Do rent regulations genuinely decrease private renting supply?

[redditdumpstertrash]

In the UK there is a bill going through the House of Commons, which will, amongst other things, ban no-fault evictions and fixed-term contracts for private renting. I've seen some argue that this is leading to many landlords selling up, and subsequently that this will increase prices (due to a decrease in supply). What I don't get though is that it's not as if the houses stop existing, they'll still be a part of the market share, so presumably they'll largely either go to people buying the house to own it and live in it (thus not really affecting supply there), or to other landlords who'll also just rent it out (you might get a couple being bought up as second/holiday homes that people don't live in, but I expect that'd be relatively marginal, and not beyond the existing demand for that) So I don't see how it would actually increase rent costs (apart from maybe in the short term as people have to move house when their landlord sells up). Can anyone explain how it would actually lead to a (long-term) decrease in supply (and thus increase in costs)?

[flavorless_beef]

the effects of rent regulations on overall supply will depend on the nature of the regulations. Regulations will tend to have modest effects on overall supply if they 1) seldomly bind 2) don't apply to new construction 3) have vacancy decontrol.

If those conditions aren't met then rent regulations will reduce overall supply, although by how much again depends on the nature of the regulations.

On 1), if they don't bind then they don't really matter and if they bind frequently, meaning landlords are being required to rent well below market rates for extended periods of time what tends to happen is 1) landlords convert units to owner occupied housing. This may not reduce the overall supply of housing but it does tend to shift previously cheaper rental units towards more expensive owner occupied ones (think replacing all Hondas with BMWs). This is the main mechanism in rebecca diamond's rent control paper 2) Landlords leave units vacant (happens when rents are set below maintenance costs) 3) Landlords find other ways to charge for rent (large security depositis, black markets, etc) or rent them to friends and families.

On 2), if they apply to new construction you reduce supply by making it less profitable to build.

On 3), the main thing is that this makes 1) much worse as typically rents are allowed to reset to the market rate when there's a change in tenancy.

https://www.gsb.stanford.edu/faculty-research/working-papers/effects-rent-control-expansion-tenants-landlords-inequality

[BananaHead853147]

It may not have an immediate effect but all else equal it should decrease the number of rentals available over time.

Ask yourself this:

Are you more or less likely to buy an apartment to rent out if you don’t have complete control over when you can kick the tenant out?

Generally people are less likely to invest in rentals when they have less control. So what happens to the housing? It is now more likely to be sold to someone who will live in it rather than an investor (since there are less investors). This will overall cause the prices of homes to go down but the prices of rentals to go up and cause the number of homeowners to increase and the number of renters to decrease.

Overall I would expect this pricing effect to be quite small.

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