Consequences of Rent Control

July 14, 1947

The President’s scolding message on the new rent-control extension law not only implied that Congress should have kept indefinitely almost every wartime control over rents and building, but that no real housing can be built now except by still further government intervention. Yet Congress needlessly left itself open to attack by drafting this rent-control extension with astonishing clumsiness, even from a purely political point of view.

Though Mr. Truman greatly overstated the case against the “voluntary” rent increase of 15 percent, it is subject to legitimate criticism. Nobody wants a rent increase. The individual tenant, therefore, before “agreeing” to such an increase, is really forced to decide what future Federal or state rent-control laws are going to be, how long they will last, and whether his acceptance of a 15 percent increase now will in fact buy sufficient good will from his landlord to assure him a lower rent in the long run. This “voluntary” provision, in other words, forces the individual tenant to gamble on political and psychological factors he cannot measure.

In exempting hotels, again, while keeping rent controls on other residential space, Congress managed to create an exaggerated impression of how much rents in general would rise if all controls were removed. As long as rents in general are legally held below the market level, existing tenants take advantage of this to keep spread out and to use space less economically than otherwise. By increasing the number of people who are compelled to bid for the uncontrolled space left over, this forces up the market price of such space compared with what it would be if all rents were free.

The biggest political mistake of all, however, was Congress’s refusal to provide that any state that wished to do so could at any time take over rent control within its own boundaries. This would not only have saved Congress from a political headache. It was the only Constitutional thing to do. There is not in the Federal constitution a single clause that could plausibly be interpreted to give the Federal government the right to regulate rents in peacetime. If rents are not essentially local, nothing on earth is local. Houses and apartments do not move across state lines. The Federal rent legislation is a symptom of how little anyone any longer cares about states’ rights or the limits that our Constitution put on Federal powers.

Mr. Truman in his rent-control message denounced the “brazen operations” of the “real-estate lobby.” The truth is that nowhere in the world does the landlord lobby begin to compare in power with the tenant lobby. Since the outbreak of the war rents have been held down far more than any other major item in the cost of living. In this country, compared with the prewar level, foodstuffs have risen 88 percent, clothing 84 percent, house furnishings 82 percent, all items together 56 percent. Rents have done most to pull this average down. They have risen only 9 percent. We can get some measure of the existing discrimination against the landlord if we ask ourselves what the reception would be to a proposal to treat the landlord as well, or even half as well, as other sellers—to permit him, say, to increase rents by as much, or even half as much, as the average percentage increase that has taken place in all other items in the cost of living.

What is not yet understood is that freeing rents from controls would not in the long run even increase the cost of living. It would merely restore the natural market relationships of prices, rents, and incomes to each other. If people once more had to spend the former proportion of their incomes for rent, they would have just that much less monetary purchasing power left over to bid up the prices of all other things. With rents alone arbitrarily held down, workers whose monthly incomes have more than doubled need spend only half the former percentage of their income for housing. This means that old tenants use space more wastefully, so intensifying the problem of those who happen to have been caught outside. The “housing shortage” is itself in large part a product of the very rent control that “protects” us from it.