Three Fallacies of Rent Control; R. Batemarco

THEFREEMAN IDEAS ON LIBERTY Three Fallaciesof Rent Control by Robert Batemarco F rom New York to Boston to Toronto, rent control is under attack. Not surprisingly, beneficiaries of this legislated plunder of providers rental housing are sparing no effort to maintain their unmerited privileges. In so doing, they resort to a wide variety of falla cious arguments. Three in particular stand out and will be discussed here. 1. "Rent control may not be needed every where, but my city is a special case." Whole schools of" economic" thought have formed around the idea that all economic principles are special cases with no universal validity. This notion is actually an attack on the very status of economics as a science. As Ludwig von Mises noted, an attack on eco nomics itself is the only way to undermine the irrefutable case that economic analysis makes against all kinds of interferences with the market. "If one tries to refute the devastating criticism leveled by economics against all these interventionist schemes, one is forced to deny the very existence ... of a science of . ,,1economICS....

The "special case" argument has been used by partisans of rent control. New York City's rent control regulations are actually codified in legislative enactments of New York State. Recent attempts to weaken, if not eliminate, rent control regulations have been spear headed by upstate lawmakers. This led New York State Assembly Speaker Sheldon Silver, who represents a Manhattan district, to quip in reference to its housing situation: "I would Dr. Batemarco is director of analytics at a marketing research firm in New York City and teaches econom ics at Marymount College in Tarrytown, New York. suggest that New York City is a lot different from Troy.,,2 The implication is that while rent control may not be necessary and effec tive in Troy, it works wonders for New York City. Yet one of the hallmarks of economic law is its universal validity. In this case, whenever government prevents the charging of prices high enough to clear the market, shortages will occur. This is true in New York, in Troy, or in Timbuktu, regardless ofwhether the market is for rental housing, gasoline, or medical care.

2. "A free market would make housing unaffordable for most people." The longevity of rent controls has worked to the advantage of its supporters. Most New Yorkers have lived with rent regulation for so long that they have no conception of how the market sets rents in the absence of con trols. For the lack of both experience with a free housing market as well as theoretical understanding, they are willing to believe the most ludicrous "horror stories." For instance, Speaker Silver suggests that repeal of rent stabilization lawswould drive the middle class out of the city,asserting that "If the rents were tripled it would drive tenants out of the city.,,3 My impression is that the period of rent controls has itself been characterized by a massive outflow of middle-class people from the city, which, as theory tells us, is no accident. The very logic of rent control is to make it possible for lower-income people to compete more successfully with the middle class for the limited stock of rental housing.

Furthermore, how can anyone know that rents would triple? There was no tripling of oil 330 prices when petroleum was decontrolled. In deed, the fact that rents are not triple in similar lodgings in neighboring Nassau or Westchester counties, or in NewJersey, or for uncontrolled units within the five boroughs would keep rents from rising to anywhere near those levels. Moreover, had all New York City rents been held to as little as one-third of market levels, the harm done would have been even greater than it in fact was. In Toronto, where an entrenched rent control law is also under attack, the scare tactics are equally ludicrous. One advocate of Ontario's rent regulations went so far as to assert that a free market would make housing unaffordable for most citizens. If this were true, it would mean that landlords would rather let their property sit idle and generate no income at all than charge affordable rents which would yield them a return on their investment. In a normally functioning market affordable rents would be profitable. The only situation inwhich theywould not be profitable would be if government provided massive subsidies for the construction and mainte nance of rental housing and then suddenly cut those same subsidies off. Such subsidies actuallywould induce suppliers to make more housing services available than consumers could afford. Their cessation would permit consumers to reassert their preferences for less housing and more of other goods and services. As a result, the rents they would be willing and able to pay would no longer yield a profit to landlords. Clearly, however, this would be an example of government failure, not market failure.

The idea that there is something sacrosanct about current rents has also permeated the consciousness of most tenant advocates. This belief is predicated on the notion that there is a "just price" independent of all market considerations. Such a view, which reflects lack of understanding of the need for markets to adapt to change may have been under standable (if no more valid) during the Mid dle Ages when it was developed. However, given the dizzying pace of change in the twentieth-century United States, there is no excuse for it. If anything, its espousal is more 331 an emotional reaction against such change than a reasoned response to it. 3. "Tenants' wishes should be given pre cedence over landlords' rights." "Tenants' rights" have often been invoked in support of rent control. The 1994 referen dum abolishing rent control in Massachusetts was characterized by one rent control advo cate as "the shattering of the tenant rights movement.,,4 Legitimate rights, whether those of tenants or of anyone else are all derived from the right of people to dispose of their property in anyway they see fit that does not infringe upon the equal right of others to do the same.

