Rent control is one of those concepts that seems like a good idea, at least until you think about it for more than 60 seconds -- an unusual event in an era of bumper-sticker philosophies and instant analysis.The modern rent control era began with
federal Emergency Price Control Act of 1942. Such legislation was enacted while country was at war both in Europe and Asia, and there was a need to prevent profiteering at home. Once war was over, need for price controls went away -- except for rent control.
In 1946, for example, despite fact that we won war and no emergency was in sight, "Emergency Housing Rent Control Law" was passed in New York state, and that law still represents basis for control of more than 1 million rental units in New York City today.
Rent control regulations also arose in other jurisdictions, often because of concerns that tenants would be "abused" by "greedy" landlords and -- not incidentally -- because number of tenants greatly exceeds number of property owners, an important matter when it comes time to vote.
But rent control is wrong precisely because it hurts people it is allegedly designed to protect.
Let's assume that people are economically rational. Thus, if you had money to invest, you would weigh such matters as risk, possible appreciation, and personal preferences as you decide where to put your money. You might see, for example, that there is no limit on stock profits -- profits which can often be made higher by downsizing and moving production overseas -- but income restrictions on real property in rent control areas. Being sensible, you would likely invest in securities rather than local communities.
If enough people make such decisions, money will pour into stock market and realty demand will wane. The result will be fewer rental units than might otherwise will be built. Given less supply and a growing population, natural result is higher rents -- precisely opposite goal of rent control.
But not only does rent control turn economics upside-down, it is terribly irrational for other reasons.
First, if we impose rent controls we limit property owner income. But we do not limit costs for repairs, utilities, management, appliances, or other expenses. And certainly we don't limit tax increases, mother's milk of big government. One is temped to suggest some linkage, say an increase in rents that is directly proportional to growth of government budgets....
Second, we do not show equal concern for poor in other areas. Imagine walking into a supermarket redesigned with price controls in mind. You could buy apples at, say, 69¢ a pound -- but only if you earn less than $15,000 a year and have four or more dependents. Those in higher brackets would pay more. Rather than a single price for each item, there would be a spreadsheet where your price would be determined by item being bought, your income, age, dependents, and other factors. And naturally, we would need lots of inspectors and regulations to make sure those pricing notices conform to appropriate guidelines.
