I’m always prowling for new breaking stories that allow people entry points into the cell membrane of economic wisdom.
Turns out that on January 19, Senator Bernie Sanders (I-VT) offered a great one.
Hannity.Com just alerted visitors to the “this-is-not-a-joke” news that on the 19th, Senator Sanders Tweeted his support for “national rent control”, which, one can surmise, he believes will lead to a profusion of rainbows in the sky and “affordable housing”.
Specifically, Bernie wrote:
This is a crisis. We need national rent control.
Sanders’ comment comes in response to a Tweet and a story from The Economist claiming that, “The median American rent payment rose 61% in real terms between 1960 and 2016 while the median renter’s income grew by 5%.”
So, thanks to Bernie and The Economist, let’s dive in.
First, there is no contextual malignity in the two stats offered by the publication. There isn’t even necessarily a tie between the rental costs and median renter’s income. Rental costs are dependent on supply and demand, and both supply and demand can include many changeable factors.
To put it in different terms, both millionaires and paupers purchase pens. The price of the pen is dependent on the demand, competition in the market, and the costs associated with manufacture, delivery, etc. If a large portion of wealthy pen-users drop them for tablet-scratchers on electronic devices, the price of pens would drop, suppliers would decrease their supply and the workforce dedicated to that supply, and the price would eventually reach a new, lower equilibrium point. Likewise, if the United States economy is seeing more home purchases over the years (purchases that come partly due to more jobs, but also due to changes in the home market and loans, government manipulated or otherwise), more wealthy and median-income people will buy, fewer will rent, and the composition of the renting demographic will be tilted more towards the less affluent.
This shouldn’t be a problem. Within that new demo, free-market suppliers looking for profit will continue to cater to demand, and if there is a profit to be found, they will invest to increase supply, which should bring down prices.
To put it another way, McDonald’s doesn’t stop catering to hungry people just because a “hoity-toity” eatery opens in town.
But what happens if there’s another force involved? A force using FORCE to retard the growth of supply in rental properties?
Clearly, prices for rental properties don’t decrease as they should, because supply has been prevented from increasing. A shortage occurs. In fact, prices could actually increase if demand slowly rises.
Which is a major problem when it comes to rental properties in the US. Reports abound about political restrictions on rentals, be they zoning statutes, restrictions on the number of rentals on a parcel and number of people per space, special interest groups trying to stop sales of old property that might be turned into rental space, or by outright bans.
As Reason has reported, in San Francisco, politicians are so rabid about making sure only the government provides housing in the form of its immoral, tax-theft-subsidized ghettos, they blocked a property owner from transforming his laundry-business into a multi-story housing unit. And, get this, the argument the city offered was that the building would “cast a shadow” over a neighboring public school playground – a playground that was already smothered in the umbra of its own shade trees.
The local level manipulation of housing, and its attendant smothering of rental growth, is so prevalent across most major US cities that it almost seems as if the politicians actually WANT to stop the private supply so that they can step in as the saviors with more government-run residences.
…Which brings to mind economist Harry Browne’s adage:
The government is good at one thing. It knows how to break your legs, and then hand you a crutch and say, 'See if it weren't for the government, you wouldn't be able to walk.'
And, of course, that crutch is purchased with your money.
And Bernie’s answer? Well, rent “control” is about the worst idea one might propose.
First, at it’s most basic, so-called “rent control” is a really a threat. It’s one group of people telling everyone else that they may NOT use the property they own in the peaceful way they desire. All other considerations are unnecessary if one simply considers the unethical nature of this euphemistically named act of political aggression.
But if one does want to go further, he or she can look at the practical economic consequences of rent “control” statutes, and, simply put, they are abysmal.
Rent “control” – or politicians telling property owners how much they can charge for a peaceful transaction with a willing customer – is a disincentive for any expansion of supply. In order for suppliers to enter a market, they need a price signal to tell them there is increased demand. That price signal is an increased price. Increased demand leads to current owners being able to raise their prices, which leads to new market entrants hopping in with more rentals, which leads to attenuation of the prices and lots more rental properties for everyone.
But Bernie doesn’t seem to get it. Instead, he promotes the fantastical notion of imposing an unconstitutional national “rent control” paradigm on people, which will smother any incentive there might be for new rental builders to offer more supply.
Additionally, it damages the incentives for current owners to invest in upkeep and maintenance, or to add accoutrements that might beautify, because their margins are kept artificially repressed by political commands.
To cap it off, rent control hands tenants an artificial political advantage over property owners. This inspires them to stay longer in a property than they might stay if the market were allowed to respond to demand, making them “vested” in an area for political, artificial reasons, rather than real market reasons. This has profound effects on the ability of urban areas to improve and grow.
There’s something almost laughable in Sanders’ retrograde call for national “rent control. The abysmal record of this “control” is so well-documented, one has to wonder if he’s dropped the pastime of reading.
In May of last year, economics professor David R. Henderson offered readers a glimpse into the tragically destructive sweep of “rent control” across Vietnam.
He even quoted the socialist Swedish economist Assar Lindbeck, who admitted:
In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.
And, as Reason’s Veronique De Rugy notes, 37 state legislatures have already prohibited city politicians from engaging in this destructive activity.
It seems that Bernie’s not looking at economic reality.
But is that a surprise, given that he’s praised communist Cuba and the former Soviet Union?
You can be the judge. One thing is for sure, the laws of economics have already adjudged “rent control”, and it’s ethical and economic poison.