Rent Control

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As Swedish economist Assar Lindbeck one said, "rent control appears to be the most efficient technique presently known to destroy a city – except for bombing". I think he was understating it.

Rent control, like all other price and wage control proves that you can control the prices, but not the unintended consequences of controlling the prices, and it makes things worse, virtually everywhere it has been tried. It is the idea that if you help one person, at a cost to others, that you can come out ahead.But that doesn't stop new idiots from not learning from history, and trying it more.

Of course the sane and informed know that forcing one customer to pay less than everyone else, is not only unfair, but it means that the landlord either jacks up everyone else's rates to make up for it, or the lower returns means that there's less development and investment goes to other places that don't have that burden on investment. But people who can count to three without using their fingers are not the base that is attracted to rent control -- it's more the progressives, kids and just plain economically ignorant that think you can help one person by hurting many others.

The Basics

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  • Demanded is always greater than the quantity supplied (Qd-Qs >0), so rent control causes a shortage of rent controlled housing.
  • The shortages in the controlled sector cause the demand to spilled over into the uncontrolled sector.
  • That is why depressing some prices (in the controlled sector), contributes to a rise in the uncontrolled sector. This is shown in every city that has rent control -- the cost of housing is higher than those without, and rises faster than those without (and higher than before enacting rent control).
  • Because of the shortages, the landlords are disincentivized to upkeep the apartments under rent control (given the difficulty to make profit due to depressed prices and the long long lines of people who want to acquire the rent-controlled housing).
  • Every landlord knows that you improve the apartment so you can increase the rents. But if you can't increase the rents, then you don't waste money on improvements (or repairs). As a result, the apartments become run-down. What are they going to do, leave? The whole idea of a "slum lord" is evidence of, and was caused by, Rent control.
  • Rent Control also discourages incentive to build new, improved housing, because your returns are less on rentals. They build things they can sell instead, or only in sectors that don't have the burden of rent control.

Conclusion

This is not unique to rent control, all price controls end it disaster. There's 3 ways to set the price: (a) too low (b) too high (c) just right. Too high means it didn't help anyone because it didn't matter (it's above the going rate). Too low means that it suppresses supply and then you get long lines. And just right is a fantasy that you can never hit everywhere in a city or nation at once, and even if you could hit it for a nanosecond would be invalid because the price set by bureaucrats will never float fast enough with real changes in the market. To quote Cato, "When the federal government restricted gasoline price increases in the 1970s, long lines formed at gas stations and only those motorists who waited long hours in line received the scarce gasoline"[1]

Many countries that had wide rent controls: (France, Vietnam, the United Kingdom), had to eliminate their rent control policies, and the results were things got much better. But overhwelming evidence will never convince provencial progressives in places like NYC, SF, San Jose, or Seattle.


References

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Written: 2018.05.17