06 Aug What Rent Control Really Does for Investors
The unavoidable unintended consequences of rent control
In a small book entitled Economics in one Lesson, Henry Hazlitt gave perhaps the best explanation of the unintended consequences of rent control. Following the rigorous analysis he gives in this article, it is with a wry smile that I tell landlords subject to rent control that were it not for the bane of this government price fixing, market rents would in fact be lower in Los Angeles! Yes, by creating shortages in available units, rent control incentives push market rents up. The trick is to find properties with upside and manage them to higher rents IN SPITE of rent control — and I hasten to add: always within the letter of the law and ethical boundaries, of course. But right there you see how government sets up incentives that invite creative ways to overcome the unfair practice of rent control. Let’s not forget that landlords are dealt a pretty unfair hand when the city places a ceiling on rents and goes door to door forcing arbitrary repairs just to make money on the fees it charges for inspecting. In no other business in the country does government leech so extensively on a class of business, while limiting what practitioners may charge for goods or services to amounts below market rates. Rent control also sets up perverse incentives for tenants. Thus we see how a shadow economy of black market rent arises in the wake of rent control.
To read Henry Hazlitt’s article click What_Rent_Control_Does .
For more comprehensive and instructive further reading on the subject of rent control, see this series of articles:
Rent Control Part One: Microeconomics Lesson and Hording
Rent Control Part Two: Black Market, Deterioration, and Discrimination
Rent Control Part Three: Mobility, Regional Growth, Development, and Class Conflict
Rent Control Part 4: Conclusion and Solutions
Wolf Baschung, CCIM, CPM