Repeal Rent Control, and Sow Salt Where Once It Stood
"In many cases, rent control appears to be the most efficient technique presently known to destroy a city except for bombing."1
"Rent control has in certain western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision."2
"That great sacred cow — Rent Control — is a textbook case of Economic stupidity."3
It is no news that free market economists would oppose rent control, root and branch. It is, however, a bit "man bites doggish" that even economists with sterling left wing credentials would oppose it too, and just about as bitterly. (For the source of these three cites, see below.)
Why? It is because this law, which supposedly helps impoverished tenants, actually does no such thing. Indeed, its effects are just about 180 degrees off, in the opposite direction. How can this be? Doesn't rent control reduce prices charged by landlords below levels that would otherwise prevail? And, does not this inure to the benefit of occupants of residential rental units? Yes, and yes, obviously, at first glance, but no, and no upon further consideration.
The key to seeing this latter point is to ask, What is the effect of a price control of anything on the supply of it? Suppose New York City, in its infinite wisdom, controlled prices of pizza, peas, platinum or popcorn significantly below extant levels. What do you think would happen to the supply of these rather different commodities? Yes, go to the head of the class! There would be less of them brought to market. Entrepreneurs would seek greener pastures for their wares, and, if supply dries up sufficiently the real (black market) price of these things would be higher, not lower, than otherwise.
In the face of rent control, or rent stabilization, whatever this pernicious law is called, if they could, landlords would jack up their buildings onto gigantic moving platforms, and cart them off to New Jersey and Connecticut. This, of course, is economically unfeasible. But the motive of property owners is clear. Instead of having incentives to satisfy customers, as holds true in all other uncontrolled industries, their goals lie in the opposite direction. It is not for nothing that landlord tenant relations have soured in the Big Apple, and, indeed, wherever rent control has been adopted. And, if you think there is something about real estate that renders relations between supplier and customer intrinsically hostile, you will have to explain why this isn't the case in places without rent control, or, even in cities with it, but not for commercial real estate. No special landlord tenant courts have had to be set up in these parts of the market. And, when a financial premium is placed not on consumer sovereignty, but on moving tenants out in order to raise rents, it should occasion no big surprise that a different type of landlord attains a competitive advantage. The same would apply, but does not now, to pizza, peas, platinum or popcorn.
Want to help tenants? Really want to help them? And, desire to do so not via free enterprise, private property rights, and unleashing the "invisible hand" of Adam Smith? Then control prices of every other good and service in New York City except for that of residential rental units. As an advocate of economic liberty, I advocate no such thing. But, if this cockamamie plan were put into effect, Gothamites would be up to their armpits in rental housing, and would suffer extreme shortages of everything else. Pretty much the opposite of present experience, eh?
A not too dissimilar situation took place in my new adopted home town of New Orleans, in the aftermath of Katrina. There was a great need for things like flashlight batteries, milk, orange juice, gasoline. Naturally, prices rose; they always do, you know, whenever demand outstrips supply, if allowed by law to do so. This had two benevolent effects. First, the people at the head of the queue at the grocery or filling station had an incentive not to "hog up" the scarce supplies. This is the rationing effect of prices. Second, these goods started flowing in to the Crescent City, from all over the southeast, and even from further away. Why? To take advantage of the beleaguered inhabitants of this drowning city. To exploit them? Exploit them how? Why, by bringing things for which the people were in desperate need. This is the supply effect of prices. Of course, with supplies coming in, prices were beginning to fall. Did this process save New Orleans? Of course, not. The then governor of Louisiana denigrated these people as price gougers, and threatened to lock them up. Then, instead of having two motives to help New Orleanians, benevolence and self-interest, there was only one, the latter.
It is the same with rent control in New York City. The people are crying out for more housing. The only way the market can supply this need is to allow prices to rise. Then, in response, more building occurs. And then rent levels fall. But if the process is short-circuited by rent control, analogous to "gouging" in New Orleans, then it does not occur at all. Instead, people wallow in legally imposed shortages. Nor does the rationing process function. In real estate, this constitutes "doubling up," or raising the number of occupants per square yard. With rent control, there are all too many "little old ladies," (I mention females not because of incipient sexism, but because they have a greater life expectancy than males) occupying 10 room apartments, which previously sufficed for their large families, but have no incentive to vacate after their kids move out and their spouse passes away, since their controlled rents are lower than what a three or four room flat would cost them on the uncontrolled market.
