tenants be displaced because of this law, completely outside the control of the landlord?
It is entirely possible for a landlord to sell a property with a current tenancy contract attached. Our Plan to Fix Renting recommends that the government make this compulsory. When a landlord sells a property and terminates a tenancy they do so consciously in order to protect their own interests. If they were in the business of providing someone a home then they would be interested in doing what they can to ensure that person continues to be homed, especially after they just paid off their mortgage.