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