It is a curious truth that when economists agree (a rare occurrence), politicians usually disagree. Free trade is the obvious one (as Paul Krugman says, “If there were an Economist's Creed, it would surely contain the affirmations 'I understand the Principle of Comparative Advantage' and 'I advocate Free Trade”). Another candidate for the Economist’s Creed would surely be “I understand that rent control reduces the supply and quality of affordable housing”. When IGM polled 41 leading economists just one thought that rent control policies in San Francisco and New York had positive effects. Yet despite, the near-unanimous opposition to rent control from economists, politicians persist in proposing rent control policies. Take Jeremy Corbyn, in his party conference speech he announced that if elected he would give cities the power to cap rents to tackle the housing affordability crisis.

A new NBER Working Paper looks at the effect of rent control policies in San Francisco. In 1994 San Francisco expanded rent control to small multifamily housing units built before 1980. The 1980 cut-off was designed to prevent rent control from deterring new construction, a common objection to rent control. But, it also created a natural experiment. Researchers could compare the ‘treated’ group with a control group who lived in small housing units built after 1980.

Who benefited and who was hurt? Unsurprisingly, long-term residents living in rent controlled property came out better-off. They were about 10-20% less likely to move than the control group.

And who was hurt? Pretty much everyone else. Households living in pre-1980 housing for just a few years found that landlords would actively try to remove them. Landlords incentivised to reset the property to market rates could remove tenants in a few ways. They could move-in themselves, announce a plan to remove the property from the rental market, or they could bribe the tenant to move. The result was that rent-controlled buildings were much more likely to be converted into condos. This lead to a 15% fall in the number of people living in the pre-1980s units compared to the control.

But the real harms came to residents outside of rent-controlled property (including migrants to SF). The landlord’s response led to a significant fall (6%) in the supply of rental properties. The researchers estimate that this caused a 5.1% city-wide rise in rents. Not only did this hurt existing SF residents who didn’t live in rent-controlled properties but it also hit those who moved to SF in search of better jobs. Rather weirdly, the authors estimate that the benefits to existing residents of rent controlled properties ($2.9bn) are almost exactly equal to costs to those not living in rent controlled properties ($2.9bn).

But there’s reason to think that this underestimates the problem. Studies looking at the impact of restrictive planning policies indicate that they don’t just harm residents by forcing them to shell out more for rent, but they also trap people in lower paying jobs in one place when they would be better off if they moved to another. This lowers productivity and GDP, and also means that existing residents do not benefit from the spill-overs of growth.

The evidence is clear. Rent control doesn’t work. The young voters courted by Corbyn’s proposal to cap rents should be wary. Price caps protect incumbents at the expense of future renters. So unless you’re ready to settle down where you currently live, you should expect to pay more if rents are capped.