On Rent Control

by Don Boudreaux on October 9, 2006

in Prices, Regulation

Today’s New York Times ran this letter from me on rent-control:

To the Editor:

An Oct. 4 letter says New York City
“must quickly develop a plan to retain the middle-class population.”
The city can start by abolishing rent control.

By decreasing the
profitability of supplying units occupied by renters, these controls
spawn condo conversions and prompt builders to construct fewer rental
units and more units for sale to owner-occupiers. People who can’t
afford to buy housing are unnecessarily disadvantaged.

Rent
control also encourages empty nesters, who enjoy below-market rents for
their three- and four-bedroom apartments, to stay put rather than move
into smaller units, thus discouraging younger families with children
from moving to the city.

Donald J. Boudreaux
Fairfax, Va., Oct. 4, 2006
The writer is chairman of the economics department at George Mason University.

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{ 4 comments }

Vincent October 9, 2006 at 3:53 pm

Mr. boudreaux, you're right about rent controls considered harmful, but abolishing them won't be enough.

If you don't simultanously liberalize the right to build up new housing units, you will face a housing shortage, then a housing bubble, then political demand for rent control, and so on…

Rent freedom can last only in conjunction with freedom to build new housing units where people want them.

I don't know big apple, but according to Harvard's Ed Glaeser, getting the right to build new housing units (above the existing ones) is difficult. If this statement is true, abolishing rent controls wouldn't be enough to make housing easier for middle class families.

Glaeser and Gyourko's "why manhattan is so expensive" study brings more information on this particular topic.

http://tinyurl.com/k6ykg

happyjuggler0 October 9, 2006 at 9:20 pm

Echoing Vincent's thoughts, I have never understood how anyone can be for affordable housing and also be for land use restrictions. Of course rent control is one of those restricitions, but ability to build is the big bugaboo no one seems to talk about.

The old line, "Land, they aren't making it anymore" is true. But the "obvious" conclusion is not true, namely that housing must get more expensive. At some point in time I suppose that buildings will run into physical limitations on how tall they can get. Until then however, the only thing limiting new housing are various types of land use restrictions.

K October 9, 2006 at 9:55 pm

I second Vincent. It is supply v. demand.

Rent control should go. But it may not increase supply and thus reduce rents for those who lack the means to purchase.

People pay large amounts to buy condos in NYC because they want to be in NYC and they can. Increase the supply of rentals and those same people may choose to rent rather than buy. That won't make things much easier for those with little money.

In NYC today (and elsewhere) it is not unusual for a person to buy adjacent condos and convert them into a single, more desirable unit. The superrich proceed to convert entire floors.

I conclude that it is not a need for living space that is driving costs. It is a large supply of wealthy people who want a lot of space and can command it.

The competition for space in NYC seems to be what matters, not whether newer units are built to rent rather than to sell as condos.

Adam Malone October 10, 2006 at 12:03 pm

It is pretty funny that supply and demand have only received cursory notation in the comments above. Anyone who thinks that rent ceilings do not impact the total available amount apartments…please do the following:

1)Draw a supply and demand graph.
2)Label the intersection of these curves, E for equilibrium
3)Draw a Price Ceiling
4)Where the Price ceiling intersects the Supply and Demand curves label these point S and D.
5)Note that at the price control D is great than S.

Suppliers will not only supply fewer houses, but people will demand more. This causes an obvious shortage. A shortage that is purely a result of government intervention. The government in an effort to "help" the people with lower rent have inadvertently discouraged housing suppliers from supplying housing.

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