In cities with rent control, why doesn’t it work overall to actually lower the price of housing?
In: Economics
One reason is that housing becomes less profitable so landlords are less likely to build new housing or improve existing housing.
Price controls on any item never really work. If someone said that your 20,000 dollar car could only be sold for 1,000 would you sell it? Of course not. So price controls pull items off the market that would normally be sold for more than the price control max cap.
Does it help out a few people? Sure, people hunker down and never move, because they’ve got a sweet deal. So when they finally DO move and the landlord has that price cap removed, what does he do? He jacks the price way up, because he’s been theoretically losing money with the last tenant, compared to what he *could* have been making on the open market. So you end up with a bunch of disgruntled landlords who are jacking the prices up to rebel against the artificial ceiling imposed by rent control.
If you really want to see the endgame of oppressive price controls, look at Venezuela, their economy is in meltdown because it costs more to manufacture most foods and medicines than they can sell them for, so most manufacturers have stopped making anything. Supermarket shelves are empty because there is nothing they can sell and turn a profit.
Rent or food, it doesn’t matter, price controls never work.
Simply stated, it removes any incentive to build new housing.
The only real long-term solution to housing costs is NEW HOUSING. Period. Full Stop.
Rent control just drives people to put as little money as possible into the housing and gouge people in other ways that don’t technically count as rent.
No one is going to build new housing when they know there won’t be any reasonable profit in it, so developers go elsewhere.
Again, if you want housing costs to go down, build a bunch of new housing, and no, I don’t mean single-family dwellings. I mean apartment buildings, complexes, duplexes, etc.
Why would you build rental properties in a rent controlled area? You are signing up to lose money. So, what you do is build condos to sell at huge margins. That way you get all your money upfront. Obviously, this creates a shortage of rental properties. It might sound good in the short term, but in the long run it is a terrible idea. It will leave the area with few options for the average renter.
Because it does nothing too increase supply of housing. At the end of the day, housing costs are a function of supply and demand, so the best way to lower costs is to increase supply. Instead, rent controls give some people an artificial subsidy while actually removing housing stock from market — owner might choose to tear down and build condos or offices if he can’t get market rents. Empty nesters might hold on to a large apartment after kids move out, because why give up space and pay more? So rent controls actually reduce stock of available housing.
Price controls almost always lead to shortages and ultimately higher prices.
As a city grows, it needs people to build new apartment complexes to house new people. If rent control keeps revenues so low a landlord can’t make a profit, those new rental units never get built, resulting in a shortage in housing. This often leads to a secondary market of unregulated subletting where people are paying market prices, only to a middleman instead of a landlord, affordable housing remaining unavailable to the people it rent control was meant to help.
Rent control primarily helps old people who have lived in the same building for decades.
The average American will live in several homes throughout his life. Every time a tenant leaves, the rent can be readjusted to market value.
Generally, when prices increase on something, it provides more incentive for people to provide more of that thing. If rents go up a lot, there’s incentive to invest in building more housing. If I have a spare room, there’s more incentive to rent it out. With price controls, it removes that incentive to increase supply. There are some pros to the idea; it does prevent people from ending up on the street because they can no longer afford the place they were already living. But there’s a cost to everything.
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