PM Wong warns price controls carry hidden costs, citing rent caps and supply shortages

Prime Minister Lawrence Wong said price controls may benefit consumers initially but can lead to supply shortages and reduced investment over time. He cited rent controls that discourage rental supply and food price caps that cause shortages, urging policymakers to consider second- and third-order c

Prime Minister Lawrence Wong warned on Wednesday (Sep 30) that price controls, while initially attractive to consumers, often carry hidden costs that emerge only later, citing rent controls that discourage the supply of rental units and food price caps that lead to shortages.

Speaking at the Economist Service's 25th anniversary dinner, Mr Wong, who is also finance minister, said holding prices artificially low can lead to supply falling short of demand. “Supply will fall short of demand, shortages will emerge and the original problem becomes even harder to solve,” he said.

Costs can also surface in other ways, he added: fiscal burdens can accumulate, investments can move elsewhere and people find ways around the rules. The Singapore government intervenes in many areas to correct market failures, pool risks and achieve important objectives, but Mr Wong stressed the need to intervene correctly by diagnosing problems well and understanding the incentives being created.

The Workers’ Party has previously called for easing cost pressures on small- and medium-sized enterprises, including rents. During a parliamentary debate in August, its Member of Parliament Jamus Lim proposed capping annual rent increases around the historical average of 3 per cent, arguing this would give businesses time to adjust to increases in fixed costs. “This is a limit on the rate, not the level. Market rents will still prevail in the long run,” he said at the time, noting that many countries have similar restrictions.

Mr Wong said Singapore is not immune to pressures for “easy solutions” and that this pressure will grow amid an uncertain global environment and technological disruption. He acknowledged that while “creative destruction” is essential for innovation and growth, the costs are immediate and personal for workers whose jobs are displaced.

The government must respond to these concerns and help those adversely affected by change while remaining clear-eyed about what works, Mr Wong added. “Good intentions alone do not make good policies,” he said, urging economists in the Economist Service to uphold discipline in policymaking by asking what problem they are trying to solve, what trade-offs exist and what unintended consequences might follow.