There's no hot button issue hotter than rent control. Even the most courageous politican
quakes at the idea of opposing it. For starters, no one likes landlords. Second, those who
benefit from rent control - and there are a lot of them -- vote.
And it has huge emotional appeal. Imagine this six o'clock news story: a reporter interviews
a senior citizen describing how she'll have to vacate her small apartment, her home for
twenty five years, if her rent control isn't maintained. What politician wants to go up
against that? These are just a few of the reasons why, once
a city adopts rent control, it's almost impossible to dislodge it.
But does rent control work? Does it lower or housing costs? And does it increase the
building of more affordable housing? It might surprise you to know that nearly
all economists -- on the right and the left -- from the late Milton Friedman to Paul Krugman
agree that the answer is no. In a survey of 464 economists in the May 1992 issue of American
Economic Review, 93% said that "a ceiling on rents reduces the quantity and quality
of housing available." Why the unanimity? Because it's an accepted
economic principal that government imposed price controls -- and that's what rent control
is -- always lead to price distortions --- in this case rents.
This applies everywhere, but let's focus on New York City, the place where I have concentrated
my research.
New York has the biggest rental market in the country. Of the city's 8.2 million residents,
5 and a half million rent. And these five and half million renters live in about 2.2
million apartments or rented houses.
Every year, a city board votes on how much owners of rent-regulated apartments will be
able to charge their tenants for the following year's one-year or two-year leases.
The board members base their decisions not on supply and demand but on an estimate of
how much costs such as fuel and insurance have risen. And, of course, how much of an
increase voters will tolerate.
Think about what this means: the longer you stay in your apartment the more you benefit
from below-market rents. Or to put it another way, why would you ever leave your rent controlled
apartment? The late screenwriter Nora Ephron once noted
with some satisfaction that she moved into a five-bedroom apartment on the Upper West
Side in 1980 and stayed there for 24 years, paying one-third the true market rent.
The well-off who benefit from great rents
have the resources (in part from the money they've saved on rent!) to make their own
improvements to their units - paint, redecorate and so on.
But what about the majority of renters who have much less money? They're not so lucky
because landlords can't afford to improve or even maintain their rent-controlled apartments.
Since they can't raise rents to market levels, they can only make a profit by keeping their
costs to an absolute minimum. And there's another reason landlords have
little incentive to maintain rent controlled apartments. They have no fear that their renters
will move out. And if they do, there's always a long line of people waiting to move in.
And consider one more unintended consequence
of rent control. Why would investors build new apartments for anyone but the very wealthy
in a city where rents are controlled? The answer, of course, is that they rarely
do. The vast majority of new residential construction in New York is geared to the wealthy who can
pay rents above the controlled limit or who are willing to buy their apartments outright
as condos or co-ops. These expensive units are well beyond the reach of the middle class,
let alone those lower on the economic strata. In sum, rent control
1: Hurts the people it's supposed to help. 2: Gives landlords little incentive to improve
their housing stock. 3: Discourages construction of new housing
for all but the rich. And the voters love it!
So, rather than dream of the day when New York or Los Angeles and other rent controlled
cities might abandon this self-destructive urban policy, maybe we should see this as
a cautionary tale that well illustrates a valuable maxim: be wary of government programs
bearing gifts. Like the famous horse that destroyed an ancient city, they come with
all sorts of problems. I'm Nicole Gelinas, a senior fellow at the
Manhattan Institute for Prager University.