Sunday, July 11, 2004
Price controls: Rent
Half the harm that is done in this world is due to people who want to feel important. They don't mean to do harm -- but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves - T.S. Eliot
Laws and regulations can have tremendous impact on society. In the news today I saw a report on new and strict EU environmental regulations. In the UK this will result in a dramatic reduction in the number of landfills and the inevitable result of this is an increase in the illegal dumping of garbage and industrial waste. Of course an official recommended strict penalties, as if that would solve the problem.
I have depicted the evil (and inevitable) results of price controls before. In New York and in many other cities there are limits on how much people can rent out their own apartments. This is of course silly as Hazlitt explains quite clearly:
Still another example of our short-sighted legislation is rent control. This is usually imposed in the early stages of an inflation. As the inflation goes on, the discrepancy between the rent the landlord is allowed to charge, and the rent necessary to yield him a return comparable with that in other investments, becomes greater and greater. The landlord soon has neither the incentive to make repairs and improvements, nor the funds to make them.
When the rent control is first imposed, the government promises that new buildings will be exempt from it; but this assurance is soon repudiated by a new law. It becomes unprofitable to build new rental housing. New mortgage money for it becomes increasingly difficult to obtain. Landlords of old housing often can no longer supply even heat and other essential services. Some cannot even pay their taxes; their property has in effect been expropriated; they abandon it and disappear. Old rental housing is destroyed quicker than new housing is built
Some favoured tenants, already in possession, are momentary beneficiaries, but tenants or would-be tenants as a whole, in whose interest the legislation has been professedly passed, become the final victims. The irony is that the longer rent control is continued, and the more unrealistic the fixed rents become as compared with those that would yield an adequate return, the more certain the politicians are that any attempt to repeal the rent control would be "politically suicidal."
In the movie Duplex the characters of Stiller and Barrymore are a nice couple that buy an apartment that comes with an tenant from hell (that pays 88$ per month). Of course no one thinks killing the old bag is morally justified, but everyone can see the evil effects of the price controls in this movie. No one in his right mind will rent out a part of his apartment/building even if it would make sense to do so under normal circumstances. This is just one manifestation of price controls. Another one is seen in the movie The Super and another is seen here.