Ashley Church: Rent controls are a recipe for disaster

COMMENT: Of the many criticisms regularly levelled at Jacinda Ardern, one of the hardiest of annuals is the claim that “she’s trying to take New Zealand down the path of socialism”. You’ll see it oft-repeated in social media posts and newspaper columns or used as a device to whip up the masses at one of the increasing number of rallies and protests taking place around our country.

If the claim is true, then the warning is legitimate. Socialism, in the more extreme sense of that word, has been an utterly failed experiment worldwide and has led to carnage and suffering in the more than two dozen countries which have tried it over the past one hundred years. Nations as diverse as the Soviet Union, Vietnam, Cuba, South Yemen, Somalia, the Congo, Mozambique, Venezuela and many others have all eventually collapsed under the weight of an economic theory which simply doesn’t work - and to the extent that any of those nations are now successful it’s because they’ve switched to free market economies or developed a hybrid system which maintains one party control but uses capitalism as its economic driver.

But is it true? Are Ardern, Robertson and co trying to take us down a socialist path which others have tried and failed?

There are certainly aspects of increased socialism in the policy agenda of this government which depart sharply from the orthodoxy of the past 35 years – but we’re still a long way from the total state control and state ownership of all means of production which is characteristic of socialist states. Additionally, NZ has subscribed to a form of socialism for decades so we’re talking about an evolution rather than a revolution. A public health system, free education for all, a welfare system of “benefits” for the disadvantaged, and legislation which limits the ability of the powerful to exploit the weak are all examples of socialist policies which we willingly buy into and have done for generations – so when we talk about “creeping socialism” we’re obviously talking about policies which go beyond these broadly accepted staples.

In respect of the current Government these include moves toward much higher taxation; the further limitation of a range of freedoms from free speech through to the speed at which we can drive; Big Brother attempts to create a centralised source of “approved” information; continued massive restrictions over our freedom of movement under the cover of a health emergency which the rest of the world is moving on from; and property market reforms which attempt to control the way in which the property market works in the pursuit of a State agenda.

This last move toward state control was in evidence, just last week, when Associate Housing Minister Poto Williams responding to an increase in the cost of renting (which I predicted), threatened rent controls and indexation as a way to address a problem of the Government’s own making.

To be fair, the Prime Minister has subsequently come out and quashed speculation that such controls are under consideration – but even the threat of them should send a shiver down the spine of tenants and landlords alike. Why? Because Rent Controls don’t work and have been an unmitigated disaster in every jurisdiction in which they have been implemented. There’s now an impressive body of research which generally agrees that rent controls provide short-term relief to tenants but ultimately end up reducing quality and either pushing rents up further or creating a rental supply crisis – or both.

Ashley Church: “Mum and Dad investors have saved the country tens of billions of dollars.” Photo / Ted Baghurst

Swedish economist Gunnar Myrdal is on record as saying that “rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision” and Swedish Professor Assar Lindbeck famously remarked that “short of bombing, I know of no way to destroy a city that was more effective than rent control”.

The overwhelming bulk of rental accommodation in New Zealand is provided by the private sector. Exact numbers are patchy, but we know that there are probably 525,000 rentals with around 440,000 provided by the private sector, with the overwhelming majority of these owned by Mum and Dad property investors who have, collectively, saved the country tens of billions of dollars over the past 40 years.

We also know that around 40% of Kiwis live in rental accommodation – and that this number has been consistent over several census periods despite the sharp rise in our overall population over the past couple of decades. So the demand for rental accommodation is increasing.

Even a primary school student knows that controlling the price of a commodity, at a time when the cost of providing that commodity is sharply rising, is a recipe for disaster. Either rents will eventually explode, or private landlords will abandon the market. Either outcome would be a calamity for tenants.

Despite this, this is now the second time that a government minister has threatened the introduction of rent controls and created uncertainty amongst an already very nervous rental sector.

The fear-mongering needs to stop.

- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]