Rent control seems like a fair way to keep cost of living affordable for most people and to prevent predatory renting practices.
Economists almost universally say it’s a bad idea but I still can’t wrap my head around why.
Why is rent control not a good solution to overpriced housing?
In: Economics
When most housing is privately owned for profit, rent controls can indeed disincentivize investment in housing, leading to shortages where it’s most needed. The solution, if you ask me, is to have more public and nonprofit housing.
Prices in a free market are based on supply and demand. If the supply of something goes down, prices go up, and if supply goes up, prices go down.
Rent control means that landlords can’t charge as much as they would in a free market. That means that they can’t make as much money, which ultimately means that they stop building new housing.
Eventually, only a handful of people benefit from the rent controls, and there simply isn’t enough housing for everyone, making prices for non-rent-control places even higher.
The real solution to rising rents is to build more housing.
What rent control does is shift the costs from tenants onto landlords. Essentially, it forces landlords to pay a portion of their tenant’s rent.
So landlords raise the rent on all their other tenants and decrease the services offered to the bare legal minimum. Rent control also creates an incentive to avoid creating cheap apartments (which will be subject to rent control in the future) and instead just focus on high priced housing (which won’t be).
Because the cost of rent is just one variable in the economic picture that surrounds housing. You can’t just freeze one variable and hope for the best. If you’re going to control rent you should also control the costs of running a property. Keep the cost of plumbers from going up. Keep the cost of utilities from going up. Freeze property taxes. Freeze insurance rates.
Your whole question ignores the fact that landlords are people too and their properties are their investments. Rent control keeps rent down and prevents predatory practices. That’s all great for renters. But there’s another party in the picture here! Landlords took their cash and invested it in property. They are there to make a profit – you know, income! And landlords carry plenty of risks.
If you insert one rule into the system that completely screws them, they will make changes to adjust to it. Those changes usually include jacking up the rent on anything that isn’t covered by the rent control law. And to keep costs low, they do the absolute bare minimum in maintenance and upgrades over time, which leads to tenement decay. In this way, rent control literally creates bad landlords.
Also, rent control gets tenants into a weird situation where they are trapped in their residence, unable to move. Maybe their dream job is one town away but if they move they’ll lose their 10-year-old controlled rent and they feel like they can’t let their sweet low rent deal go. As rents around them rise they can get to a point where they literally cannot move. This kind of lock-in may be okay for the elderly but it has unintended effects on young renters.
Shady things also happen. People move out but never tell their landlord and sublet their place at a profit. Or they move roommates in and since they are the one whose name is on the lease, keeping rent down, they become the ruler of the household. Often the roommates pay all the rent and the one senior tenant keeps the best room
and pays nothing to live in it. Is that fair for anybody in the picture?
More people you’re ignoring: real estate developers. Who cares about them, right? Rich jerks and corporations! Screw them! Except they are the ones who build new housing, which lowers rent prices for everyone – simple supply and demand. You wind up with places like the SF Bay Area where there are some rent control laws to keep rents from going out of control. But the controls are so limiting of developer and landlord profits that no one wants to invest to build properties anymore. So there isn’t enough housing. And rents and housing purchase prices go sky high.
So I get that you are a renter and can’t imagine how free money for you is bad in any way. But the thing you’re missing is that there are other people in this equation, and over time they and their interests matter also.
Imagine you want to rent to someone. Your expenses for upkeep and mortgage and other expenses on a house is $1500. The price they are willing to pay for the house is $1600, so you think you can make a profit!
Now the state comes in and says actually for this many bedrooms and bathrooms, you can only charge $1400 in rent as per state mandate. At first it sounds great because the tenant gets a sweet deal. But unfortunately for the landlord, he can’t afford to keep the house and has to either sell it outright, or take a $200 loss every month. That’s the opposite of what a business does.
So it creates a shortage of houses because lots of people want them cheap, but landlords can’t rent them out cheap so supply diminishes as demand grows.
Pretty much anything that interferes with the usual movements of supply and demand is “bad economics”. That doesn’t mean its a bad policy, plenty of policies interfere with the economy to achieve social benefits and apart from Ancaps we all agree doing so is necessary to some extent.
> Why is rent control not a good solution to overpriced housing?
It is, in the short term for controlling runaway prices and to minimize the negative effects of gentrification (namely pricing out the people who already lived there). As a long term solution its not viable because ultimately if the supply/demand balance gets too out of wack you’l just end up with an illicit market where the ‘real’ rent is paid under the table. Remaining within the realm of government policy something like building more public housing or improving transit infrastructure is the actual solution here, rent control is only really a stopgap until those proper solutions can be implemented.
You just might not hear about this side of it because the people who mainly benefit from rent control measures, the poorer among us, arent the ones who have the platform, credibility or just outright money to get their voices heard unlike say… housing developers and corporate landlords who these measures negatively affect.
Another thing is it can be seen to ‘freeze’ cities. As long as you stay in the same place, you end up with this rent that is a tiny fraction of market price, so you’ll never want to move, even when that becomes appropriate to do.
It also simply avoids the overall problem. Rent doesn’t increase in a place ‘just because’ it increases because demand exceeds supply.
Lowering prices and locking them in low actually increases demand at the same time it decreases supply.
Use any other product as an example, lets say the PS5 is coming out, and 20 million people want one but only 8 million will be made in the first year.
Would lowering the price help? If it was $200 instead of $500 now you just have 40 million people who want one and they might make less because they won’t get as much for them.
It’s not like these cities have a bunch of empty apartment buildings and no one can afford to move in. The price is that high because they’re all full.
Any long term impact must come on the supply side, not artificially fixed prices.
Price fixing messes around with supply and demand. If it’s impossible to make money constructing new rental units, nobody will build them and instead of cheap affordable rent, you end up with waiting lists and not getting a place to rent at all. Good economics is that resources are distributed to where they will see the most utility. This means rent needs to be expensive to drive people to make more supply. Unfortunately zoning laws, businesses unwilling to move out of city centers, and a host of other things mess the market mechanisms up. Regardless though, price fixing messes up supply and demand.
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