Viewpoint: Rent control deflates housing supply, ultimately inflating most residents' rent
Pál Szinyei Merse: Balloon, 1882. Image in Public Domain
To address high living costs, SJ insists on archaic market controls that artificially—and dangerously—cap tenants' rents. As Loyola University's Victoria Perrie and Walter Block explain in Political Dialogues, rent control interferes with housing providers' capacity to maintain and profit from their units, which keeps investors out of the market, restricts housing stock, and dampens competitive rent pricing.
Rent control is a snare and a delusion for those who think it will actually help the poor. It reduces the supply of rental housing from the level that would otherwise have obtained, and the poor get the short end of the stick whenever there is a shortage of anything. Housing is no exception to this general rule. Nor is public housing a solution to the needs of the poor. Instead, it boomerangs on this sector of the population. The free enterprise system, with neither of these policies, is the last best option for the poverty stricken....
While rent control seems a good way to allow lower-income families affordable housing, it is hurting them in many ways. It places the entirety of the responsibility on the landlords which strains relations between them and tenants and demotivates the owners to maintain their properties. It also is applied arbitrarily. If it is deemed appropriate to help poor tenants pay their, why should this be the responsibility of only one sector of the economy; landlords? In sharp contrast, public policy to feed the poor does not place the financial burden, solely, on grocers and restaurant owners; food stamps, rather, are paid for out of general tax revenues.
Landowners rent their houses, apartments, etc. for the same reason others enter a market, to make a profit. They set their prices just as any other business does, so as to maximize their return.
Rent control was first put into place after World War I when many soldiers were returning from the front looking for housing. This increased demand caused prices to skyrocket (Carty, 2014). Putting a cap on rent was supposed to be a temporary fix until the market stabilized again, however, the law has become a permanent fixture in cities such as New York. When rent levels are set below where supply and demand intersect, it causes a shortage (Milsap, 2015). Artificially low prices attract more people to the market. There is little incentive to increase supply, thus causing a disparity between the number of people wanting housing and the number of housing units available.
There are two major reasons why the supply stays low in response to rent control. The first is that with a decrease in profits, existing landlords do not have the funds necessary to maintain, let alone expand, their housing. Profit is seen in a negative light by most of the public (Kahneman, et. al) but it is necessary to drive a business forward. If a jewelry maker sells bracelets and only charges enough to reach the break-even point, he will only ever make enough money to create more stock. It is the same as far as rental housing is concerned. The second reason for the shortage is a lack of incentive for people to enter the market. If there is a cap on profits, people will be drawn to other markets with a higher chance of return. Not only will this deter new investors from entering, it will also act as a push factor to induce current investors to place their money elsewhere.
This legislation creates strained relations between the tenants and the landlord. Shereena was mentioned earlier in the text as the antagonist in Evicted. Shereena was merely trying to stay afloat as a businesswoman in the housing market. She was kind to her tenants, allowing late payments and even helping them out when they needed it, such as helping Arleen pay for her sister’s funeral (Desmond, 2016).
Rent was so low however, that she could not make a profit so there was only so far she could go before she started losing money. When this happened, she had to evict tenants, even people she liked. It also had the unfortunate effect of making her housing units less than desirable because she did not have the funds to pay for decent maintenance. If the air conditioning unit went out, she left it to the tenant to hire someone to fix it. She was not receiving enough profit from rent to be compensated for doing this extra work. Because rent was so low, she figured they were paying mostly for the land and not so much the amenities of the house. Maintenance and repairs are one area where landlords have the least regulations and therefore the most discretion. Shereena is a fictional character but she is based on a real life person and there are many other landlords who act this way as well. This is demonstrated by the poor state most rent-controlled homes or apartments are in (Noack, 2018). It is analogous to placing a price limit on diamonds so they do not cost much more than coal. While this seems a fair way to allow poorer people access to diamonds, it actually has the effect of causing production to diminish because people are not willing to go through the effort of finding them if they know they will lose money thereby.
This article originally appeared in Political Dialogues. Read the whole thing here.
Related:
Opinion: “Justice for Renters” would obliterate reasonably priced local housing
Insight: Rent control suffocates landlords, hurting the housing market, disempowering tenants
SF case study: Rent control cancels out zoning reform's benefits
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