Rent Control in New Orleans?
by Manuel Lora
Rent control is an illegitimate set of laws that
enact a price ceiling on housing leases. They set a maximum allowable
price that a landlord can charge a tenant, thus establishing an
artificially lower price than would otherwise be set on a free market.
The proponents of this kind of market shackle believe that rent
control solves the problem of high-priced housing. Since the price
has gone up, then by forcing prices to stay low people will be able
to find affordable housing. Rent control fetishists err because
they do not realize that this is not a solution at all. The problem
that causes rent to go up is not that one day landlords decided
to form the New Orleans Landlord Price Fixing Cartel, but rather
because there is a massive
shortage of housing.
The price of housing (and of almost everything
else in New Orleans) is going up because at the old price, demand
is greater than supply. Due to Katrina, the amount of viable housing
is far less than the amount people want to occupy. Rent control
does not address the problem at hand – that of low supply.
People in the market do what theyíve always wanted: to get the most
for their goods and services. Workers and employers ask for the
highest possible price that buyers are willing to pay. Competition
keeps this practice in check. It allows for prices to vary depending
on consumer preference, rewarding with profits those who best satisfy
demand and punishing with losses those who do not. High prices also
serve as a market signal to entrepreneurs. It says, very loudly,
build more houses!
New Orleans is experiencing a drastic housing shortage.
Landlords, like workers, see that people are willing to pay more,
and prices rise accordingly. Under the rent control scenario, prices
are not allowed to increase (or not increase as much or to freely
and dynamically fluctuate). Therefore, what incentive would there
be for any company, particularly one from another city of state,
given the shortage of local workers in New Orleans, to build houses?
Rent control laws would not permit such an incentive to arise. Therefore,
the construction industry would not have as much of a reason to
build houses there. Letís remember that the problem is not high
prices; the high prices result from lower supply.
Rent control also has a more nefarious result:
it demonizes landlords even more. If before Katrina they already
had a questionable reputation, rent control could quite possibly
make things worse. How so? If all of a sudden I am forced to keep
prices lower than they ordinarily would, individual renters (just
like building companies), have less of an incentive to rent houses.
Some, for example, would prefer to sell the home rather than rent
it at a loss even if there were people willing to pay more. Others
who had suffered damage might not be as expedient in their repair
knowing that they would not be able to recover from their loss under
rent control laws. Finally, insofar as rent control also reduces
competition, the quality of new and existing housing could very
well be compromised. In all of these scenarios, however, the result
is the same. By eliminating high prices the problem of housing is
exacerbated. Construction would be slower, owners would be more
apathetic, and people would still not have a place to live, regardless
of the price. Indeed, with no rent control laws the prices would
come down on their own as more houses are added to the marketplace.
Only by allowing prices to temporarily rise can we be sure that
incentives to build stay strong. Anything else shows an utter contempt
for private property rights and economic retardation.
It is very interesting and insightful to point
out that the same people who call for price-gouging laws also call
for rent control. Like rent control, price-gouging laws set a maximum
price on a product or service. Weíve heard it quite often recently
as the summer storms reduced domestic refining capacity, hindered
the import of crude, and blocked delivery routes. In the gulf area,
we also heard about price
gougers in tree cutting and house gutting. What is known as
"price-gouging" is nothing more than the (mostly temporary)
increase in the price of labor. Due to the hurricane, not only was
there a huge upsurge in demand for labor, but also a sharp reduction
in supply. The high prices are merely a result of this new set of
conditions. Again, the high price serves as an incentive to bring
people in and get things fixed as quickly as possible. price-gouging
laws, just like rent control, make sure that fewer people are rewarded
for working. We donít hear much about "wage gouging" laws
even though companies in the affected areas are hiring workers at
much higher hourly wages. The workers are, by the same standard
we used to talk about rent control and price-gouging, gouging the
companies. Why doesnít the supporter of rent control also want to
impose maximum hourly wage laws? If I own a business, I am "forced"
(just like the house owner is "forced") to pay more to
an employee during a shortage. But why is it, on the other hand
permissible, according to the market saboteurs, to not allow other
things to rise in price also, such as housing and gasoline? It makes
no economic sense at all.
Oh I can hear it already. I hear the drums calling
for rent control, the chant of the progressive-minded urging our
proud and blessed public officials to do something about the housing
situation in the Crescent City. "Itís for the children, for
the old, for the Everyday Joe," they shall claim. Others, with
magnanimous prosaic recitation skills, will no doubt proclaim that
all tenants are created equal and that New Orleans ought to respect
some inalienable right to be
free from the elements. "Down with the landlords and their
evil and greedy paws!" Rent control in New Orleans? Letís hope
I am wrong.
Lora [send him mail]
is a freelance TV producer and multimedia specialist in New Orleans.
© 2005 LewRockwell.com