Rent Control Makes No Sense

Whenever price controls have been tried in peacetime, they have proved a resounding failure. So we don’t have them anymore, except in one area: residential rents. Rent control makes no more sense than any other price controls, but we continue to have it for one reason and one reason only: There are more tenants (read voters ) than landlords. In this one area of the economy the free market is not permitted to work.

The City of Los Angeles has had rent control since 1979, limiting rent increases to 7% a year. Now the City Council has tentatively agreed on a new ordinance that would tie the allowable rent increase each year to the consumer price index, with a minimum of 3% and a maximum of 8%. By this measure the rent-increase ceiling for 1985-86 would be 4%. Landlords think that this is too low, but they like the idea of using the consumer price index to determine rent increases. Tenants don’t like using the index, but a 4% increase is a lot less than a 7% increase. From a political point of view this is an acceptable compromise. Everybody gets something, and nobody gets everything.

But from a societal point of view rent control is a mistake, with harmful consequences. It inevitably results in the deterioration of a city’s housing. Maintenance of existing places suffers, and builders and landlords shy away from constructing new housing because their return on investment will be artificially depressed. They can make more in other enterprises.

Rent-control supporters point to the plight of elderly people living on fixed incomes to justify artificially holding down all tenants’ rents and all landlords’ profits. It is true that some people may require special concessions, and perhaps there should be subsidies for hardship cases. That might make sense. Blanket rent control does not.