An Argument against Rent Control

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The application of statistics to any human affair is usually laughable. Even so, a “Report to the Secretary on the Homeless and Emergency Shelters” from 1984 looked at a number of “possible causes of homelessness.” The most probable cause was median home price, and the second – ranking higher by far than the rental vacancy rate, minority population, median rent, poverty rate, unemployment rate, or available public housing stock – was the existence of rent controls. “The simple presence of rent control,” argued Tucker, “produces 2.5 times more homelessness in any city than it would otherwise experience.”

Poison in small enough doses won’t be fatal, and Tucker remarked, “Proponents of rent control often try to distinguish between moderate and severe ordinances, arguing that moderate rent control can be tolerated because it avoids the obvious bad effects of severe rent control. . . . If a city has moderate rent control, it will have a moderate housing shortage; if it has severe rent control, it will have a severe housing shortage. . . . The more rent control a city has, the worse the housing crisis becomes, and the worse the housing crisis becomes, the more people demand that rent control be expanded and enforced more severely.”

Rent control is continually improving as Band-Aids are applied. Tucker tells the story of rent control in the San Francisco Bay Area and New York City. First of all, landlords are likely to rent to friends or family in need of cheap housing, because they can feel like they’re getting something in return for below-market prices, and that’s just the way word of vacancy travels. In the old days, people did not have to provide proof of poverty, and so lawyers and other professionals would occupy student housing “like barnacles.” In New York, former movie stars and others with millions in assets qualify as low-income because they’re retired. A trickle-down from this is that productive, young people, capable of increasing the tax base, are displaced to more affordable towns.

Although rent control is supposed to prevent gentrification, it does the opposite. According to Tucker, “The usual result of rent control is to split the housing market in two. Some people get great deals while others face housing shortages and higher-than-market prices.” In some municipalities, tenants of rent-controlled units were paying 40-50 percent below market, and those numbers pale in comparison to the bargains New York’s rich and famous were and are getting. If landlords are to remain solvent while providing some units at below-market rates, they must make up the difference somewhere. Normally, they choose to raise the rates above-market elsewhere. When the city is providing the subsidy, it is raising taxes elsewhere.

The result is holes in the market. Some people who may have fit nicely into a market-rate, modest apartment are blocked out if those units are offered below-market and quickly filled, and what’s left is priced too highly. “Under all other welfare systems, the subsidy is underwritten by the public at-large, through taxes. Thus, if the burden becomes too heavy, people are likely to object. But because rent control taxes only landlords – who are always a small minority of the community – no one pays much attention to their situation,” wrote Tucker.

Landlords also have the option of cutting their own personal profits. Since not all landlords are rich, greedy, lazy snobs living in McMansions, some may elect to cover costs by cutting down on maintenance. For those who chase economic dividers, this trickles down to home improvement businesses and other trades. Historically, though, when landlords pinched by rent control have gotten lax on maintenance, tenants have gone to their town councils to demand sanctions against slumlords. Once these are obtained, it is not unnatural for tenants, unable now and again to pay rent, to start combing the premises for nitpickies to get the courts to help them freeload.

Tucker related stories of this taken to the extreme, including tales of burning down the Bronx and fist fights between tenants seeking free rent and maintenance men in Santa Monica. “The ultimate victims are not landlords or tenants, but a city’s housing stock. Forced to lose money, landlords will eventually find ways to withdraw their property from the market, or they will allow their property to deteriorate until it is worth only what tenants are paying for it. . . . Since the poor are most dependent on rental housing, they are the ultimate victims of the housing crisis.”

As problems induced by rent-control progressed in New York City, municipal government found itself owning 50,000 vacant apartments. The city captured the properties as landlords were forced out of the market in the process described above. The problem became so pervasive, “government-funded neighborhood preservation companies” began to emerge. “To put it bluntly, New York City officials, with the enthusiastic support of the public, have decided that private ownership is the root cause of New York’s shortage of low-income housing. Community ownership is to be the solution.” Replacing landlords with a detached bureaucracy of political activists had its own wave of problems, not the least of which was disappearing money.

In conclusion, Tucker blamed municipal governments for housing shortages. “If General Motors had to go around the country negotiating with every little municipal planning board before it could sell automobiles in a town or city, we would have a ‘car shortage’ as well.”

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