FreedomLiberty's Profile

Hi,

I am an avid visitor of AT and I just created an account to be able to give my input on the issue of rent control not exactly on the prop 98 or 99.

Rent Control is actually a form of price control. To give you a simplified way of putting it, advocates of price control believes that government intervention helps consumers through price control. The same thing goes with Rent Control. The biggest economic mistake people are doing now is only looking at the short-term benefits and only on a group of people as opposed to considering short AND long-term benefits and the rest of the people in the country. Rent prices are up due to the meddling of the government through rent control. The most ideal way is to let the market set the price as the normal social behavior balances everything out.

By putting price ceilings on rent, wasteful space usage is encouraged as opposed to the situation when the market determines that the price should go up (where people are encouraged to economize space). By economizing space, and the prices naturally up, incentives for people with capital are present to build more apartments. Because of this, the supply goes up, demand goes down – then the prices go down. People can now, again, be able to afford bigger places. Rent control favors the old tenants (who never leaves their current apartment even if the size of their family increases or decreases relative to the space they occupy – to take advantage of the lower rent). This leaves, not only the landlords to subsidize the old renters, but also the new renters who actually cannot look for an apartment due to the set up.

Now, the politicians, thinking that luxury condos/apartments can only be afforded by the “rich”, they remove the price ceiling on the said apartments while leaving rent controls on the rest (because lower and middle class consumers cannot afford rent). Now, more incentive is present for people with capital to create more luxury apartments because there is no price ceiling on its rent - thus the occurrence of only having new luxury apartments springing up while no new middle/lower class apartments being built, which in turn does not satisfy the demand of the lower/middle class. What happens is a reaction by the landlords not to “take care” of their buildings because they have no incentive to. Eventually, slums appear because they could not even sell or give these rent-controlled apartments anymore because it is not profitable. You will see the occurrences of slum areas here in New York.

If only the free-market was allowed to reign free, the prices would have been much lower than how it is now as far as renting is concerned. The fallacy that short-term consequences ONLY and that only one group of people should be considered as far as economic planning is really doing much harm.

The politicians who say that they are for free markets and that they recognize the evil of rent control, when it comes down to it, do not even try to follow through with their beliefs for the fear that by attacking rent control, they may not get enough sympathy from the majority which makes their political careers a little unstable. (There are more renters than landlords). What should be done is that rent control should be abolished BUT in a way that those who got dependent because of the misleading claims of certain groups should be taken care of through a “transition phase” and just let the free market do its work.

Now, this is not an attack on the renters, nor is it an attack on the landlords. It is just a statement of fact and that by getting the government out of our economic lives, it will be much better for all due to the fact that the market is stronger than any artificial intervention.

For an interesting read on this, there is a chapter on what Rent Control really does in the book “Economics In One Lesson” by Henry Hazlitt who wrote a lot about the Austrian School of Economics (Ludwig Von Mises, Rothbard, etc.)

I hope I was able to add to the discussion.