A CASE AGAINST RENT CONTROL

To someone ignorant of economic reasoning, rent control seems like a great policy. It deceivingly appears to instantly provide “affordable housing” to poor tenants, while the only apparent downside is a reduction in the income flowing to landlords. Who could object to such a policy?

In the short run, the most obvious problem is that rent control immediately leads to a shortage of apartments, meaning that there are potential tenants who would love to move into a new place at the going (rent-controlled) rate, but they can’t find any vacancies. It is a specific instance of the law of demand and supply. In an unhampered market, the equilibrium rental price occurs where supply equals demand, and the market rate for an apartment perfectly matches tenants with available units. If the government disrupts this equilibrium by setting a ceiling far below the market-clearing price, then it creates a shortage; that is, more people want to rent apartment units than landlords want to provide.

In the long run, a permanent policy of rent control restricts the construction of new apartment buildings, because potential investors realize that their revenues on such projects will be artificially capped. Building a movie theater or shopping center is more attractive on the margin.

There are further, more insidious problems with rent control. With a long line of potential tenants eager to move in at the official ceiling price, landlords do not have much incentive to maintain the building. They don’t need to put on new coats of paint, change the light bulbs in the hallways, or get out of bed at 5:00 a.m. when a tenant complains that the water heater is busted. Furthermore, if a tenant falls behind on the rent, there is less incentive for the landlord to cut the tenant some slack, because he knows he can replace the tenant right away after eviction.

Another reason many economists, including Paul Habibi, who teaches finance and real estate at the UCLA Anderson Graduate School of Management and UCLA School of Law, are skeptical of rent control is that unlike public housing and other forms of government assistance like food stamps and welfare, whether someone benefits from rent control or not has nothing to do with their income. “You could have an attorney making a quarter of a million dollars living in a rent stabilized property,” "Meanwhile, someone who makes only a fraction of that is living in a market rate building, said Habibi.

In summary, if the goal is to provide affordable housing to lower-income tenants, rent control is a failed policy, it has failed in cities such as New York and Los Angeles, just to name a few. Rent control makes apartments cheaper for some tenants while making them infinitely expensive for others, because some people can no longer find a unit, period, even though they would have been able to at the higher, free-market rate. Furthermore, the people who remain in apartments — enjoying the lower rent —receive a much lower-quality product. Especially when left in place for decades, rent control can quite literally destroy large portions of a city’s housing.