Tuesday, February 19, 2008

comments re NDP and Liberal calls for rent control

- page 31 in Chapter 2 of Gregory Mankiw's "Principles of Economics" 4th edition text supplies a chart which shows that 93% of economists agree with the statement: "a ceiling on rents reduces the quality and quantity of housing available". This is based not just on the theoretical models but on the empirical evidence. As someone who has worked as a professional economist, I can assure you that this is not a misrepresentation of the professional consensus.

- Besides creating a shortage and reducing quality, rent controls deter investment and raises rents on tenants who are excluded from its protections (e.g. tenants who move or arrive later).

- The expansion of a bureaucracy responsible for deciding who or or what is protected or subsidized and who or what is not will encourage what economists call rent seeking ("rent seeking occurs when an individual, organization, or firm seeks to make money by manipulating the economic and/or legal environment rather than by trade and production of wealth"). The attention of stakeholders will diverted from removing the impediments to the construction of new housing to this political football.

- There is evidence / argument that rent controls may create less affordable housing (See William Tucker's books "Zoning, Rent Control and Affordable Housing" and "The Excluded Americans: Homelessness and Housing Policies")

In a nutshell, if a price is forcibly kept low, there will be higher demand. With supply the same, a shortage is created. However, if developers are restricted in the rents they may charge, they will be less willing to construct more housing. Since supply is perpetually low, landlords also do not have to worry about tenants leaving, and so they have little or no market incentive to maintain the property.

The Americans couldn't destroy Hanoi, but we have destroyed our city by very low rents. We realized it was stupid and that we must change policy
- Vietnamese Foreign Minister Nguyen Co Thach in 1989

1 comment:

Mark said...

The expansion of public housing, co-op housing and land banking can reduce many of your deleterious side-effects of rent control. Or maybe you'd rather keep people in tents?