Mumbai is a poster child for all the harmful ways in which rent control affects the liveability of a city
NITI Aayog chief executive officer Amitabh Kant summed it up pithily earlier this week. It’s about liveability, not wealth, he tweeted in response to Mumbai being listed in the latest New World Wealth report as the 12th richest city globally.
The city’s private wealth is a hefty $950 billion. But according to last year’s Mercer Quality of Living index, it also ranks a poor 154th among global cities when it comes to quality of life. There are several reasons for this: poor infrastructure, deficient urban planning, inadequate public transport systems. One of the most important, however, feeding into many of the other problems, is the lack of affordable and accessible rental housing in the city.
Urban economic hubs are built on the back of agglomeration economies. Such economies are fuelled by internal migration flows. This population churn leads to a spike in housing demand, pushing up prices. Governments around the world have time and again reacted by adopting the most counterproductive policy possible—imposing rent controls. This is one of the few issues that economists across the ideological spectrum agree on, a minor miracle. As Nobel Prize-winning economist Paul Krugman wrote in 2000, rent control is “among the best-understood issues in all of economics, and—among economists, anyway—one of the least controversial”.
They have had ample evidence to study. Rent control became a go-to policy in Europe in the aftermath of World War II as shattered economies and cities were rebuilt. There and elsewhere, such as New York, it has been singularly damaging. The logic is simple. Imposing price ceilings on any product below market rates will cause demand to rise even as supply dips. Thus, rent control has a host of damaging effects: The stock of new housing in the market falls as investment dries up; landlords lose the incentive to keep their property in good repair; property tax revenue falls; administrative costs and burdens rise, and with these, the potential for
And contrary to its main purpose, rent control does more to harm poor and middle-income individuals and families than help them; the wealthy have greater capability to tap into the networks that give access to rent-controlled housing. For instance, multiple studies have found that the median income of families living in rent-controlled housing in New York is higher than that of those living in unregulated housing.