Rent Control Distorts Markets, Increases Non-Price Rationing

Economic theory predicts that rent control laws will result in these effects (from the Gwartney textbook):

1. Shortages and black markets will develop for housing.
2. The future supply of housing will decline.
3. The quality of housing will deteriorate.
4. Non-price methods of rationing housing will increase in importance (discrimination).
5. Inefficient use of housing will result.
6. Long-term renters will benefit at the expense of newcomers.

The New York Sun article “Don’t Blame Rangel for His Rent” explains why we shouldn’t necessarily blame Rep. Rangel for hoarding 4 rent-controlled apartments in NYC, we should blame the rent control laws themselves for distorting housing markets and creating the adverse, inefficient outcomes outlined above:

Consider the world as it appears to owners of New York City’s million-plus apartments governed by rent regulation. By definition, they are asked to take a price which is different than that which the market might dictate — in most instances (especially in Manhattan neighborhoods), likely a lower price. This essential fact is what leads to situations such as that of Mr. Rangel — and other distortions.

If one cannot get the best possible price for one’s premises, it is inevitable for owners to seek other, non-monetary forms of compensation (see #4 above). Having access to the chairman of the House Ways and Means Committee — a person with the presumed capacity to influence matters at the city level, as well — could be one such form of compensation.

There are other, much more common — and pernicious — forms of non-monetary compensation which owners in a rent-regulated world will find tempting. Far more likely, however, would be security. If one is going to be forced to sell a product at a discounted price, one has a strong motivation to at least make sure of being paid.

So it is that rent regulation — which forces landlords to sell at such a discount — provides an incentive to rent not to those of modest means but, rather, to the well-heeled: Congressmen, movie stars, and others whose income would lead one to conclude they’ll pay the rent on time. Or to yuppie couples who have no children — and are thus more likely to paint and decorate than cause any damage to the floors and fixtures. They are the nomenklatura of this quasi-socialist system.

Posted in Categories: Contributor, Economy, External Research.

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