Scotland's Rent Freeze and Eviction Ban

Following the recent announcement by the Scottish Government to freeze rent increases and ban tenancy evictions until 31st March 2023, Sam Ashworth-Hayes former director of studies at the Henry Jackson Society, has written an interesting article on the subject, which I've copied and pasted in full:-

“Nicola Sturgeon’s plan to freeze all rents in Scotland would be a disaster for Scots. Economists almost universally agree that rent control is one of the worst possible ways the government can intervene in a housing market. The short-term consequences are predictable; the policy freezes the price of renting?and puts a moratorium on evictions. This makes people who have a?property to rent better?off; it makes people looking for somewhere to rent worse off.

When rents are held below market prices, two things happen. The first is that landlords start to withdraw their properties from the market; if you can’t evict a tenant who won’t pay and aren’t earning enough profit after covering your mortgage and upkeep, it doesn’t make a great deal of sense to rent a property out. Far better to wait for prices to go up again, or convert it into owner-occupied housing and sell it. This preserves the total stock of housing but results in misallocation between short-term rentals – ideal for people who don’t really want to live in an area for more than a few years and long-term purchases.

The second is that the number of people looking to rent in an area at an artificially low price will start to exceed the number of houses available to rent. This makes house hunting an even more frustrating experience than it already is, with people traipsing from viewing to viewing to find an available property. For the wider economy, with people unable to live in the areas where their best job offers are, productivity starts to drop.

There are some ways of hiding these short-term effects. Some landlords will cut corners, scrimping on maintenance and furnishings to restore their profit margins. Others might simply take the loss this year, hoping for a return to normality later. The long-term consequences are much worse. Once a government has intervened on one pretext, it’s more likely to do it again in the future. Sturgeon’s decision has just substantially reduced the value of building new houses in Scotland, exacerbating the long-run supply issues that have driven rents up in the first place. The longer the controls stay in place, the worse things get.

The socialist economist Assar Lindbeck famously commented that ‘rent control appears to be the most efficient technique presently known to destroy a city – except for bombing’. This was wrong in one important sense; the Blitz, in the longer term, made London substantially?wealthier?by removing obstacles to building massive skyscrapers filled with productive office drones. It’s an impressive testament to Britain’s ability to make the best of a situation; even the Luftwaffe’s bombings eventually became another marker of our absolute triumph. Rent controls on the other hand have never made a city richer, although in Vietnam it?eventually?did to Hanoi what American bombs never could.

The continuing popularity of rent controls – see Sadiq Khan’s endorsement earlier in the year – speaks to one of the biggest failure modes in British politics: mistaking prices for a sort of morality play. In this framework, prices go up because landlords or companies are greedy and squeezing profit from the consumer; when they come down things become magically abundant. Imagine how much better off you’d be if we simply fixed the price of electricity at ￡0!

The actual answer of course is that you wouldn’t have any electricity; there would be no supply. The price mechanism might not be popular, but it does actually work to make sure that there’s food on the shelves when you go to the shops. Prices go up when demand is high and they go down when supply is abundant; they work to match the two together.

What politicians don’t seem to understand is that?every?economic system has some way of allocating resources that takes into account the basic reality that supply is finite, while human wants are not. If you don’t have prices, then you allocate by good luck, by queueing, by rationing, by state planning and corruption, or by any number of other ways. None of these have proved to work as well as prices do. And when politicians interfere with the price mechanism, they increase the role of these other mechanisms in deciding who gets what. In the long run, this leaves everyone worse off.”