Why Rent Control Hurts Renters

Why Rent Control Hurts Renters

Nicole Gelinas of the Manhattan Institute shows why price ceilings on apartments hurt those it intends to help — but also why rent control is here to stay. She explains the background of rent control in America (focusing on New York in particular) and the negative effect it has on prospective renters and on the quality of rent-controlled apartments. Did you know that landlords of rent controlled apartments in New York City rarely improve their properties? Watch this video and learn why. Hint: They know that there’s a long line of people ready to move in if their current tenants get fed up. And even though evidence suggests (and economists on the Left and Right agree) that rent control is self-destructive, the voters love it!
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Script:

There’s no hot button issue hotter than rent control. Even the most courageous politican quakes at the idea of opposing it. For starters, no one likes landlords. Second, those who benefit from rent control — and there are a lot of them — vote. And it has huge emotional appeal.

Imagine this six o’clock news story: a reporter interviews a senior citizen describing how she’ll have to vacate her small apartment, her home for twenty five years, if her rent control isn’t maintained. What politician wants to go up against that?

These are just a few of the reasons why, once a city adopts rent control, it’s almost impossible to dislodge it. But does rent control work? Does it lower or raise housing costs? And does it increase the building of more affordable housing? It might surprise you to know that nearly all economists — on the right and the left — from the late Milton Friedman to Paul Krugman agree that the answer is no.

In a survey of 464 economists in the May 1992 issue of American Economic Review, 93% said that “a ceiling on rents reduces the quantity and quality of housing available.” Why the unanimity? Because it’s an accepted economic principle that government imposed price controls — and that’s what rent control is — always leads to price distortions — in this case rents.This applies everywhere, but let’s focus on New York City, the place where I have concentrated my research.

New York has the biggest rental market in the country. Of the city’s 8.2 million residents, 5 and a half million rent. And these five and a half million renters live in about 2.2 million apartments or rented houses.

Every year, a city board votes on how much owners of rent-regulated apartments will be able to charge their tenants for the following year’s one-year or two-year leases. The board members base their decisions not on supply and demand but on an estimate of how much costs such as fuel and insurance have risen. And, of course, how much of an increase voters will tolerate.

Think about what this means: the longer you stay in your apartment the more you benefit from below-market rents. Or to put it another way, why would you ever leave your rent controlled apartment?

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