What do rent controls lead to?

Price controls in Spain

Many countries and cities have rent price controls, some even in openly capitalist countries such as the USA or Germany. And yet the consequences of such laws are always unsatisfactory.

Sweden is the most extreme case in the OECD. The housing market is completely intervened and prices are set according to pre-established parameters. The system is really complex, but the truth is that prices are affordable for most of the population.

The problem of rental markets with stressed prices arises when there is more demand than supply. Then prices go up. If prices are capped then there is no longer an incentive for landlords and there starts to be a shortage and problems arise.

Therefore, where there is no supply, there is no demand. If there is more demand than supply, prices tend to go up, and if this price increase is limited, then the system collapses on the other side. So what is the solution?

Rental regulation in Spain

However, the Minister of Transport, Mobility and Urban Agenda, José Luis Ábalos, has confirmed this week that the PSOE prefers to provide tax incentives to those owners who rent below the prices set by reference indexes, such as the one published by his own Ministry. In fact, he has confirmed that this initiative is already in the consultation phase with the Ministry of Finance, which will analyze how to articulate this possibility.

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In fact, Ábalos has now stressed that he does not share a limitation on rental income because “there may be a detraction from the market and cause these homes to end up in the sale and purchase market”, and has stressed that “it is more effective to promote than to impose”.

“All measures in favor of housing as a social right have to be legally compatible with the rights also granted by the Constitution on private property, which are equally important to make a text that has all the guarantees for both owners, as tenants and investors,” said the minister spokeswoman.

Rent price regulation

** This text, written by Hamish Kallin and Tom Slater, professors at the University of Edinburgh, is part of a volume entitled Rent and Its Discontents. It is based on the UK context, and the theoretical and ideological disputes that have shaped and continue to shape the price control debate today. We believe that the counter-arguments presented here dismantling the false neo-liberal arguments against rent control are of complete use in understanding the Catalan context as well. Ideology and class interest operate in very similar ways all over the world. Science and critical thinking will help us to curb ignorance.

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Regulation of rents

In four months the new Housing Law, which will enable the different autonomous communities to limit the price of rent in stressed areas, will be presented to the Congress of Deputies, as announced today by the President of the Government, Pedro Sánchez, and the Vice-President, Pablo Iglesias.

On the other hand, and in relation to the regulatory index of rental prices by which rents will be set, “since its presentation in June, no modifications have been made or taken into account the current situation, so it does not reflect reality, it is ineffective,” says CEO of Alquiler Seguro.

Unlike what has happened in Paris or Berlin, where price limits have failed, Font highlights other measures that have been effective in other countries. These are those that in one way or another have focused precisely on increasing supply.