Banning Buy-to-Lease? An Experiment in Housing Policy

Housing has recently taken centre stage in Australian politics at both state and federal levels. At the same time, Prime Minister Albanese’s approval ratings, at 36%, are lower than they have ever been and, though there is no way of knowing decisively, the Greens’ led critiques from the left seem to have played a role. Two-third of respondents in a recent poll agreed the federal government is not doing enough to ensure “affordable and secure rentals”.

The ALP has so far shied away from the more interventionist policies advanced by the Greens, like direct rental price caps. But with housing being a practically worldwide challenge, there are many, many more options available.

A recent academic policy analysis studied the impact of a ban on buy-to-lease investors in Dutch neighbourhoods. This policy was implemented by several local councils in the major port city of Rotterdam from 2017.

Researchers unsurprisingly found its effect was a significant reduction in the availability of rental properties. The cost of rentals subsequently increased. A corresponding increase was observed in the proportion of residents who were first home-buyers in affected neighbourhoods.

Neighbourhoods (in red) where buy-to-lease investment has been banned in Rotterdam.

This did not signify a reduction in real-estate purchase prices, however. It’s worth noting here that the policy was not particularly high-minded: there was the perception that buy-to-lease investment, by increasing renting stock, increased the lower-income and migrant population of neighbourhoods.

This is indeed what happened. Municipalities without the ban on buy-to-lease ended up with a higher proportion of residents with non-Dutch nationality and lower average resident income overall.

In this way, the ban actually made the cost of housing stock go up in the relevant area. This may have appeared surprising from the outset in terms of a pure supply-v-demand analysis, given that the policy removed a large body of potential purchasing capital from the local real-estate market.

The Dutch policy party parallels Australian discussions about the effect of incentives for investors, like negative gearing. But being so localised, its effects appear to have been more distributional within existing housing stock. 

That is, the policy changed the class composition of affected neighbourhoods. This points to the more general problem of so much housing policy being determined by decisions at a local level, such that policy changes just end up shifting people around rather than makings better overall.

The Dutch policy didn’t impact upon the far-greater challenge of bringing down rental and house prices as a whole, which, there as here, one would think can only be done through increasing supply.

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