How Rent Controls Hurt the Poor; A. Brownfeld

How Rent Controls Hurt the Poor ALLAN C. BROWNFELD _ IT IS AN UNFORTUNATE FACT of life that government involvement in the economy is always initiated in "the public interest," and always ends up helping not the "public," but some smaller private concern. Through the Civil Aeronautics Board, government was going to re gulate the air lines in behalf of the American people. The result has been "regulation" against the pub lic interest. Not one new airline has been permitted by the govern ment to engage in interstate com merce since the CAB was created. Air fares in interstate commerce controlled by the CAB - are far higher than air fares within a given state, not controlled by the CAB. It is clear that the regulators regulate not in behalf of the public but in behalf of the airlines. Mr. Brownfeld of Alexandria, Virginia, is a freelance author, editor and lecturer especi ally interested in political science.

150 A similar story is now unfolding with regard to government im posed rent controls in a variety of cities and states. The stated reason for the imposition of rent controls is to protect the poor from exorbi tant rent increases by allegedly "greedy" landlords. The result unexpected by those who have in itiated such programs but viewed as almost inevitable by those who understand the dangers of govern ment attempts at economic mani pulation - is that the poor are finding it difficult to locate a place to live. The rental market is shrink ing dramatically, and men and wo men are being forced out of the homes in which they have lived for many years. A recent front page article in The New York Times (September 28, 1974) discussed the case of Kathleen M. Jackson, a retired college professor who had lived in 1975 HOW RENT CONTROLS HURT THE POOR 151 a quiet old building on Connecti cut Avenue in Washington, D.C.

for 14 years. Suddenly she was given the option of buying her apartment or moving out. Her new landlords, citing a backbreak ing interest rate, an expensive re novation program, and a belief that residential properties are no longer attractive investments, had announced plans to convert their units into condominiums. Miss Jackson never seriously considered buying her apartment. The price would have been $40, 000, which involved a $2,000 down payment and, if she could get a loan, mortgage payments, taxes, and operating expenses of $422.50 a month. The rent had previously been $155. Where she will live in the future is not yet clear. That her situation is becoming com monplace in our large cities is much clearer. By last June 30, according to estimates of the Metropolitan Washington Council of Govern ments, 20,618 apartments in the area had been converted from ren tal to condominium units. There were 572 conversions in 1971, 3,563 in 1972, 8,439 in 1973, and 4,923 in the first half of 1974. New construction, meanwhile, has pro duced more than 24,000 additional units.

In 1970, 87 per cent of the area's new multifamily housing was rental and 12 per cent was con domini urn; this year the figures are reversed: 86 per cent is con dominium and 13 per cent is rental. Restricting the Supply The Wall Street Journal of October 4, 1974 declared that, "In many areas, the conversion of ex isting apartments to condomin iums has ... constricted the sup ply of units available for rental." In its Fall, 1974 survey of 20 ma jor markets, Advance Mortgage Corporation, a large mortgage banking concern and subsidiary of Citicorp, found that the apart ment vacancies in the majority of these areas were continuing to vanish. The Houston market, for example, was one of the softest in the nation in 1973 with about 17 per cent of its units vacant. By late in 1974 the vacancy rate was 9 per cent and falling "at a rate of one per cent a month," accord ing to Philip L. Hendershot, a vice president of Advance Mort gage.

The effect of this state of af fairs may be more serious than many imagine at this time. "Peo ple will have to be doubling up, living more with relatives," says Hobert Sheehan, director of eco nomics for the National Associa tion of Home Builders. The fastest formation of households will be by 152 THE FREEMAN March people in the 30-44 year old age group, reflecting the "baby boom" after World War II. Mr. Sheehan predicts that this group will in crease its rate of forming house holds to about 650,000 annually by 1980 from approximately 225, 000 a year at present. Less Rental Housing Predictions have it that within 20 years half of the nation's pop ulation will live in condominiums - a prediction which implies a shift in housing patterns so vast as to require wholesale conversions throughout the country. David Clurman, an Assistant Attorney General in New York and a lead ing condominium authority, states that, "I think the time will come when most of the soundly built, well-situated buildings in the United States will be converted."

