Unintended Consequences of Rent Control

If policy makers have great intentions when making public policy, is that enough for the policy to be passed?

Prof. Don Boudreaux explains what economists mean when they talk about unintended consequences. Essentially, unintended consequences are the large outcomes that emerge from the actions made by many individuals.

These outcomes can be good or bad. Therefore, when analyzing various polices, we must be extremely careful to distinguish between intentions and results.

Economists talk a lot about unintended consequences and it's important to understand what we mean. We don't mean that individuals don't intend to achieve things when they go out in the world and act. Of course they intend things, good things, bad things. What we do mean is that these actions of many individuals typically come together to create a larger outcome.

And it's that larger outcome that no one intends. Sometimes these are good, beneficial. Sometimes these larger outcomes are undesirable. One of my favorite examples of a bad unintended consequence is the consequences caused by rent control. Rent control is a policy of government to keep the rental rates of apartments artificially low.

Landlords are prohibited by law from charging prices higher than the rent control prices. Well, one unintended consequence of that piece of legislation, of that policy. Is to make rental units more scarce than they would otherwise be. By telling landlords, look you can't raise your price to certain levels, that means that some people who would otherwise become landlords don't become landlords.

They choose not to rent out their units. They choose not to rent out some rooms in their house. They choose not to build. Rental units that they might otherwise have built. And so one unintended consequence of rent control is to reduce the supply of rental units. Now, the people who impose rent control, that's clearly not their goal.

They don't wanna make rental units less available. They wanna make rental units more available because they wanna, presumably, they wanna increase the availability of rental units to people who rent. But one unintended consequence is the opposite. Rental units shrink in supply. When I teach Econ 101, I tell my students on the first day, intentions are not results.

LEARN LIBERTY:

[stephenshelton]

Rent control, but is there ever anycontrol on property taxes? That is also a form of rent.

[fluidicrift]

If you look at Dubai you'll see a very flexible rental market that is cut throat and a race to the bottom.

They're building a new building every month and each time a new building is built new landlords emerge who will undercut their competition and offer better deals on leases.

Like if you're paying 3500 AED per month for a studio a landlord in a newly built building is going to offer you an annual contract for 36k a year which would only be 3k a month.

The Dubai housing market is one of the more affordable and Google flexible living arrangements on the planet because these real estate policies don't exist.

[c.rutherford]

Government rent controls, forcing rent free grace periods and moratoriums eventually wipe out all the little mom & pop rentals in your area, and those are critical to choice.
Tenants don't understand that leasing property is a hugely expensive & sometimes risky endeavor and you make relatively little on each apartment. I can say from experience a person managing 5-6 apartments is basically making Taco Bell wages when its all over, they are NOT rich. Property taxes, insurance, upkeep (roof, furnace, new carpet, utilities, damages) costs thousands of dollars a year.

Big economies of scale mean all these draconian measures always kill off the little guys first.
This leads to rental monopolies and less choices for tenants, and they scratch their heads and wonder what happened again and again.
Politicians of course already know this, but they don't care they just want votes short term.

Just about the only thing that really helps temporarily is actual real rent assistance. But frequently government rental assitance comes with 'hooks' that screw over the small landlords receiving it.
Which is why outraged tenants go on saying why won't my landlord wait months to get it, or agree to give up their court rights by accepting my government check?
Believe it not, many mom and pops read the fine print sometimes know they can't afford the bait.

[lizh]

Amen. I'm so tired of hearing arguments based on what *should* be. I was to hear what actually works.

[victorbellew]

Offer tax breaks on rental properties. Now the wealthy are scrambling to rent as many units as possible and in a bid to get renters, the price lowers. More homes get built to qualify for the tax break and because of lower prices, renters flock to the area. Now the economy flourishes and any money lost due to the tax break is recouped 10x. Businesses grow and wages increase, theoretically.

[daniellewis]

And the buildings suffer because they don't get the needed funds for expenses for maintenance and mortgages etc.

[davidhenderson]

It sounds to me like a no-win situation. With rent control you have a fewer apartments available. With rent control you have more apartments available to rent but nobody afford them.

[BrutusAlbion]

The best way to keep rents low is to simply increase the supply. Rent controls can only ever function as a temporary bandaid solution to a larger systemic problem. It will stop the bleeding but unless you find a way to stop getting cut you're going to only suffer more injury. Most liberal policies will install rent controls but utterly fail to change the supply therefore only increasing the problem. Conservatives aren't much better but they'll be less likely to install rent controls yet still fail to actually incentivize an increase in supply.

[TheRealInscrutable]

You are making the assumption that government wants to create low rent rates and that less availability is an unintended consequence. What if they are not stupid and just have a different goal in mind? What if keeping availability low IS the goal?

Follow the money. Look at what is done with land instead of rent.

[nathanaeltekalign]

That’s why new construction is made exempt from rent control

[kylethedalek]

What about a social health care system?
Over 60% of bankruptcies are due to health care bills.

[Lolatyou]

TBH, depends on the area IMO.
If you have an unlimited price that a rental unit can charge, it discourages people from selling houses and to just rent it out.
This can cause a spiral of people deciding to rent their houses instead of selling them, which then causes housing prices to go up because fewer people are selling houses because it makes more sense to rent them out.

Just depends on the area, I'm sure some counties would benefit from rent control while others would be hindered by it.

If an area requires more rental units because people don't want to buy houses, then rent control is bad.. If an area is resulting in people renting because purchasing houses is unaffordable, rent control would be better.

[HalFromTartary]

So the people who want to exploit others instead of making a reasonable passive income are stopped. Good.

[vesuvandoppelganger]

Is this video supposed to convince me that rent control is bad?

[katenow]

PS, what are you charging people? I was a landlord for 20 years, and if you were competitive, there are never issues. if I had the money and chutzpah, I would have purchased more property…

[middlesidetopwise]

There are 17 million empty homes in America. There is plenty of availability. The cost is too high.

[GregoryTheGrster]

Can't government provide apartments and rent them at the controlled price? The government has no greed or profit motive, so it can build as many dwellings as are needed.