While watching television last night I briefly caught an announcement by a newscaster about the leader of the opposition’s policy towards the private rental market. Apparently he had announced that his party would if elected, would impose some modest rent controls in the private rental market. This in the interests of balance was countered by the newscaster saying that this was contrary to the advice of an esteemed economist, who said that such a policy woukd be self defeating as would reduce the supply of rental property. Today on a politics programme I saw the panel of politicians as a body denounce this policy as being contrary to economic common sense, as everybody knows that if rents are controlled landlords will withdraw from the property market. Today every politician, journalist and most economists have come to believe that the only role for government is to remove those restrictions that impede the working of the free market, not add restrictions that do the reverse. What the opposition leader had stated was free market heresy, the free market is sacrosanct and nothing should be permitted to interfere with its workings no matter how well meaning. To parody the lines of an old song, it was like the man who turned up to a funeral in brown boots, showing a marked sign of disrespect as everybody knows that only black boots should be worn at a funeral, and he was showing disrespect to the free market.
What really puzzles me is the assumption made by economists that landlords will automatically leave the rental market if they are faced with rent controls. At present landlords particularly in London because of the shortage of housing can almost charge whatever they want. If any restrictions reduced the present exorbitant rents to a lower but still profitable level, what incentive would landlords have to leave the market? Given the relatively modest levels of profit in other sectors of the economy, it is unlikely that they would find any other sector of the economy that would offer anything similar in terms of profit.
Implicit in the thinking of the anti rent control politicians and economists is the notion of a landlord’s strike. The assumption is that on the announcement of a policy of rent controls thousands of landlords will exit the private rental market, leaving a shortage of such properties. All these landlords have outgoings, usually quite considerable, particular their mortgage payments. Quite often these payments particularly if the property was bought recently they have high mortgage repayments to finance. It strikes me as strange that these landlords would sacrifice the income they receive from their tenants and risk not being able to make their mortgage repayments in a fit of pique. It seems to make little sense that landlords would sacrifice a substantial income to make a point.
The defenders of the sanctity of the market do not seem to realise that they are portraying landlords as the most despicable of people. They suggest at the merest hint of rent controls they will protest by making thousands homeless by emptying their properties. I cannot think of a better argument against the free market, if landlords are really that cruel and callous they should not be owning that most precious of assets person’s home? How can the defenders of free markets claim moral superiority, when any threat to the possibility of profitability is meet the threat to make thousands homeless?