Is Regulating Rents a Potential Threat to Future Generations' Economic Prospects?
In a nutshell, rent control might offer brief relief, but it's a double-edged sword for future generations, particularly those grappling with a limited housing supply and escalating costs. Marli Fernandes, one of the researchers behind the study conducted by Nova SBE's Economics for Policy Knowledge Centre in collaboration with Fundação Calouste Gulbenkian, asserts that this policy is not only "generationally unfair" but also jeopardizes the rights and needs of those to come.
Here's the lowdown: while rent control momentarily aids low-income individuals in securing housing, it inadvertently diminishes future rental availability. Tenants tend to linger in their abodes for extended periods, leading to scarcity of rental offers and a hike in rental prices. This predicament mirrors San Francisco's experience, where stringent rent control in the 1990s dissuaded landlords from listing their apartments for rent.
In Portugal, the percentage of rental housing has plummeted to half of its 1960s levels, leading to a price surge. Older properties occupied by long-term tenants typically have lower rent, while newer contracts demand significantly higher rates. According to the study, around 70% of Portuguese residents pay under €400 per month, with almost half in Lisbon falling under this bracket. Close to 30% of tenants in Lisbon pay less than €200 per month, with similar statistics for Porto.
While previous generations enjoyed affordable housing, younger generations face high rent prices for contracts. Approximately 29% of contracts exceed €650, and 10% surpass €1,000. The study suggests ending rent control and implementing measures similar to Finland, which liberated its rental market to boost housing supply and developed support for vulnerable families and expanded the social housing stock. Portugal lags behind Europe in terms of public housing stock, representing only 2% of homes compared to Sweden's 40%.
So, essentially, rent control offers short-term benefits but may yield long-term disadvantages for future generations. Policymakers should think twice before implementing rent control regulations, as they may inadvertently hinder housing supply growth over the long term, ultimately leading to higher market rents and limited affordable options. Cities like Portugal and San Francisco serve as prime examples, where rent control has benefited current tenants but failed to alleviate underlying housing supply constraints, impacting affordability for future residents.
- The study conducted by Nova SBE's Economics for Policy Knowledge Centre and Fundação Calouste Gulbenkian in Portugal found that strict rent control can inadvertently lead to a decrease in rental housing and an increase in rental prices.
- In Portugal, the implementation of rent control has led to a decline in the percentage of rental housing, which has resulted in a surge in prices, particularly for newer rentals.
- The study suggests that ending rent control and implementing measures similar to Finland, such as liberating the rental market to boost housing supply and developing support for vulnerable families, could offer a more sustainable solution to the problem of affordable housing.
- Politicians and policymakers should be cautious about implementing rent control regulations, as they may unintentionally limit the growth of the housing supply over the long term, leading to higher market rents and limited affordable options for future generations.
