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QT Fail #1 – Rent Control

October 2, 2012

The first item in an ad hoc series. QT, or Question Time, is a current affairs programme on BBC television that has a host and five panelists who field questions from a studio audience (it is available on BBC iPlayer). Four of the invitees are from the political establishment and the fifth is most often a media celebrity. In other words, all five panelists are reliably left-wing progressives of varying hue, from wet Tories to hard left public sector union leaders. Further, the audience is specially selected to reflect the “political balance” of the panel. Occasionally, in their magnanimity, the BBC will throw a right-wing pundit to the audience, but to preserve “balance”, and it might just be my impression, the audience is even more lunatic left than usual.

I don’t often watch QT because the left-wing pontificating is hard to take and the answer to every question on the economy is usually, “the government must create jobs”. There are regular calls for the government to flout a law of economics, despite the empirical evidence that it won’t work. One suggestion that was given in the first programme of the new series was the imposition of rent controls to make housing more “affordable”.

Incredible that in 2012 we should hear applause from the audience for rent controls and then some of the panel nod sagely that such a step would be of more help than “tax relief for the bank of mum and dad”. Imposition of rent controls is great news for sitting tenants because they get enjoyment of a good below its market price. Unfortunately, there is no free lunch and their windfall is paid for by all of the people who would have rented at a rate above the rent ceiling but cannot get accommodation because it is now uneconomical for a landlord to rent out his property. The natural consequence of rent control in the short term is that rental units are withdrawn from the market, but because the price is artificially low, demand for rental units actually rises. As time passes, properties dilapidate and landlords won’t pay for their upkeep because the rent is insufficient to cover the cost of repairs and leave a profit. Eventually, only the desperate will rent badly dilapidated units and as always when the ignorant flout the laws of economics, their objectives are fulfilled in reverse; in this case long term tenants are driven out by landlords prepared to use illegal tactics to obtain vacant possession, e.g. Peter Rachman.

The clip below is a little bit technical, but it shows why rent control will always fail.

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From → Chapter 1

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