Does rent regulation work?

The week in housing 10/12/21

Thanks to everyone who attended the Institutional Landlords and the Financialization of Housing event that took place on Wednesday. We heard three great presentations form our North American guests; I hope to make the recording available soon and will share here when I do. Although I was aware that much of the North American literature is critical of the impact of institutional landlords, I was somewhat taken a back by the extent of the evidence, especially in relation to eviction practices and displacement. The points that hit home with me the most were:

-  The nature and characteristics of landlords matter, both of in terms of distinctions between small, medium and institutional, and in terms of different strategies pursued within the institutional segment;

- Assuming that institutional landlords will lead to better outcomes for tenants on the basis that they are more professional and are more long term focused is erroneous. This may be the case in some instances, but empirically there is plenty of evidence of where this is not the case. Therefore, policy around institutional landlords in Ireland should be based on empirical research on this issue;

- Institutional landlords in North America are associated, at least to some degree, with negative outcomes for tenants (evictions, rent increases), negative outcomes for neighbourhoods (displacement, gentrification) and negative outcomes for markets (local monopolies in some markets).

It was also a busy week in terms of new evidence and data here in Ireland. The Banking and Payments Federation Ireland released some new data showing that 40% of first-time-buyers avail of intergenerational transfers when purchasing a home, surely a worrying sign in terms of inequality. The Dublin City Housing Need and Demand Assessment, published as part of the Draft Development Plan (see page 48 of the document) was also published. Two really useful new pieces of research from the Department of Public Expenditure and Reform were published. This piece gives a comprehensive analysis of some of the major trends and challenges in Irish housing at the moment, while this one takes a deep dive into the Social Housing Current Expenditure Programme. Finally, the RTB published details of the first sanctions issued under their new enforcement powers.

What I want to focus on, however, is a seminar I attended on Tuesday which looked at the contentious area of rent regulation, organised by  Housing Rights Watch and the Housing Solutions platform. The seminar provided really useful insights into what the major issues and trade offs associated with rent regulation are.

Konstantin Kholodilin provided a review of the evidence on rent regulations. He showed that rent regulation is virtually ubiquitous and has been introduced in one form or another in almost every country in the world at some point. Indeed, Marissa Plouin of the OECD noted that rent regulations are currently in place in half of the OECD countries. Evidence wise, however, the main focus has been on the US – 40% of peer reviewed articles on rent regulations look at that country. The main take away from Kholodilin’s review of the literature are:

- Rent regulation reduces rent prices (or reduces the level of rent price inflation);

- Rent regulation reduces housing mobility (this is good because it means households are not being pushed out by rent increases, but could be an issue if it impacts labour market flexibility);

- Rent regulation is associated with a negative effect on residential construction, but there is some disagreement on this in the literature and, as rent regulations vary so much, the picture is not totally clear;

- Rent regulation negatively effects the quality of PRS housing, presumably because landlords chose not to invest because they cannot recoup their investment via rent increases;

- Rent regulations are associated with increased rents where there is an unregulated segment of the market (obviously this depends on their being a segment of the market which is unregulated. For example in some countries properties built after a given year are exempt)

Rent regulation can thus be very effective in terms of its direct objectives – supporting affordability and housing stability – but is not without its potential trade-offs (read Kholodilin’s fantastic research on rent regulations here). If construction is negatively affected, it could mean that today’s tenants benefit at the cost of future tenants who will struggle to access housing.

Another limitation of rent regulations is that they are somewhat blunt, as argued by Marissa Plouin, i.e. they are not very good at targeting the households who most need support. For example, tenants on high incomes who have essentially no housing need may benefit, while other much more vulnerable households may still be unable to access housing at all.

The presentation by Eduardo González de Molina on behalf of Barcelona City Council provided some great insights into how to think about the trade-offs associated with rent regulation in a concrete context. His presentation was based upon the introduction in 2020 of rent regulation across Catalunya.

