Why rental restrictions won't fix the housing crisis in urban areas!

Rent controls were at the forefront of recent fights between the Mayor of Paris and London. Discussions

Recent research indicates that loan restrictions adversely affect the quantity and quality of accommodation available.

Other options should be considered, such as tax incentives for developers.

The Paris and London 2020 elections changed as a result of the unprecedented global outbreak of COVID-19, but the one constant is the controversial topic of the housing crisis. Among other things, rent price regulation is one of the main issues at the core of the mayoral campaigns of the candidates in both cities.

According to the Assessment Office Agency, between 2011 and 2018, London experienced a 35% rise in the average monthly rental rates. The average monthly in the city for 2019 is more than twice that in the rest of the country, and according to the most recent English Housing Survey, the household income spent on rent was far larger (42%) in London than in the rest of England (30 percent ).

As a result, Sadiq Khan, the Mayor of London who is now holding his second term, urged the government to give him extra authority to set up rental limits and raise massively investment in councils, social houses and other very accessible housing. Khan also plans to set up a New London private rent commission with renters on its board to introduce and enforce pricing control initiatives to provide more affordable accommodation for tenants.

Nonetheless, Jonathan Cribb, Senior Research Economist at the Institute of Fiscal Studies, argued that, even though it gives tenants short-term benefits, the overall standard of housing will suffer as a result of these steps in the long term. Landlords would neglect maintenance to minimize costs as a result of lower revenues and thus have a detrimental effect on living standards in London.

Investment income of landlords will be reduced and as a result many would abandon investment in income property, leading to reduced private rental housing, an increase in competition and therefore a rise in rental prices: the complete opposite of the desired effect.

Nevertheless, the government has unveiled plans for the eradication of "no-fault" expulsions (when tenants are unfairly expelled by their own fault); a ban on unfair rental and cap-tenancy deposits, saving tenants of London £240 million per year; a move in the right direction to improve the local housing market. Shaun Bailey, a Conservative candidate for the Mayoral elections in London, similarly criticized Khan's plans and argued that building more homes is the only solution to the housing crisis.

Paris is painting a similar picture. She has been fighting to curb the increase of Parisian immovable prices and rents, which pushes families out of the capital and has resulted in a decline in the population, since Anne Hidalgo was elected Mayor in 2014. In August 2015, in order to address this housing crisis, she and her team implemented rent price limits in Paris. Rent power, which had been withdrawn in November 2017 and re-established in July 2019, remained essential to the 2020 campaign of Anne Hidalgo. In comparison, its main rival, Rachida Dati, has vowed to avoid the existing rental limits by being elected.

Since its introduction in 2019, these binding price checks have been formalized annually: Paris is divided into 14 regional sectors, each with its own average residential property price for each category. The owner receives a maximum reference price (20 percent above the average reference price) and a reference price (30 percent below the average reference price). Any failure to comply with these regulations leads to a monetary penalty. Their goal? Reducing the price increases, reducing those already too high, and finally stopping the depopulation of the French capital.

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