An agreement to rent property is a volun tary exchange. Neither party to that exchange has a right to terms that the other does not agree to. Yet precisely such a right is con stantly asserted by rent control advocates. Thus, we hear people such as tenant "activist" Bill Rowen saying that without regulation, "Any landlord in New York who doesn't want a tenant would immediately move to do something about it."s While such action may not be fair in many cases, in a free society it would be wellwithin the rights of anylandlord not bound by contractual arrangements to the contrary. Tenants have no more right to stay permanently in an apartment of a landlord wishing to make a better deal with someone else than an employee has to be kept on the payroll by an employer who no longer findshis services necessary. Another complaint which is supposed to be a persuasive argument in favor of rent control comes from tenants who say they, "couldn't live in Manhattan without rent control.,,6 Since when is livingin Manhattan an inalien able right? If it is, do non-renters have a similar right? While I would not exercise an inalienable right to live in Manhattan if I had one, I would much prefer to live in Chappa qua or Irvington than Peekskill where I do live. Does that desire translate into a right?

Hardly. In a market order, no one has the right to consume more than he produces. If I wish to consume more housing services by living in a more expensive area, I basically have two choices: consume less of something else or produce more, by taking a second job, 332 THE FREEMAN • JUNE 1997 working hard enough to get promoted on my current job, or switchingto a fieldwhere what I produce is more valuable to consumers. The frenzied insistence of so many that they deserve better accommodations without tak ing any of those steps shows how deeply ingrained the desire to get "something for nothing" is in our day and age. The nature of reality is that we can't always have everything we want. Tradeoffs must be made and markets, housing markets no less than others, make those tradeoffs clear. In deed, the fact that markets tell us that some of the tradeoffs required mean that some things we want are unobtainable goes a long way toward explaining the antipathy of so many toward markets. Realizing that there is no Santa Claus (who never requires trade nffs) is a big, if painful, step in the maturation process from childhood to adulthood. For believers in rent control, then, it's time to grow up. 0 1. Ludwigvon Mises, "The Historical Setting of the Austrian School of Economics," in Bettina Bien Greaves, ed., Austrian Economics: An Anthology (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, 1996), p. 66.

2. Gregg Birnbaum, "Battle Pits City against Upstate," New York Post, December 6, 1996, p. 4. 3. Dan Jamison and Gregg Birnbaum, "Rent Laws Face Eviction Fight," New York Post, December 6, 1996, p. 4. 4. Lester Lee, "The Shattering of the Massachusetts Tenants Rights Movement," New England Peacework, 264, June 1996. 5. Jamison and Birnbaum, p. 5. 6. Frankie Edozien and Bryna Taubman, "Both Sides Have Their Horror Stories," New York Post, December 6, 1996, p. 30. Had enoughof the liberalbiasin the popularnewsmedia?Had enoughof "donating" an increasingamountofwhatyou earntosupportinefficient,bloatedsocialprograms? Had enoughof watchingour culturedegeneratebeforeyoureyes? Do you feel likea strangerin an increasinglystrangeland? Ih'SocialCritic Name _ Mail to: The SocialCritic Address 31121 MissionBlvd., Suite301 City State__ Zip __ Hayward,CA 94544 If you answered "yes" to any of the above questions,then you will be interestedin a bold, intelligentnew magazine,The SocialCritic.No, you won't find "inside-the-Beltway"

gossip in this magazine.What you will find is vital social and political commentary by great social critics such as Dr. Charles Baird, Director of The Smith Center for Private EnterpriseStudies. The Social Critica vital conservativeresource now in bookstores acrossAmerica. http://www.socialcritic.com ------------------------------IntroductoryOffer: 14Ofo off the newsstandprice. One-year(six issues)subscription:$18.00 Pleasemake checkor money Two-yearsubscription:$ 34.00(19% off the newsstandprice) orderpayableto: The SocialCritic THEFREEMAN IDEAS ON LIBERTY ShouldProfitsBe Sharedwith Workers? by Dwight R. Lee "XJhen most people argue that firms should " share profits with workers, they are not interested in the general distribution of busi ness receipts. 1 Rather, they are pointing to firms experiencing exceptionally high profits and claiming that fairness requires that most of those profits be passed on to workers. For example, management consultant Alfie Kohn states, "If a company has had a profitable year, I see no reason those gains should not be distributed to the employees; after all, their work is what produced the profits.,,2 At a superficial level, it may seem only right that when a firm is doing well, its good fortune should be shared with the workers who made it possible. And, indeed, workers do benefit when their firms are profitable and expanding because their jobs are more secure and op portunities for promotion are greater. But shouldn't firms making high profits directly share some of those profits with their workers by increasing their wages much more than in leaner times? Workers and their union rep resentatives are frequently quick to use high profits as justification for demanding large wage increases, but is it wise to acquiesce?