Rent Control in America
Politics and Unintended Consequences
Free market economies succeed because supply follows price and scarce resources with alternative uses gravitate toward the most beneficial uses. These things happen simultaneously and without need of central planners; the desire of businesses to lure the most customers at the highest possible profit gets the job done nicely.
Politicians, on the other hand, often don't have the time between election cycles to allow lassez faire economics to do its job. Politicians need results the public can see, results that they can take credit for. A common method of political influence over the market is price controls. One form of price control is rent control.
While the idea of keeping the price of housing at some affordable level so poorer families can live more comfortably sounds beneficent, in practice it helps politicians more than the poor. A failure to perceive or appreciate unintended consequences often results in conditions that are worse than those originally intended to alleviate.
Unintended Consequences of Rent Control: Increased Demand
Often the first consequence of rent control is a housing shortage. Regulating housing prices - making them artificially cheaper - induces greater demand. Likewise, since landlords are prevented from charging higher rents, they're unlikely to rent as many units. Moreover, many units that would normally be occupied by two or more tenants sharing rent are instead occupied by a single tenant.
In the two most heavily rent-controlled cities in America, half of rent-controlled apartments are occupied by a single tenant. (San Fransisco Housing DataBook, pg 21, Bay Area Economics, 2001; Census: More Americans Living Alone, San Fransisco Chronicle, pg A2, September 03, 2005) These factors combine to create a housing shortage.
Poor Rental Maintenance
Besides creating shortages, caps on housing prices prevent landlords from maintaining their rental properties to reliable standards. Once inflation overtakes the rent a landlord can charge, he will either allow the property to deteriorate or vacate the building entirely.
Robert P. Murphy Ph.D., in his book The Politically Incorrect Guide to Capitalism (Regnery) stated it thus: "Price controls aren't just bad when it comes to gas and oil--they're bad all the time. In fact, when applied to housing, it means that poor people get driven out of the market." (Emphasis, this author's).
The key phrase, when discussing government intervention in the market, is unintended consequences. There are, invariably, negative repercussions on groups or individuals that were never intended as the target in the first place. Fortunately, for politicians, by the time the negative repercussions of market tampering, such as rent-control, fully evolve they have either been re-elected, elected to an even higher office, or retired. Therefore, any negative, unintended consequences of their policies will come down on the heads of their successors.
Recommended Reading: Rent Control: Myths and Realities--International Evidence of the Effects of Rent Control in Six Countries, Walter Block, Milton Friedman, Friedrich A. Von Hayek, Edgar O. Olsen, Basil Kalymon, eds.; Vancouver: Fraser Institute, 1981
American Flag
|
What do you think about this article?
More in Politics & Society
Latest Articles