Self-Perpetuating Rent Control

May 15, 1950

President Truman has made his annual plea to Congress to extend rent control for just “another year.” But if his arguments are sound we should logically prolong rent control indefinitely. “Until supply is near enough to demand,” he says, “so that the forces of competition will again operate effectively to protect the tenant, rent control should continue.” This puts the cart before the horse. If the forces of competition were really allowed to operate they would bring rents to a level where supply and demand would balance.

“Supply” and “demand” are meaningless terms except in relation to a price. It is precisely the function of price to bring supply and demand into balance. As long as rents are held arbitrarily below the level to which competitive bidding among renters would bring them, there must be a “shortage” of housing. Rent control perpetuates the very problem it pretends to solve.

It is the strange paradox of rent control that the very dislocations it brings about are triumphantly cited as arguments for its prolongation. “A sudden and simultaneous removal of rent controls,” the President tells Congress, “would precipitate a wave of exorbitant rent increases.” (He nowhere says what he thinks an unexorbitant, or reasonable, increase would be.) “Such increases,” he continues, “would seriously reduce the purchasing power of millions of families.” They would also, of course, increase the purchasing power of other families by an exactly equal amount. This correlative fact he never mentions.

Suppose, for a moment, that clothing prices, instead of rents, had been held down until now to 23 percent above the prewar (1935–39) level, instead of being permitted to rise in a competitive market, as they have, to 85 percent above. If anyone were then to propose that such clothing price control now be ended, it would doubtless be argued in reply that this was premature, because (1) a serious clothing shortage still existed (as under such imagined stiff price control it certainly would), and (2) that if controls on clothing prices were suddenly and simultaneously removed, it would precipitate a wave of price increases averaging perhaps 50 percent, which would seriously reduce the purchasing power of millions of families. The argument could be made with even more force if similar controls had arbitrarily held down food prices.

A control of any sector of the economy, in short, becomes an argument for its own perpetuation. When we turn to a generally controlled economy, hardly anyone has the courage to argue for freedom in any one sector because of the obvious dislocations this would bring with the controlled sectors. This is strikingly illustrated in an analysis of British rent control by F.W. Paish in the April issue of Lloyds Bank Review. Professor Paish finds the British Rent Restriction Acts a “lawyer’s nightmare.” They create inequities between tenant and tenant, tenant and landlord, and above all “between those who are lucky enough to have rent-restricted houses and those who have no houses at all.” They impair the landlords’ ability and incentive to maintain premises in good condition: “Much property is being allowed to degenerate into slums.” They erect grave impediments to the mobility of labor. But as a “solution” to all this, Professor Paish puts forward a scheme more complicated and desperate than rent control itself.

Let us not judge him uncharitably. What man dare suggest isolated freedom of rents in an economy whose other main sectors, including foreign trade, food, and wages, are still under controls? It is impossible to have an economy half-slave and half-free.

The best solution to our own problem is to let Federal rent controls lapse now. If there must be another political compromise, let it be one that at least makes a real start toward nationwide decontrol. It might permit landlords to raise rents by a maximum, say, of 15 percent a year for the next three years, and then expire automatically. “Rent control,” says John H.Williams, “may benefit tenants in the short run, but in the long run it merely reduces the amount of housing.”