Friday, February 5, 2010

Rent Control as Economic Stupidity

by Walter Block

“In many cases, rent control appears to be the most efficient technique presently known to destroy a city except for bombing.”

“Rent control has in certain western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”

“That great sacred cow – Rent Control – is a textbook case of Economic stupidity.”
It is no surprise that free market economists would oppose rent control, root and branch. It is, however, a bit “man bites doggish” that even economists with sterling left wing credentials would oppose it too, and about as bitterly. The sources of those three quotes? Assar Lindberg, from The Political Economy of the New Left”; liberal Swedish economist Gunnar Myrdal; and the New York Times’ own Paul Krugman.

Why the consensus? It’s because this law, which supposedly helps impoverished tenants, actually does the opposite.

Every so often, saner elements in government try to repeal rent stabilization’s stranglehold on New York City. But they inevitably fail. Just this week, two frightening developments further cemented its place. First, Tishman Speyer walked away from their investment in Stuyvesant Town, mainly because it was not allowed to increase rents. Second, a State Supreme Court ruling said that some 300,000 rent-stabilized residents had their rents “illegally” raised. We’re talking an extra $45–$85 a month, on rents under $1,000.

Wouldn’t we all like such protections? Alas, the court ruling simply illustrates the benefits certain New Yorkers get from winning the housing lottery – and how the rest of us pay for it.

If you’re just moving to New York City, big dreams and ideas in your head, living in Manhattan will cost you, on average, $2,253 a month for a studio and $3,026 for a one bedroom. Pricey. If you’re in the middle class, you’re probably railing against the rich Wall Streeters and greedy landlords who are keeping you from making it in Gotham.

Except the average rent for the city in 2008 was only $950 a month.

How is this possible? Because 48% of rental housing is stabilized, meaning increases are regulated, and another 2% are rent-controlled, meaning increases are almost non-existent. Another 14% of units are public housing and other projects.

Read the rest of the article here.

An afterword by Walter Block:
An editor from the New York Post asked me to publish with him an 800-word column on rent control. Well, at least that is initially what I thought he wanted. However, I learned during the process of batting the piece back and forth, that while he did indeed desire a general article on this subject, he wanted it linked with recent goings on in the Big Apple on this topic. Also, he required some statistics on this subject, and I had not originally included any. So, nothing loath, I changed my first draft of this piece to suit his desires. (One lesson I learned from Murray Rothbard, as his associate editor on the old Review of Austrian Economics, is to be willing to compromise on anything, as long as it is non-substantive. And, certainly, adding some data, and linking an article to current events hardly violates libertarian or Austrian principles.) Also, my initial draft was a bit longer, okay, okay, a lot longer than the 800-word column he finally ran with (it was almost 1500 words). Further, this editor changed the title; he gave it quite a bit more pizzazz than I did. I guess that’s why they pay him the big bucks. (On a more serious note, I think he did a magnificent job of tailoring what I had originally written to better suit his own readership.)

Lew Rockwell expressed interest in publishing, also, the longer unexpurgated version of this essay. There is quite a bit of overlap between what appears at LRC, and what was actually published by the New York Post. But, hopefully, there is enough material that appears above, that did not appear in that leading New York City newspaper, to make the publication of this longer version still worthwhile. What you see at LRC, then, is the first draft of the article I originally sent to the editor, in response to his invitation.

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