Populist rent policies backfire

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Populist rent policies backfire

The ruling Grand National Party is busy rubber-stamping dangerously populist policies ahead of by-elections in April.

It - along with the opposition Democratic Party - approved a punitive compensations bill that will fine large companies found to have stolen technologies from smaller ones three times the value of the technology.

The party has also submitted a bill to the National Assembly suggesting that the government target neighborhoods where rent prices rose from the previous month beyond a certain limit, and impose a price cap on them to prevent homeowners from raising monthly rates. Homeowners would have to pay fines if they go beyond the cap, and renters would be able to file for a refund on a portion of their lease.

The motive behind the two policies - to protect the weak and vulnerable - is understandable and honorable in the sense that it is politicians’ duty to sympathize with the pains and hardship of common people.

But no matter the motive, a policy that discounts and goes against the fundamental principles and role of the market can backfire. We have ample examples of this occurring in the real world. As it turns out, empirical evidence shows such policies take a heavier toll on those they are intended to help.

The law on punitive compensations aimed at large companies has the potential to shake symbiotic corporate relationships and mutual trust, because large companies would rather shun local suppliers to avoid such risks. They will instead choose to manufacture a technology or parts on their own or go the route of outsourcing abroad.

The cap on monthly rent prices can jeopardize the rental market. It will reduce the supply of rental units in the long run, resulting in higher rents.

Homeowners become landlords to make a profit. But if they cannot make a profit due to the cap, they will disengage from rental activities. The rent crisis will worsen. It will send prices in neighborhoods without the cap much higher, due to a migration in rent-seekers.

The authorities aggravated the rent crisis when they implemented a half-baked policy of lengthening the obligatory rent period to two years from one year almost 12 years ago.

If it genuinely cares for the weaker population, the GNP best repeal the bills.

The people are already weary enough and do not need to be drawn into the vain and irresponsible practice of populism by political parties.
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