“For example, rent control is enormously popular out here [in California] and many other places. If people understood something about the factual history of rent control, quite aside from the theory of it, they would be appalled. One of the things again, if I can refer to the current electricity crisis, people are saying is that the opposition to price caps is based on ideology. Well, in point of fact, I know of nothing outside the hard sciences that has been demonstrated so often, over so many centuries, in so many parts of the world, as the fact that when you artificially lower the price you reduce the supply and you increase the demand. Now this goes all the way back to the days of the Roman Empire, it goes to the French Revolution, everywhere you look it’s been there. Now if the public understood that, then politicians wouldn’t get away with saying oh, it’s just a matter of ideology, we really have to have price caps”. –Thomas Sowell
It’s no coincidence that the two city (NYC & San Francisco) that I know of that has rent control also happens to have a severe shortage of affordable housing. Rent control doesn’t even guarantee that those that deserve it will get it. Case in point, I know someone at work that live in a rent control apartment in NYC. He makes a six figure salary and his rent is around $200 in a place where the market dictates over $2,000. He even has a place in Los Angeles as well.
Mostly, the only types of apartment building being built in NYC are luxury apartments. If there are any new low income housing projects, it is being built with the government involved. We all know what happens when the government is involved. They even have a Rent Control Board that dictates to landlords the percentage of rent increases. How can Landlords make a profit if their insurance, real estate taxes, water sewage, heating oil or other expense goes up yet they have to wait for a government entity to tell them how much they are allow to raise it? The system is a failure and it will continue until the people get fed up and decide to disassemble it.
Good point Israel. I think Thomas Sowell talks about that in his book Basic Economics (or is it his book Applied Economics?).
In fact, the problem is worse than that, there are other factors that make predominantly high Democrat areas much more expensive, and those are open land policies and general regulations. Good or bad, everytime you restrict building on a certain land, either for (too strict) environmental purposes, or to keep the area looking ‘pretty’, you limit supply, and when you limit supply, for the same demand, prices go up. In addition, the regulations involved to build a home in traditionally Democratic party areas, is significantly higher, so when the builders incur all of the cost of building a home, they naturally pass it on to the customer in terms of higher sale price.
All in all these ‘rent controls’, ‘open space policies’, and the ‘environmental regulations’, primarily hurt the poor people most, since they are the ones that have to come up with the higher buy price.
But what about when unkind people mess around with the “invisible hand” ? In my town the average income is about $24K but the average monthly rent for a family is about $1000. Something is not right. I look around and there is no industries, we suffer from year round double-digit unemployment. Is it reasonable that people pay half of their income for housing? Maybe there shouldn’t be rent control but cities should push for more affordable housing.
When I hear high unemployment, when I hear low income yet high rent, and when I hear an all around low producing economy, all of that points to exactly what I am speaking against here, too much government interference.
In other words, as Thomas Sowell said here, there is not enough ‘invisible hand’. The government has crowded it out.
Gustavo, cities should be setting the conditions by which more affordable housing is created. HP points out the interference of government. For example, what if government decides to set rules that make it very difficult to evict people who do not pay rent. As an investor, would you build an apartment building where it would be difficult to evict non-payers and get your money owed? Remember, you’re still required to make mortgage payments, utilities, real estate taxes and maintain the property despite people not paying rent.
In Arizona, it’s relatively easy to evict within the month and so their rental market is very competetive and affordable. A Phoenix apartment averages $650 (rent.com figure) for a medium income of $38,537 (about.com figure). As you can see, the rents are lower and yet the income is higher. But why has that greedy landlord not charge more? It’s because the next landlord will be willing to charge a lower rate in order to keep his vacancy rate down? After all, vacancies are bad for landlords but good for tenants.
Remember, proponents of government regulations on rentals will always cite the few samples of worst case scenerio in order to “help” tenants. I suspect if you dig into rental laws in your state, you’ll find the causes of your high rent. The usual culprit is tenant friendly policies that kills investments which in turn lowers supply and increases demand. Can anyone say Economics 101(supply vs. demand)please?