The Netherlands' Rent Control Disaster

Kamala Harris has proposed a federal rent control scheme to bring down America’s high housing costs. The Netherlands is providing a good example of how that policy might work out in practice.

In July, the Dutch government expanded nationwide rent controls—which had already covered about 80 percent of rental units—to almost all remaining rental properties. Fully 96 percent of Dutch rental housing is now subject to rent caps.

A report from Bloomberg published last week details the results: Owners of rental properties are selling their buildings and getting out of the rental housing market.

The tenants of those units are being forced to try and find one of the few remaining market-rate units or purchase a home in the Netherlands’ hot housing market. In either case, home hunters face spiking prices and limited availability.

These results are what one would expect from rent control. The economic literature is unambiguous that when rent control effectively holds rents below market levels, the result is a shortage of available rental housing.

More honest boosters of rent control will argue that while the policy limits housing supply, it increases stability for tenants. Protected from sudden, unaffordable rent increases, renters are able to stay in their homes for longer.

But in the Netherlands, at least, rent control is having a pro-displacement effect. Tenants who had an affordable rental unit are now being forced to move.

Proponents of rent control like to waive away the problems created by the policy as something that can be fixed with better and/or more sweeping controls of rental housing.

In fact, different rent control designs just produce different problems.

Apply rent control to new construction, and developers build less rental housing. Apply rent control to existing rental housing and landlords sell out to owner-occupiers. Prevent landlords from taking their units off the market, and housing quality deteriorates. (In the long run, this also reduces supply by preventing the redevelopment of existing rental housing.)

The Netherlands, like the United States, has a housing cost crisis born of tight regulations on new home building. Bloomberg reports that the country is building about two-thirds of the estimated homes it needs to accommodate population growth.

Rather than deregulate construction and open up more land for development, the Dutch are trying to use more regulation still to drive down prices.

That was never going to work. It’s a trite but true saying that while you can pass all the policies you want, you can’t repeal the law of supply and demand.

While it’s cold comfort for Dutch renters, the Netherlands is providing a good example of how not to respond to a housing crisis. Hopefully, U.S. policy makers can learn the right lessons from this example.

The post The Netherlands’ Rent Control Disaster appeared first on Reason.com.

Source: https://reason.com/2024/09/05/the-netherlands-rent-control-disaster/