A Hypothetical Housing Win–Win

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INTO PERSPECTIVE
By Amanda Williams, 05/31/2012
A Hypothetical Housing Win–Win

 

Last month, the Supreme Court declined to hear arguments on rent control’s constitutionality—a shame, in my view, given sound economic reasons rent control is rather misguided. Over and above those economic reasons, though (which I outlined in greater detail on Fisher Investments’ MarketMinder), it’s entirely possible ending rent control would help not only the rental market (renters and landlords alike), but could also incrementally help the housing market as a whole.

Consider: Rent control was intended to keep rent prices low for low-income individuals. A fine goal. However, doing so creates a market distortion. Keeping prices artificially low is not a cost-free decision. Rent control limits supply (since landlords receive typically below-market rents and are therefore less incentivized to rent out properties) and creates more intensive competition among renters, thereby ultimately resulting in higher overall prices for units which come on the market. Lower prices for some (many of whom are not, in fact, low income) and higher prices for many more seems to run counter to the original purpose of rent control—the law of unintended consequences. Continue reading

A Good Primer for the Economic Justification of the Harmon’s Case


REALITY CHECK

 

Want Cheaper Rent? End Rent Control

By Amanda Williams, 02/03/2012

The Supreme Court may have a chance this year to determine whether rent control is constitutional or whether it represents a “taking” without just compensation. A topic worthy of debate—but in my view, there are sound economic reasons rent control (like many government regulations), however well intentioned, is woefully misguided. To see why, let’s return briefly to Economics 101.

Anyone who took an economics class will likely have (possibly painful) flashbacks in examining Exhibit 1, which shows a generic supply and demand graph, with price and quantity on the x- and y-axes, respectively. Basic economic theory expects a supply curve to slope upward because the higher the price a good’s provider can obtain, the more he’s willing to supply. On the flip side, demand for most goods is downward sloping because, on average, consumers are less-inclined to consume higher quantities of a good the more it costs. The intersection of the two determines the price and quantity the market supports (commonly known as equilibrium).

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