The Vermont Cynic

Resisting rent control

James Simpson

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Due to the high cost of housing here in Burlington, many residents might find the idea of rent control attractive.

But rent control is bad economic policy, and would hurt the people it is supposed to help.

Rent control is a government-imposed price ceiling on rent. Landlords would not legally be able to charge more than the mandated price cap.

However, there is near unanimity among economists that rent control is a harmful policy.

In a 1992 survey of 464 economists published in the American Economic Review, 93 percent of economists agreed that rent control would “reduce the quantity and quality of housing available.”

There are a couple reasons for this.

First, rent control discourages the construction of new, affordable residential property.

When there is a cap on what landlords are allowed to charge, the profit they stand to earn is reduced.

This causes investors to spend their money on more profitable types of property, such as commercial property or housing for the wealthy who are able to buy their property outright.

Second, the reduced profits landlords can earn lead to  deterioration in housing. When landlords cannot charge market prices, they have less disposable income to spend on  maintaining their properties.

When they can’t charge a higher price, there is simply no incentive to improve their properties.

Third, rent control leads to housing shortages.

At a lower rental price, more tenants want to rent apartments, but landlords might only want to rent out their apartments at a higher price.

While some people are willing to pay more than the rent cap, that choice is removed and everyone ends up competing for the same apartments at or below the cap, leading to a shortage.

This mismatch between supply and demand is what leads to decreased residential construction, housing deterioration and housing shortages in rent-controlled markets.

To help alleviate the cost of housing here in Burlington, more housing should be built in order to increase the supply.

One thing that should not be done is artificially controlling prices, because doing so only hurts consumers and the economy.

1 Comment

One Response to “Resisting rent control”

  1. Gavin R. Putland on March 23rd, 2018 10:43 pm

    What’s better than rent controls? A tax on vacant lots and unoccupied housing. While rent controls make it less attractive to supply housing, a vacancy tax makes it less attractive NOT to supply housing!

    If NEW buildings are exempted from rent control in an effort to encourage construction, the stock of rent-controlled housing becomes an ever-shrinking fraction of the housing supply — unless the exemption is only for a limited time, in which case there is less incentive to build! A vacancy tax avoids such conflicts; it unequivocally tends to increase the effective supply of housing and therefore reduce rents.

    Similarly, a vacancy tax on commercial property would reduce rents for job-creating enterprises.

    With a sufficiently heavy vacancy tax, evictions due to foreclosures would be consigned to the past, because the foreclosing bankers, in order to avoid the tax, would want to retain the current tenants or former owner-occupants as continuing tenants. Of course the existing stock of empty foreclosed homes would be immediately made available for rent, as it should have been all along — not just drip-fed to buyers over a period of years.

    Under a vacancy tax, squatters would not count as occupants, because they don’t officially exist. So the squatters (and the nuisances they cause) would be displaced by lawful tenants. The owners would get rent, the tenants would get accommodation, and the neighbors would get peace.

    A vacancy tax would be GOOD FOR REALTORS — who would get more rental-management fees for properties coming onto the rental market, plus commissions from any owners who decided to sell vacant properties.

    And the political trump card… Avoidance of the vacancy tax would initiate economic activity, which would expand the bases of other taxes, allowing their rates to be reduced, so that the rest of us get a tax cut!

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Resisting rent control