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The International Case Against Rent Control

The International Case Against Rent Control

Housing affordability challenges are not unique to the U.S. Countries across the globe face similar concerns. In the face of rising rents, some countries have embraced proven supply-side solutions and deployed targeted rental assistance to those most in need. Others have turned to failed policies like rent control.

Berlin’s latest experiment with this policy may be the shortest lived of these endeavors. Less than a year after Berliners voted to impose a five-year rent cap on all units built before 2014, the country’s highest court ruled the law unconstitutional due to conflicting federal statutes.

The decision is a relief for renters and property owners alike. Prior to the law being struck down, researchers found that rent control in the city had “adverse effects on the number of listed homes and household mobility.” Rents in the non-controlled market also outpaced rent growth in Germany’s 13th next largest cities.

Berlin’s experience with rent control mirrors similar actions taken in the Catalonia region of Spain. In 2020, Catalonia became the first region in Spain to establish a rent control program. Shortly after the law’s inception, the number of homes available to rent in price-regulated districts dropped 12%. In 2021, Spain’s Constitutional Court declared the rent control law unconstitutional.

Everywhere rent control has been implemented, it has led to a shortage of units in the controlled market. These trends are similarly present outside of Europe. Although Tokyo does not explicitly have rent control laws, researchers consider that their “limited rent adjustment at lease renewal can be considered a form of rent control, which has been shown to discourage the supply of rental housing.”

Although Argentina has not yet implemented rent control, the anticipation of this policy is already causing chaos in the housing market. Starting in July, Argentina’s central bank will publish an index that indicates how much rent can legally increase. The new law also stipulates that rental contracts will be stretched out to three years with price increases limited to once a year. As a result, property owners are preemptively increasing rents out of fear that they won’t be able to do keep pace with maintenance costs, potential tax increases and other responsibilities later on. In Buenos Aires, some residents are seeing apartment prices increase 67% from a year ago.

What this collection of data shows us is that rent control policies are inherently flawed. They fail to lower rents across the board in a variety of cities and regulatory regimes, and only work to constrict the supply of housing in controlled markets. Addressing housing affordability needs to be a priority. But it can’t be done through rent control.

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