Rent Control Is Harmful to Housing Markets

November 4, 2013

At a recent Atlantic Media panel on global urban issues, Amanda Burden, New York City's planning director, discussed how challenging it has been to make housing affordable in that city. "What we haven't figured out," she said, "is the question of gentrification." Her term referred to the displacement of New York's poor residents by the professional class that is moving into Harlem, certain neighborhoods of Brooklyn, and elsewhere. This has increased rents, uprooting many households and sending people in search of cheaper neighborhoods, sometimes outside the city altogether, says Scott Beyer in National Review.

What the term really represents is government's failure to let capitalism function properly, based on changing consumer demand. The main problem is zoning.

  • Originally meant to separate industry from residences, zoning regulations now control everything from a given building's design to its air rights to the number of units it may contain.
  • Meanwhile, the housing that zoning does allow is faced with substantial barriers. New developments must pass through the planning commission, the city council and often-reactionary community boards, and undergo environmental and code reviews that last years.

To address this, officials have imposed various price controls on developers that practically every economist -- from Milton Friedman to Paul Krugman -- agrees are counterproductive.

  • Rent control has led to widespread apartment under-maintenance by landlords who see minimal potential profit.
  • Requirements that developers receiving height bonuses provide affordable units, so as to be "inclusionary," force them to either raise prices on market-rate units or demand government subsidies, to cover losses.
  • Both measures discourage supply: Rent control does by preventing tenant turnover, thus delaying the replacement of old buildings with new ones; affordability mandates do the same by lessening profits, a strong recipe for inaction.

The solution would be simply to allow more housing -- an arithmetical notion that officials either don't understand or don't implement owing to political pressure. When communities do accept housing growth, they usually do so only while agreeing to some degree of government oversight. Even if they recognize the problems this creates, they don't seem to think that unleashing the free market is the solution. Rather, free-market approaches are as foreign and untested in today's New York as socialism is in the conservative Sunbelt.

Source: Scott Beyer, "Government-Inspired Gentrification," National Review, October 29, 2013.

 

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