House rents should be left to the market

Rent controls are counter-productive. Increasing supply is the best way to let the market match rising demand

The High Court has directed the government to fix maximum and minimum house rents for different areas.

We believe this idea is flawed. House rents  should be left to the market to determine. The government’s role should be to facilitate a free and well-functioning market, not dictate prices.

The ruling arises out of a petition seeking strict enforcement of the House Rent Control Act 1991 to prevent house owners from arbitrarily raising and taking in advance rent. We do not dispute that there are legitimate concerns about the shortage of decent housing in Dhaka. However, rent controls are not the right answer to this problem.

Experience shows capping rents is counter-productive. It reduces landlords’ incentives to rent out properties and creates stagnation in the market, by making them less able and willing to carry out repairs and more focused on renting only to short term tenants, thereby adding to the pressures on families.

Also, as the act calls for rents to equal 15% of the market value of premises, and land prices have risen inexorably over the last two decades, interpreting it literally would risk raising rents widely across Dhaka.

The net impact of rent controls would be to make available space even more scarce, and to raise demands for ever more government interference and bureaucracy as both tenants and landlords will be driven to search for loopholes in legislation.

It would be better for the commission and government to incentivise developers and city corporations to build more housing and to look at ways to decentralise factories and offices from over-congested areas.

The best way to allow the market for housing to function fairly is to increase the supply of housing so it meets demand more closely, not restricting its flexibility by imposing new rent controls.

Source: Dhaka Tribune