71% Wrong
Plus: why Britain is poorer than America and a defence of New Towns
In today’s newsletter:
North Sea prices reach record high
Fixing university finance
The evidence on rent controls
According to a recent Ipsos poll, 71% of the public support rent controls, while only 8% oppose them.
For economists (and not just those of a free-market persuasion!), such results can be frustrating. We know that rent controls don’t work. It is clear in theory, and it has been backed up by mountains of empirical evidence. What else can we say? Believing in rent controls, in this day and age, is the economics equivalent of believing that vaccines cause autism, or that the moon landing was fake.
But this is one of those areas where bad outcomes breed support for bad policies. My former home city of Berlin tried a full rent freeze in 2020-21, despite warnings from economists (who were, of course, immediately proven right). Political demand for that policy only arose after years of rent increases. When I lived there (2001-2007), the rental market situation was still much more relaxed, and I don’t remember anyone ever bringing up the issue of rent controls. It is not that people were more economically literate then compared to now, or, for that matter, compared to Britain. It is just that housing was a low-salience issue. People didn’t usually talk about it, so it would not have been fertile ground for a Polanski-style populist (and Berlin certainly had no shortage of those).
A further complicating factor in the British case is that the last time Britain had rent controls (they were abolished in the late 1980s), the overall housing situation was nowhere near as bad as it is today. The IEA already predicted today’s housing crisis even then, but it had not arrived yet, and most people do not associate that period with bad housing outcomes.
However, we need to disentangle a few different factors here. House-price-to-income ratios were indeed much lower in the 1980s than they are today, and I would love to have those ratios back. But it is also true that rent controls had decimated the private rental sector. A former colleague once told me that when he was a PhD student in London in the 1980s, he had to rent informally from some distant relatives, because the idea that you could just rock up in London and rent a room would have seemed preposterous. You could only buy a place, or if you qualified, rent from the council. Private rental accounted for less than one tenth of the British housing stock, an extremely low proportion compared to other developed economies.
So while the lower affordability ratios were good, the lack of options for private rental was bad. Imposing rent controls today would give us the worst of both worlds: they would suppress the private rental sector, as they did then, but they would do little to nothing to reduce affordability ratios.
With the right policy choices, we could get the best of both worlds: low affordability ratios for those who want to buy, and a competitive private rental sector for those who do not.
This is also the only way to reduce political demand for terrible policies. Polls such as this one are the reason why I am not an ‘accelerationist’, that is, someone who believes that things need to get worse before they can get better. Accelerationism only works when people know what needs to be done, but just lack the willpower to actually do it. It fails when people draw the wrong conclusions from a worsening situation. In Britain, worsening economic conditions do not increase support for free-market alternatives. They only increase support for Zack Polanski.
Kristian Niemietz
Editorial Director
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IEA Podcast: Director of Communications Callum Price is joined by Editorial Director Kristian Niemietz and Director General Lord Frost to discuss Kanye West, rent controls, and new evidence on the minimum wage - IEA YouTube
Inaction is a choice
Responding to North Sea prices hitting an all time high, Energy Analyst Andy Mayer said:
“Warnings about not just higher energy prices, but a global shortage leading to an ‘all against all’ scramble for oil and gas cargoes, have been made by experts for weeks.
“There is no surprise here, no unforeseen event, and no excuse for Miliband and Starmer to still be sitting on their hands when they could be approving access to domestic resources.
“The Rosebank and Jackdaw fields were respectively discovered in 2004 and 2005. Both should already be producing, and could be by year end, if approved today.
“The public want it, the renewables industry want it, the Chancellor wants it, and even Tony Blair. Pragmatic voices that understand this crisis and difficult choices have no issue with reopening the North Sea.
“Ranged against them is a militant tendency of virtue-signalling climate purists, so wedded to ‘leaving it in the ground’ that they are prepared to increase global emissions through more imports.
“Or risk energy rationing, queues, and restrictions on activity to keep the lights on.
“Inaction is a choice. The longer it continues, the clearer it will be which view is driving policy.”
News and Views
Get taxes down, get spending down, stop borrowing so much, Lord Frost interviewed on the state of the economy in The Sunday Express
“Lord Frost talks about the British economy as if it is a patient in danger of a heart attack. “The arteries of the economy have just furred up,” he warns, calmly, sitting at a highly-polished table at the Institute of Economic Affairs (IEA).”
UK wage distribution now flatter than the Soviet Union, Kristian Niemietz talks about wages and the labour market in Britain, GB News
Why Britain is poorer than America, Daniel Freeman interviews economist Tyler Goodspeed, IEA YouTube
Universities are paid to recruit, not to educate, Callum Price on why the student loan system fails students, universities and taxpayers alike, ConservativeHome
The range of taxes we’ve got on bills in the UK is absolutely mad, Andy Mayer speaks about carbon taxes on TalkTV
An electoral bribe with a compound interest rate, Kristian Niemietz’s description of the pensions Triple Lock covered in CityAM
£31 billion investment in Britain is pulled over red tape and ‘mad Net Zero agenda’, Julian Jessop gives his take on OpenAI pulling investment plans over energy costs, GB News
Julian Jessop, an economics fellow at the Institute of Economic Affairs think tank, said Mr Miliband’s “mad dash to decarbonise” was the “final straw” which resulted in OpenAI pulling its investment.
We can restrict doctors’ strikes, well-paid doctors shold not be allowed to endanger patients uninhibited, writes Len Shackleton, The Critic
“[E]ven if a complete ban on doctors’ strikes is not implemented, there are a number of options available to restrict strike action. We should not permanently have to put up with already well-paid doctors effectively holding taxpayers — and NHS patients — to ransom.”
Events
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