His main argument was that the principal objective of rent regulation is not affordability. Instead the main goal is housing stability. Rent regulations do nothing to support supply, and therefore on their own cannot bring about affordability over the long term, he argued. But from the perspective of ‘housing stability’, meaning protecting tenants from economic eviction and displacement, rent regulations have a number of important benefits:

- They provide stability for existing tenants;

- They preserve economic diversity, i.e. mediate the tendency for markets to produce income/class segregation in cities;

- They prevent the displacement of low-income households from central locations or areas of high demand;

- They lead to a greater balance of power between landlord and tenant;

- They are cost effective (essentially free for Government) and they can take effect within a short time period.

This last attribute is particularly noteworthy. Indeed, there are very few ways in which Governments can deal with issues caused by unaffordable rents in the short term other than rent regulations. This probably explains why they are so common.

Of course, added to all of the above, rent regulations do have an impact on housing costs for PRS renters and can therefore reduce housing cost burdens.

Rather than treating ‘supply’ and ‘rent regulation’ as contradictions, which sets up a false debate, we need to bring these two objectives together as they are both indispensable. On this basis, de Molina argued the rent regulations will typically need to include: (a) exemptions for new or future construction; (b) mechanisms to support investment in housing quality; (c) some allowance for moderate rent increases within and between tenancies, such as pegging rents to CPI or similar.

The Catalan regulations have only been in place for a year. There is some evidence they have had a positive effect in terms of reducing the level of rent increases, and that they have not had an adverse effect on supply. However, De Molina noted that it was essentially too early to provide any robust evaluation.

My overall sense from the seminar was that rent regulation can be an effective policy tool, particularly in the current context where unaffordable PRS housing is a main driver of some of the biggest problems in our housing systems, including unaffordability, homelessness, residential instability and eviction (which is why many countries are introducing them in recent years, see Chapter 4 of this FEANTSA report for a summary). Having said that, there are some really important trade-offs here that need to be taken into consideration. In particular, we need to be cognizant that rent regulations do not benefit today’s tenants at the expense of tomorrow’s tenants.

Events

Only one upcoming event this week. On December 16th the EVICT project seminar series will feature Michelle Oren and Rachelle Alterman speaking on ‘The right to adequate housing around the globe’, register here. If you are organising any upcoming housing events let me know and I will be sure to include them here.

What I’m reading

Threshold published their 2020 report last week, and Focus Ireland published a report on domestic violence and family homelessness. There were also two new pieces by the always interesting Josh Ryan Collins, this one looking at housing consumption and carbon emissions, and an article in Housing Studies, co-authored with Cameron Murray, that sets out a concept called the ‘rentierisation of housing’. The latter provides a useful summary of some of the debates on drivers of house prices. I appeared on a recent Social Justice Ireland podcast talking about housing affordability, listen here. Finally, here are some great publications by the presenters at the Institutional Landlords and the Financialization of Housing webinar:

Raymond, E. L., Duckworth, R., Miller, B., Lucas, M., & Pokharel, S. (2018). From foreclosure to eviction: Housing insecurity in corporate-owned single-family rentals. Cityscape, 20(3), 159-188.

Raymond, E. L., Duckworth, R., Miller, B., Lucas, M., & Pokharel, S. (2016). Corporate landlords, institutional investors, and displacement: Eviction rates in singlefamily rentals. FRB Atlanta community and economic development discussion paper, (2016-4).

Fields, D., & Raymond, E. L. (2021). Racialized geographies of housing financialization. Progress in Human Geography, 03091325211009299.

August, M., & Walks, A. (2018). Gentrification, suburban decline, and the financialization of multi-family rental housing: The case of Toronto. Geoforum, 89, 124-136.

August, M. (2020). The financialization of Canadian multi-family rental housing: From trailer to tower. Journal of Urban Affairs, 42(7), 975-997.

Revington, N., & August, M. (2020). Making a market for itself: The emergent financialization of student housing in Canada. Environment and Planning A: Economy and Space, 52(5), 856-877.

Gomory, H. (2021). The Social and Institutional Contexts Underlying Landlords’ Eviction Practices. Social Forces.