Like Dubai before it, the Qatari government has decided to introduce rent controls:
Reports from Qatar suggest the government is to ban landlords from raising rents for the next two years. The drastic action is to help combat record inflation rates. A 27.7 per cent surge in rents spurred inflation in the world’s largest exporter of liquefied natural gas to 13.74 per cent in December, the second-fastest pace on record.
Good idea?
Maybe not. As the great Henry Hazlitt pointed out a long time ago rent controls have a distorting effect on the housing market that is often extremely undesirable and counter-productive. Amongst its several possible effects is an overall decline in the quality of available housing. As Hazlitt wrote:
The housing situation will deteriorate in other ways. Most importantly, unless the appropriate rent increases are allowed, landlords will not trouble to remodel apartments or make other improvements in them. In fact, where rent control is particularly unrealistic or oppressive, landlords will not even keep rented houses or apartments in tolerable repair. Not only will they have no economic incentive to do so; they may not even have the funds.
See this study on the socialist Egyptian government’s use of rent controls; a policy that resulted in: landlords neglecting the maintenance of rental properties (for the reasons Hazlitt mentions above); decreased private investment in rental real estate resulting in a decrease in housing stock; and increased investment in the sub-standard informal housing sector.
And, this researcher noted [pdf], rather than reduce the overall cost to a tenant of renting a property, the Egyptian controls merely saw an increase in the side payments — “key money” — that a new tenant was required to pay to the landlord in order to circumvent the state controls on rent payments (in some cases making up to 70% of the discrepancy between the hypothetical market price and the controlled price for that property).
3 comments ↓
Another point, measures like these don’t help new tenants. It’s still very much a free market, especially with the high resident turnover.
Rent in the GCC is simply out of control. On a weekly basis, expect to pay the equivalent of AUD250 upwards for a studio apartment, to AUD1000 upwards for a 3-bedroom house. Thankfully, innovations such as bedspace, while inhumane, ease the pressure somewhat.
Gotta run, my turn to sleep.
I wonder what the cause of such high prices are? Don’t Gulf Countries allow their cities to expand? Or is the oil money the culprit?
They say it’s an overheated real estate market where people are flipping properties like crazy. A property can pass through three or four owners before the foundations are even laid. By the time it’s up for rent, it’s value is 400% more than what it cost to build which means rent must be high too to recoup the investment.
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