2023-07-14 11:30:34
He Institute of Economic Studies (IEE) has put the housing market as an example of the negative effects that interventionist measures have on the market.
As detailed by the CEOE’s ‘think tank’ in a study on economic and business freedom in Spain compared to other developed countries, “the market never reaches a perfect balance, but it does continually tend towards the search for more efficient production formulas , so that its operation should not be substantially and recurringly altered.However, the interventionist impulse makes the public powers insist on directing business activity for one purpose or another, which can end up distorting, altering and even breaking the processes typical of the market economy. Let us think, for example, of the regulations aimed at controlling rental prices”. Some ceilings included in the Housing Law that came into force at the end of May and that would affect properties that are located in areas with stressed prices.
The institute, chaired by Iñigo Fernández de Mesa, recalls that limiting the increase in rental prices “seems, a priori, a simple way to solve the problem of access to housing. However, this type of intervention has side effects that are devastating in the long term.”
Among them, according to the document, stands out the brake on the development of new construction homes, “since the operators understand that they will not be able to manage their assets in accordance with market conditions, which generates a scenario of housing shortages”.
Added to this is the possibility that many owners choose to sell their home instead of renting it“understanding that liquidating the asset is more profitable than keeping it in a hyper-regulated market, which will also contribute to exacerbating the scarcity problem.”
On the other hand, the IEE also states that “it is to be expected that owners who continue to rent their home reduce their levels of investment in routine conservation and improvement tasks of buildings, which will result in apartments and houses that are less well maintained, with less energy efficiency, with outdated design and furniture, etc”.
Add and continue, because another of the effects that rent ceilings can have, according to the institute, is that “to get around the ceiling, there are owners who they will take your home off the market for a while and then proceed to rent it out at a much higher price, aimed at softening the limits that will affect the annual review of the cost of the lease”.
Lastly, the bosses’ ‘think tank’ warns that price intervention “can encourage the development of the underground economysince some owners can agree with their tenants the disbursement of undeclared payments aimed at compensating the official limitation of the rental price”.
For all these reasons, the Institute for Economic Studies insists, the intervention of the rental market generates perverse incentives and economic imbalances that, far from solving the problem of access to housing, end up aggravating it.
More housing and legal security
The study explains that to stop the increase in rental prices, which in June broke a record in 25 provincial capitals after rising more than 9% year-on-year, in a context of economic freedom, it would be to implement policies aimed at promoting the supply of households. For example, through a “reform of urban regulations aimed at reduce the obstacles that hinder the construction of new construction”.
He also considers it advisable study the improvement of the fiscal and regulatory framework applied to the sectoras well as reinforce the legal certainty of the ownerssomething that “is vital to build trust and avoid problems such as squatting.”
“Therefore, there are no magical solutions, but there are measures that can help contain, and even reverse, price increases by encouraging a more competitive and less intervened market,” the institute underlines. And he concludes that “maintaining the maximum possible independence and autonomy in private economic decision-making is the best way to ensure that production meets society’s expectations.”
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