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Rent control harms people in the long run

Posted: May 29, 2008 1:16 a.m.
Updated: July 30, 2008 5:04 a.m.
 
One of the reasons Democrats are against Proposition 98 is because of the rent control elimination clause. They believe such laws prevent landlords from price gouging.

What is the real impact of rent control? All it takes is simple applied economic principles from Econ 101.

Rent control acts as a price ceiling; it prevents the suppliers from charging above a certain set price. When the equilibrium price is below the price ceiling rent control has no effect.

However, when the equilibrium price is above the price ceiling, it creates a situation in which the demand for housing exceeds the supply for housing in response to the artificially lower prices, also known as a shortage.

Yes, rent control causes a shortage of housing because it causes people to demand more housing than they normally would. Studies have shown that under rent control laws more people occupy more housing than they would if it were a competitive market. It also dissuades sellers from providing more housing in the market.

The law of supply states that less will be supplied at a lower price. Builders will build less housing when the ability to recover costs from rents is reduced. Liberals want to be remembered for their good intentions. Who doesn't want to make housing more affordable to people? But they do not want to be remembered for the consequences.

Rent control ends up harming people more in the long run. Very often politicians have trouble looking beyond stage one. Their time horizon is usually limited to the next election year. Rarely do they take the time to look farther down the road. Rent control provides good returns quickly, but it doesn't last long.

Rent control sounds good and has an attractive goal, but in the end, the voters end up in a worse situation.

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