Rent Control: A History of Failure

By Gregory Bresiger

Governments can and do try to fix prices, but history tells us it never works.

From the price-control dikats of the Roman Empire’s Diocletian, to the wage and price controls of President Richard Nixon, governments have tried and failed.

The historian Edward Gibbon said the Roman Empire imploded owing to economic disasters and less to barbarians at the gate. More recently, President Nixon imposed wage and price controls before the 1972 elections. He was re-elected when they seemed to be working. However, owing to the Watergate scandal, he wasn’t around when his price control scheme failed and dragged down millions of Americans in the disastrous decade-long horror show called stagflation.

New York's Economic Madness
Yet governments continue to try various kinds of price controls, even though most people with even the barest acquaintance with economic history or basic economics understand they’re the equivalent of economic crack. However, most New York pols, for instance, are economic illiterates.

They support continued rent controls because they are politically popular, at least in the short run. In the case of rent controls, the New York political classes recently extended them. They believe, almost uniformly, that they provide better housing at decent prices. But history and many economists say otherwise.

I believe some pols are privately convinced that they are witchcraft but they are not going to say so because they might then no longer be on the public payroll.

The politics are why New York’s state and city lawmakers have consistently backed rent control laws. That’s even though most economists, both left and right, agree they lead to housing shortages; that they’re a good deal for the minority of people who get coverage while the rest of New Yorker pay excessive rents.

Why Don’t They Work?
Supply dries up. Builders spooked by controls won’t build new units. The minority of those who get cheap rents won’t leave their units no matter what. Turnover rates decline. Most New Yorkers paying free market rents pay through the nose.

If you have a rent-controlled apartment: stay forever. You have cheap rent. If not, be prepared to pay very high housing prices as the housing stock can’t keep pace with demand. The quality of life in the city declines as more and more people pay a high percentage of their income for housing.

“In many cases, rent control appears to be the most efficient technique presently known to destroy a city — except for bombing,” wrote Swedish economist Assar Lindbeck, a Social Democrat.

This comment is part of a historical arsenal of rent control/stabilization critiques. They’re a piece of a federal lawsuit challenging the recent extension of New York rent controls, which are supported by most elected officials.

“The passage of these historic bills is a victory for housing justice and for hardworking tenants across New York,” New York City Comptroller Scott Stringer wrote in a press release. Stringer declined repeated requests for comment on a story I recently did for the New York Post Business section about the economic aspects of controls.

The extension immortalizes rent control rules for some one million New York City units. And yet no one disagrees with that, after generations of rent controls in New York, that the average New Yorkers pay huge housing bills, despite these laws.

They come at a time many New Yorkers “pay half or more of their income for housing,” says State Comptroller DiNapoli. There are about 3.2 million units in New York City.

A Helping Hand for the Big Apple’s Rich
Rent control critics warn these new laws will raise rents on most people except those New Yorkers living in rent-controlled apartments, who are sometimes well heeled.

“In 2017 upper-income households occupied 12 percent of pre-1974 rent stabilized units, or 98,780 units,” according to a report by the Citizens Budget Commission (CBC) report “Reconsidering Rent Regulation Reforms.”

CBC wrote that “Of these upper income stabilized households, 28,377 earn more than $200,000 a year.” The CBC report also finds that rent-controlled/rent stabilized tenants have a greater chance of having apartment problems than unregulated units.

This rent stabilization law (RSL) often helping the rich theme is cited in the lawsuit.

“The RSL does not in any way target its relief to low income populations. There is no financial qualification or standard at all for retaining or obtaining a rent stabilized unit,” the complaint says.

Due Process of Law
The lawsuit charges rent regulations violate the property and Fourteenth Amendment due-process rights of property owners forced to rent at below market prices. The laws, the suit continues, are a violation of the United States Constitution’s Takings Clause. That bars “forcing some people alone to bear public burdens.”

About 45 percent of rental units in New York City are rent regulated, according to a New York University Furman Center report.

Rent control applies only to buildings built before February 1947 and to units occupied by a tenant who has lived in the unit continuously since before July 1, 1971, Furman said. Rent stabilization generally applies to buildings of six or more units built between February 1, 1947 and December 31, 1973.

Despite the popularity of rent control laws with politicians, the majority of people who have studied the issue are critics.

Economists Do Agree
Blair Jenkins, the editor of a compilation of rent research entitled, “Rent Controls: Do Economists Agree?” says most economists condemn them.

In the book, economist Peter Navarro wrote “the economics profession has reached a rare consensus: Rent control creates more problems than it solves.”

Pace University professor Joseph Salerno argues New York’s laws have made housing problems worse.

“If rent controls are imposed that are lower than rents dictated by market forces, an excess demand for apartments almost immediately appears,” he says “Over time, if the demand for apartments increases, the shortage grows worse leading to long waiting lists.”

“In the long run, as taxes, utilities, maintenance and other costs of operating an apartment building continue to rise, the supply of apartments actually decreases, as landlords convert their apartments into co-ops or condos or abandon them altogether,” Salerno adds, noting higher costs lead to reduced maintenance.

The Left and Right in Accord
Salerno is a libertarian economist. He is an opponent of the liberal Keynesian school. However, economist Paul Samuelson, who was a prominent Keynesian and Nobel Prize winner, agreed.

“New York City rent controls,” Samuelson wrote in his economics textbook, “do favor those lucky enough to find a cheap apartment; but they inhibit new private building of low-cost housing.”

This article was originally published at The Mises Institute.