African-American and senior households are the most burdened by rent, but fully one third of all households sampled around the country are struggling to afford the basic cost of living, according to United Way. The most rent-burdened families typically have less than $400 to cover a financial emergency. They are downwardly mobile. What to do about the crisis? The U.S. Senate is considering a proposal to subsidize rent-stressed tenants with tax credits. And California voters are poised to strengthen rent controls in November. Ah, rent control, the old bugaboo. California’s Proposition 10 proposes to loosen state-mandated restrictions on local rent control ordinances. Special interests on both sides have spent $50 million on broadcasting scary soundbites based on competing theories. According to a main Prop 10 proponent, Coalition for Affordable Housing... “People are tired of the false promises of ‘build build build’ solutions to this housing crisis that only seek to fill the pockets of for-profit developers. Entire communities are being wiped out while Wall Street landlords rake in the cash – we need to stop the bleeding first [with more rent control] before we can do anything else.” Opponents of Prop 10, on the other hand, blame decades of rent control in San Francisco, Los Angeles, Santa Cruz, and other municipalities as the cause of the rent explosion. According to free-market think tank R Street Institute...
“Rent control destroys housing markets because it takes away the incentive to build new apartments, reduces the willingness of landlords to upgrade and maintain their properties, and encourages tenants to squat indefinitely in their below-market units.” Both these campaign positions rely on what economist Paul Krugman characterized in the New York Times as “zombie arguments – that is, arguments that have been proved wrong, should be dead, but keep shambling along because they serve a political purpose.” In that instance, Krugman was talking about unproveable arguments against affordable health care, but arguments for and against rent control are also zombified. Sadly, Krugman was himself chewed by a zombie argument. In 2000, he wrote, “The analysis of rent control is among the best-understood issues in all of economics.” Economists agree that “a ceiling on rents reduces the quality and quantity of housing.” Krugman blamed the high rents of that time in San Francisco on “a technology-fueled housing boom colliding with a draconian rent-control law.” Zombie alert! Contra Krugman, San Francisco’s rent regulations were not (and are not) “draconian,” nor were price controls the cause of the shortage. The economic argument for placing price controls on commodities is to stabilize hyper-inflating markets in which demand has overtaken supply. It is a textbook error to make emergency price controls permanent, as that will diminish the supply.
American Consequences 61
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