Some people fear market rents on the ground that only the rich will end up living in Manhattan. Unlikely; ever hear of skyscrapers? There's still plenty of room up there. But, even if so, what's wrong with that? There is no right, in the Constitution or anywhere else, that the middle class, let alone the poor, should live in the center of the greatest city on earth. No one whines when only the rich can afford a Rolls Royce. What is the point of being rich if you can't enjoy the luxuries of life, including the geographical. Let the poor and the middle class eat cake. No, wait, that's not quite right. Let them move to the outer boroughs. There are some nice places in Queens, Brooklyn, the Bronx and Staten Island. I grew up in Brooklyn myself, and didn't suffer unduly from it.
I have so far mentioned theoretical reasons to oppose rent control, culled from every introductory economics 101 text worthy of its name. But we need not rely, only, on such considerations. Not just theoretical reasoning, but practical evidence abounds, attesting to the idiocy of rent control. In every city it has been tried, it has had the same effects, as do price controls of any good or service. Whether it is the people's republic of Santa Monica, or San Francisco, or Cambridge Mass, or Ann Arbor, or the Upper West Side of Manhattan, it is the same, it is always the same. Rent control sets landlords and tenants at each others' throats, leads to housing shortages, failure of landlords to maintain and upgrade their properties, and, paradoxically, to higher (black market, or real) prices. Nor is it a coincidence that rent control is popular in such places. What do they have in common: many, many universities, where left-wing professors indoctrinate young tender minds with the niceties of socialism and hatred for the free enterprise system.
Source of quotes:
- Lindbeck, Assar. 1972. The Political Economy of the New Left, New York: Harper and Row; cited in Rydenfelt, Sven, "The Rise, Fall and Revival of Swedish Rent Control," in Rent Control: Myths and Realities, Walter Block and Edgar Olsen, eds., 1981. Vancouver: The Fraser Institute, 1981, pp. 213, 230.
- Myrdal, Gunnar. 1965. "Opening Address to the Council of International Building Research in Copenhagen"; cited in "Dagens Nyheter (Swedish Newspaper), 25 August 1965, p. 12; cited in Rydenfelt, Sven, "The Rise, Fall and Revival of Swedish Rent Control," in Rent Control: Myths and Realities, Walter Block and Edgar Olsen, eds., 1981. Vancouver: The Fraser Institute, p. 224; cited in Block, Walter. 1981. "Preface." Rent Control: Myths and Realities, Walter Block and Edgar Olsen, eds., 1981. Vancouver: The Fraser Institute, p. xiv.
- Paul Krugman, The New York Times, 6.7.00
Note from Walter Block:
An editor from the New York Post asked me to publish with him an 800-word column on rent control. Well, at least that is initially what I thought he wanted. However, I learned during the process of batting the piece back and forth, that while he did indeed desire a general article on this subject, he wanted it linked with recent goings on in the Big Apple on this topic. Also, he required some statistics on this subject, and I had not originally included any. So, nothing loath, I changed my first draft of this piece to suit his desires. (One lesson I learned from Murray Rothbard, as his associate editor on the old Review of Austrian Economics, is to be willing to compromise on anything, as long as it is non-substantive. And, certainly, adding some data, and linking an article to current events hardly violates libertarian or Austrian principles.) Also, my initial draft was a bit longer, okay, okay, a lot longer than the 800-word column he finally ran with (it was almost 1500 words). Further, this editor changed the title; he gave it quite a bit more pizzazz than I did. I guess that's why they pay him the big bucks. (On a more serious note, I think he did a magnificent job of tailoring what I had originally written to better suit his own readership.)
Lew Rockwell expressed interest in publishing, also, the longer unexpurgated version of this essay. There is quite a bit of overlap between what appears above, and what was actually published by the New York Post. But, hopefully, there is enough material that appears above, that did not appear in that leading New York City newspaper, to make the publication of this longer version still worthwhile. What you see above, then, is the first draft of the article I originally sent to the editor, in response to his invitation.
February 5, 2010
Dr. Block [send him mail] is a professor of economics at Loyola University New Orleans, and a senior fellow of the Ludwig von Mises Institute. He is the author of Defending the Undefendable and Labor Economics From A Free Market Perspective. His latest book is The Privatization of Roads and Highways.
Copyright © 2010 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.