(N ew York Times, September 28, 1974.) The reason for the destruction of the rental housing market - a market of importance to the na tion's poorer families - is clearly government economic interven tion. U.S. News and World Report declared in its June 24, 1974 issue that condominiums were replacing rental housing because "Landlords fed up with tenant complaints and with rent control or the threat of control often find conversion ... an attractive way out." Today, more and more, inves tors regard the risks of rental pro perty as no longer acceptable. Taxes, utility bills and labor costs are soaring, they complain, while rent controls either hold down in come or threaten to do so. In New York City, which has long had rent controls, the plight of the poor in seeking housing is probably the worst in the nation. The rental vacancy rate is below 1 per cent and private building is at a near paralysis. Richard Stone, writing in The Wall Street J our nal in 1971, notes tp.at, "Increas ing numbers of landlords simply give up, abandoning buildings they can neither afford to maintain nor sell at any price. Tenants, left witl) no heat, water or electricity, va cate such buildings in a matter of days. When that happens, blight swallows up whole neighborhoods, almost overnight. Every day there are fewer housing units available in NewYork City than the day before. New York's archaic rent control law keeps the marginally poor whose fortune is improving from moving out of slum neigh borhoods."

Economically Irrational In his important book, A Hu mane Economy, Wilhelm Ropke points to rent control as an exam ple of an "economic policy" which tends to be "irrational, that is, de1975 HOW RENT CONTROLS HURT THE POOR 153 termined by what is 'politically feasible' rather than by what is economically rational and just." He calls rent controls "irratio nal, ill-considered and at the same time unsocial and inequitable." Ropke notes that, "Rent control is really nothing but the protection of one privileged special kind of tenants, those with old leases, at the expense of the landlords and later tenants alike. Yet it persists, and the explanation is no doubt that, on the one hand, it does need a little reflection and intelligence to see its full implications and that, on the other hand, politicians are afraid to denounce this object of cheap demagogy." The entire philosophy of coer cive government controls on rent may satisfy the statist predilec tions of some politicians and eco nomists, but surely adds to the burden of the poor - those they were meant to help.

"Rent ceilings," declares eco nomist Milton Friedman, "cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction. The legal ceilings on rents are the reason there are so few places for rent. Because of the excess of de mand over supply, rental property is now rationed [in New York] by various forms of chance or fa voritism. As long as the shortage created by rent ceilings remains, there will be a clamor for contin ued rent controls. This is perhaps the strongest indictment of ceil ings on rent. They, and the acom panying shortage of dwellings to rent, perpetuate themselves, and the progeny is even less attractive than the parents." (Ne1wsweek, March 22, 1971.) Those who are really concerned about proper housing for the poor should seek to stimulate private investment in rental housing, not retard it. Rent controls do the poor - and all of us-significant harm. It is one more example of the manner in which government intervention in the economy hurts the very people in whose name such inter vention was initially undertaken.

When the politicians finally learn this lesson, some hope for an im provement in the housing market will become possible - but not un til then. ~ IDEAS ON LIBERTY What Rent Control Does A FINAL IRONY of rent control is that the more unrealistic, Dra conian, and unjust it is, the more fervid the political arguments for its continuance. HENRY HAZLITT, Economics in One Lesson 154 ARCH BOOTH IT'S NO NEWS to most people that the nation's electric utilities are having big problems. The price of imported oil has soared,. natural gas is running low, high-sulfur coal can't be burned, low-sulfur coal can't be mined, and the coal that is available is getting more expensive fast. Added to all of the above, the nuclear power plants that were supposed to be helping out by now are far behind schedule. For all of these reasons, the cost of electricity has been going up steeply - and the tempers of consumers have been keeping pace.