In 1977, President Jimmy Carter stood on a vacant lot on Charlotte Street in the South Bronx, surrounded by empty, burned-out buildings, something reminiscent of Berlin at the end of World War II. The scene looked like something from a scene in “Escape from New York,” but Carter promised he would rebuild the place. Presidential candidate Ronald Reagan went to the same place three years later and did a photo op to highlight Carter’s impotent policies and promised that if elected, he would fix the mess.
While Charlotte Street did eventually see renewal during Bill Clinton’s presidency, the dystopia that was the South Bronx existed for one reason: New York City’s byzantine rent control policies. When the Swedish economist Assar Lindbeck declared that, “rent control appears to be the most efficient technique presently known to destroy a city – except for bombing,” he didn’t have New York City in mind, but he might as well have.
What is rent control and why is it destructive?
Why is rent control so destructive? And if it is destructive, why does it have a foothold in so many American cities? If one could explain that the desolation that turned New York into the backdrop for “Death Wish 3” was due in large part because of rent control, how could anyone support it? Some answers are simple, while others are more complicated.
In its basic form, rent control either forbids landlords from raising rents on tenants or only permits incremental rent increases depending upon other economic conditions. In cities like New York or San Francisco, both of which have such policies, renters far outnumber homeowners and landlords, so they provide a strong political base for elected officials that will implement rent controls.
Economists are fond of pointing out that if price controls prevent prices from rising to market-clearing levels, shortages of that good will appear, forcing people to wait in long lines and having to turn to creative ways to obtain goods that are in short supply. Indeed, rent controls do create shortages of housing, but the spillover effects of these shortages often are as bad as the shortages themselves.
While about 180 cities in the Unites States have rent controls, they are bunched into a few states that already are known for progressive governance, which provides a breeding ground for rent control and the initiatives given progressive hostility to free markets in general and private ownership in particular. Not surprisingly, New Jersey, New York, and California lead the way (although St. Paul, Minn., has joined the fray, creating one of the most stringent rent-control policies in the country).
Like most government interventions, rent control promises something for nothing, limiting rent increases for tenants, the idea being that landlords generally are greedy misers who don’t deserve to profit from owning apartments. In places like New York City and San Francisco, the city governments are especially hostile to landlords. To enforce rent controls, cities must create housing agencies that also set rental policies, including limitations on evictions, and dealing with tenant-landlord disputes.
Not surprisingly, these boards are “captured” by renters and disputes usually go in favor of tenants. While the movie “Pacific Heights” is fiction, nonetheless it described aspects of the dynamic between property owners and governmental entities in rent-control cities. However, the San Francisco described in “Pacific Heights” is a place with vast housing shortages, with thousands of rentable units kept off the market precisely because property owners do not wish to risk renting them to bad tenants that they cannot evict.
Journalist William Tucker has written numerous articles and books on the subject and has been able to grasp the entire effects of rent control, not just the fact that it causes housing shortages, which are only the beginning of the ordeal that the regulatory regime creates. He writes:
Whatever distortions a regulation creates, some people will adjust to it and actually profit. These people then become a tightly focused interest group that fights tenaciously to retain the regulation. When this interest group is a tenant population that forms a near-majority of a municipality, the chances that rent control can be abolished through local political efforts are extremely small.
One of the dislocations is that people in rent-controlled apartments tend to remain in place with their good deals, and because rent control provides a disincentive to build new housing, given that the real ownership lies with the rent stabilization boards. This is especially true in communities like Berkeley, Calif., which has both a prestigious university and is a desirable place to live.
When Berkeley officials first voted in rent controls in the late 1970s, a large number of University of California-Berkeley students simply stayed in their apartments long after graduation, creating a massive shortage of housing for new students, who then had to look for housing in nearby cities like Oakland. Writes Tucker:
Studies … showed that rent-controlled apartments have tended to fall into the hands of middle-class professionals. A 1994 study of Cambridge by housing consultant Rolfe Goetze showed that rent-controlled apartments were concentrated among highly educated professionals, while the poor, the elderly and students were generally excluded. Michael St. John, a Berkeley sociologist, found similar results in California. ‘Rent control has actually accelerated gentrification in Berkeley and Santa Monica,’ said St. John. ‘Poor and working-class people have been forced out of those communities faster than in surrounding municipalities.’
While rent control was touted in San Francisco as benefitting minorities and lower-income people, the numbers tell a different story. In the late 1970s, Blacks comprised about 13 percent of the city’s population, but after nearly 40 years of rent control, that number was down to about 6 percent.
Despite the claims of rent-control advocates, these policies over time damage communities and make housing even less affordable. The only thing better than abolishing rent control is not to let it become a policy in the first place.
William L. Anderson is an editor with the Mises Institute and Emeritus Professor of Economics, Frostburg State University, Frostburg, Maryland.