Rent control
Summary
Rent control refers to the fixing of a ceiling on residential rental rates within a particular legal jurisdiction. The practice is meant to aid those with lower incomes in finding and keeping affordable housing. Like other forms of central planning, such as the minimum wage, rent control has lead to numerous unintended consequences including shortages of residential rental properties, the rapid deterioration of residential apartment buildings, and urban blight.
Consequences
In a free market, prices adjust based on the relationship of supply and demand. When demand for housing increases, the prices for housing also tend to rise, both in buildings for sale, as well as rental units. The increased prices send a signal to entrepreneurs that higher profits can be had in building new housing or converting existing buildings. In turn, prices will trend downward as new units become available.
When prices are fixed and demand increases due to rising birth rates and immigration, as happened in New York City following the Second World War, fewer property owners will decide to invest in housing. The inevitable consequence will be fewer units for rent. Because investors realize a diminishing rate of return they must cut costs in order to remain in business. Building maintenance represents a large fixed cost, so there are incentives in reducing those expenditures. Deterioration soon follows as leaky faucets and torn carpets go unrepaired.
In A Critique of the Legal and Philosophical Case for Rent Control, Austrian economist Walter Block notes that rent control reduces tenant mobility[1]. When an individual moves into an apartment and his rent becomes fixed at the present rate, he stands to have higher rates if or when he chooses to relocate. Because of this, individuals and families often stay in units for extended periods of time. This has the simultaneous effect of restricting labor markets by reducing the flow of labor into areas where demand is high.
Cities with Rent Control
Currently four U.S. States, and the District of Columbia, have cities or municipalities which impose rent control measures[2]. Major U.S. cities include: Los Angeles, Oakland, and San Francisco in CA; College Park, MD; and New York City, Albany, and Buffalo in NY.
Note: NJ has more than one hundred cities which impose rent control.