Marketplace Overtaking Rent Control,
Rent control is one of those concepts that seems like a good
idea, at least until you think about it for more than 60 seconds
-- an unusual event in an era of bumper-sticker philosophies and
instant analysis.
The modern rent control era began with the federal Emergency
Price Control Act of 1942. Such legislation was enacted while
the country was at war both in Europe and Asia, and there was a
need to prevent profiteering at home. Once the war was over, the
need for price controls went away -- except for rent control.
In 1946, for example, despite the fact that we won the war and
no emergency was in sight, the "Emergency Housing Rent Control
Law" was passed in New York state, and that law still represents
the basis for the control of more than 1 million rental units in
New York City today.
Rent control regulations also arose in other jurisdictions,
often because of concerns that tenants would be "abused" by
"greedy" landlords and -- not incidentally -- because the number
of tenants greatly exceeds the number of property owners, an
important matter when it comes time to vote.
But rent control is wrong precisely because it hurts the people
it is allegedly designed to protect.
Let's assume that people are economically rational. Thus, if you
had money to invest, you would weigh such matters as risk,
possible appreciation, and personal preferences as you decide
where to put your money. You might see, for example, that there
is no limit on stock profits -- profits which can often be made
higher by downsizing and moving production overseas -- but
income restrictions on real property in rent control areas.
Being sensible, you would likely invest in securities rather
than local communities.
If enough people make such decisions, money will pour into the
stock market and realty demand will wane. The result will be
fewer rental units than might otherwise will be built. Given
less supply and a growing population, the natural result is
higher rents -- precisely the opposite goal of rent control.
But not only does rent control turn economics upside-down, it is
terribly irrational for other reasons.
First, if we impose rent controls we limit property owner
income. But we do not limit costs for repairs, utilities,
management, appliances, or other expenses. And certainly we
don't limit tax increases, the mother's milk of big government.
One is temped to suggest some linkage, say an increase in rents
that is directly proportional to the growth of government
budgets....
Second, we do not show equal concern for the poor in other
areas. Imagine walking into a supermarket redesigned with price
controls in mind. You could buy apples at, say, 69