Rent Control Violates Basic Principles of Economic Theory

Paper Summary:

This paper examines components of restrictive rent control legislation and its economic and social consequences in America. This examination focuses specifically on rent control applications in New York City and the urban cities of Santa Monica and Berkeley, California. Additionally, the paper discusses how government regulations violate two of the eight basic principles of economic thinking. These basic principles are: (1) incentives matter choice is influenced in a predictable way by changes in economic incentives and (2) economic actions often generate secondary effects in addition to their immediate effects.

From the Paper:

"Rent control is one of the most controversial social welfare programs in existence. In 1943 and after World War II, the federal government enacted rent controls as a "temporary" attempt to combat housing shortages in intensive populated or urban areas and to protect residents from high housing prices. Opponents argue that rent control result in decreased levels of construction, decreased levels of maintenance on existing properties, and abnormal housing vacancies, and is therefore economically ineffective. Some opponents even feel that rent control causes homelessness. Advocates of rent control and rent stabilization see it as a way to ensure the availability of affordable rental housing for low and middle-income urban dwellers. Rent control advocates contend " there was already a housing shortage and that rent-control laws were enacted to keep landlords from taking advantage of the situation by "gouging" tenants" (Sowell, 1999). Many rent control proponents feel that the abolishment of rent controls would result in increased homelessness. "

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