In New York, rent controls apply only to large landlords, with more than six properties, rather than more casual landlords with fewer properties. The rental controls, which can make it harder to get a tenancy, mean that landlords who don’t fall under the rules have more tenants vying for each available room, and can therefore charge more.
Lower returns on investments can also discourage landlords from carrying out repairs, reducing the quality of housing available, the IEA report found.
The controls, which can encourage tenants to stay in properties for longer, also lead to the misallocation of housing, for example when single older renters stay in a large but cheap house despite no longer needing the space.
Proponents of rent controls say that they would give renters more breathing room, as well as making renting fairer. The usual figure given as a reasonable amount to pay is 30pc of salary.
Ben Twomey, chief executive of tenants’ campaign group Generation Rent, said: “Rent controls will not solve everything, and more affordable homes need to be built where people want to live, but renters on low and middle incomes need breathing space now.”
In May, a report commissioned by the Labour Party suggested that a “double lock” should be introduced, linking rent increases to the lowest of local wage growth and inflation.
The report, which was written by Stephen Cowan, the Labour leader of Hammersmith and Fulham council, said rents should only be allowed to increase once a year, with tenants receiving at least four months’ notice.
But critics say that rent controls reduce investment and push up prices for newcomers, as well as reducing the quality of housing stock.
Dr Konstantin Kholodilin, author of the IEA study, said: “Rent control effectively reduces rents in the controlled sector, but does it at a high price. Tenants occupying the rent-controlled dwellings benefit the most, at least in the short run, while newcomers lose from rent control.”
Dr Kristian Niemietx, at the IEA, said that the finding that rent controls reduce the supply of rental housing was “as close to a consensus as economic research can realistically get”.
The chief executive of the British Property Federation (BPF), which represents estate agents, told The Telegraph in June that the rent controls introduced in Scotland had made the nation a “no-go” zone for investors.
The SNP had introduced an emergency rent cap in October 2022 under former first minister Nicola Sturgeon. The cap, intended to be a short-lived policy to ease the cost-of-living crisis, was extended before ending earlier this year.
Despite the end of the cap, a temporary framework of rent controls is still in place while the SNP finalises the Housing (Scotland) Bill, which aims to make the rent controls fully permanent. The Bill is expected to come into force in 2025.
The 3pc cap for existing renters meant increases when a property was re-let climbed dramatically, jumping 11pc – the highest annual rent growth of any UK nation.
Melanie Leech of the BPF said: “The rent controls were introduced overnight with no consultation and that’s the kind of thing that makes investors really nervous.”
