Wed Jul 5

Not all rent control policies are the same – the Green Party proposal deserves an open-minded debate

Written by: Tom Baker, Associate Professor in Human Geography, University of Auckland

The ink was barely dry on the Green Party’s recently unveiled “Pledge to Renters ^[1]” – which included annual rent increase limits, a rental warrant of fitness and a national register of landlords – before others were consigning it to the policy dustbin.

By Tuesday morning, the prime minister had emphatically ruled out rent controls ^[2] as part of a potential Labour-Greens coalition after this year’s election: “International experience suggests […] a constraining effect on the number of rentals available,” he said.

The ACT Party housing spokesperson claimed the policy ^[3] “attacks landlords”, while the vice-president of the Property Investors Federation said ^[4] it would lead to a “black market” in rental deals.

Labelling the policy “economically illiterate”, National’s housing spokesperson Chris Bishop said ^[5]: “Economists don’t agree on much but almost all agree rent controls […] are counterproductive.”

And it is true – social science research, and economics in particular, can be marshalled to argue against rent controls. One meta-analysis ^[6] of 60 studies, for example, found “economic research quite consistently and predominantly frowns on rent control”.

These arguments tend to converge around the notion that controls result in the opposite of their commonly stated objectives: reducing supply and lowering rather than increasing housing standards.

But some perspective is needed. Another international analysis ^[7] found the “strongly held but highly polarised views” about rent control are “rarely strongly evidence-based”. In fact, there is much more to the debate than many of the partisan arguments suggest.

The generation gap

The research that exists tends to quibble with so-called “first generation” rent controls. These involve freezing rents, akin to the temporary measures put in place during the COVID-19 pandemic.

First generation rent control was especially popular in Europe and, to some extent, the United States during and shortly after the second world war. Some rent control dwellings from that time live on to this day, but they are rare.

Importantly, these measures involve sustaining rent freezes well below market levels – which is not something entertained by the Greens.

However, because the economic literature tends to focus on first generation rent controls – and because this highly partial focus comes to stand for all rent controls in public discussion – the Greens policy has been implicitly lumped in with only one kind of control.

Research on second and third generation rent controls is less plentiful. But it contains more diversity of disciplinary perspectives – including public policy, sociology, geography and other research fields – and is more equivocal in its findings.

Mainstream economics is famously enamoured with formal models ^[9] based on assumptions that lead to good theory, but which often run into trouble when applied to the complex social and political systems that shape us.

When we begin to incorporate those complexities in our analysis, the world of rent control looks more varied. As the same comparative study that found a lack of evidence-based perspectives put it: “the impact of rent control depends on its form and economic context […] plus crucially the nature of the welfare system in place”.

Not a blunt instrument

The Greens’ proposal most closely resembles second generation rent controls. These allow for rent increases, but within specified limits (a maximum 3% annual increase under the Greens’ proposal). And only under certain circumstances (such as making significant improvements to the dwelling) can landlords increase rents beyond those limits.

Third generation rent controls, by comparison, only apply within a single tenancy, whereas second generation controls apply within and between tenancies. So, a landlord cannot opportunistically increase the rent, above the specified limit, before a new tenancy begins.

Rent control need not be a blunt instrument. It can include any number of provisions to overcome or ameliorate anticipated perverse outcomes.

Around the world, there’s a range of locally tailored variations of rent control policies. Canada, France, Germany and the Netherlands ^[10], for example, each have different approaches to stabilising rent increases for part of their rental housing stock.

More informed debate needed

A big part of the problem with New Zealand’s rent control “debate” is that it misses these kinds of nuance. A better discussion would involve looking at what kind of rent control might work, for what purpose, and with what trade-offs.

This is especially important in the context of the country’s rental affordability problem and wealth distribution disparities underpinned by the current housing system.

As was reported earlier this year, Stats NZ figures show ^[12] renters are experiencing the housing affordability crisis worse than homeowners. In the year to June 2022, one in four renting households were spending more than 40% of their disposable income on housing costs, compared with one in five mortgaged households.

Average weekly rents also increased faster than mortgage payments over the past 15 years – by 93%, compared with 48.8%. Given these realities, some kind of policy response is surely logical.

A modest proposal such as the Greens’ policy deserves more than blank rejection. As a recent study ^[14] of the “mythology” of rent control put it, we ought “to take the trouble to look closely at different kinds of rent control”.

If it is understood as multidimensional, not monolithic, such a policy might at least be seen as one legitimate approach to improving renters’ lives.