The Principle of Unintended Consequences: Population and Rentals in Jersey

Jersey is facing a crisis over recruitement, and it is in fact tied in partly with decades of fudge on a population policy. Of course, the main triggers have been Brexit and the Pandemic, but we would have reached this point sooner or later.

I remember reading in the 1980s Karl Popper's Poverty of Historicism, in which he noted that social planning by governments often falls down on a failure to consider or look for unintended effects of what is planned or practiced. 

Under successive governments, the strategy for dealing with the "demographic time bomb" of an ageing population has been to import fresh young blood to make up the shortfall in the ratio between those who work, and those who have retired from work with State pensions and increasing demands (as they age) on the health service. This Ponzi scheme was bound to collapse sooner or later, and it is because of unexpected consequences of this policy that it is starting to fail now.

As the population has grown, it has led to an increase in pressure on housing, which has meant that with more people looking for a diminishing amount of housing - as housing has not kept pace with population growth - the cost of renting or buying housing - even for a small bedsit - has become very high. This is what you might expect when demand increase and supply does not increase to match demand.

At the higher levels of pay, this is not an issue, and until recently, the steady rise in salaries in the finance sector has meant those lucky enough to fall into this category can obtain the more expensive accommodation. 

But for those on lower levels of the ladder, this has meant an increasing proportion of their income has gone to rent, leaving less to spend, and as we were hearing on BBC Jersey today, less for heating their homes - as fuel prices also increase.

The higher cost of living in Jersey for basic essentials - food and basic clothing - has combined with the high house prices to make Jersey a far less attractive place for the less well off. Often the cheapest labour is in hospitality and agriculture, but now across the board, all businesses are struggling with recruitment, as is the public sector. Food prices have been driven up by GST, but also because Jersey has to import most of its food, and this comes at a premium. 

The head of hospitality, it may be noted, highlighted the need for affordable rental accommodation as one of the largest stumbling blocks to getting staff over.

A bedsit in St Helier, or "studio flat" to use the pretentious Estate agent jargon, costs a huge amount to buy and even to rent. For that rental cost, you can rent a decent two bedroom flat in Reading. It is small wonder that a number of Jersey youngsters, seeing a future in which they will be worse off than their parent's generation, are moving to the United Kingdom which, despite higher tax rates than 21% (the effective rate including long term care), are still more attractive - lower rents, lower food prices, cheaper clothing. 

Standard economic theory is that rent control does not work, because if you force rents down, landlords may decide not to rent out their properties, which reduces the amount of rental property available. But 

Forms of rent control have long been considered a failure, and in classical economics, the answer to the problem of scarce housing and rising rents is increased housing supply. Which brings us back again to a population policy because while population increase outstrips housing, more and more houses will be needed!

Studies show that renters in housing with rent control are much less likely to be displaced and they have lower rentals. In other words, it slows down people leaving Jersey, makes it more attractive for people to come here, and also starts to tackle homelessness, another side effect of high rents.

Rent control would limit rent rises to inflation. Landlords who can cover their costs today, will continue to cover their costs, but will no longer be allowed to fleece their tenants by doubling the rent. Responsible landlords who care for their tenants and only do moderate rent increases, using rent money for repairs, will be totally unaffected by rent control.

In fact, in tight rental markets (where developers and landlords have market power), rent control can increase supply: if housing developers cannot generate extra profit through rent increases, it creates an incentive to build more units. 

In general, other factors including overall market conditions and zoning land for housing have far more influence over new housing supply than the presence of rent regulations.

But expect considerable opposition from the landlords who also, it will be noted, opposed the scheme whereby deposits were kept by a third party with documentation to show the state of buildings at the start of tenancies. Landlords are motivated, naturally enough, by self-interest, and there's nothing wrong with that, as long as the States take a broader view of what is best for the public good, rather than the private means.