How rent control actually hurts both tenants and landlords

Demand curves slope in a downward direction.  This means that the higher the price, the less of an item, or good, or service, will be sought.  The more road blocks, hurdles, thumbtacks placed in the way of any given action, the less likely it is to occur.  Economists do not agree on many things, but on this insight, there will be nary a dismal scientist who will not acquiesce.

Yet there are several public policies in place that are incompatible with this commonsense understanding.

Consider first residential rental units.  New York City, San Francisco, Cleveland, and another half-dozen major cities are now offering free legal advice to tenants threatened by eviction.  At present, this benefit is afforded mainly to those accused of a crime who cannot afford a lawyer, on the grounds that such legal aid is needed to provide equal justice for rich and poor alike.  Now it is being extended to renters.

Some commentators even think this strengthens the hands of tenants and reduces homelessness.  They reckon, however, in the absence of downward-sloping demand curves.  They think only in terms of immediate, not long-term effects. Yes, give them free legal advice, and fewer people will be evicted — one point for the tenant.

But look at this from the point of view of the landlord, or the would-be investor in residential real estate.  It now becomes more difficult to evict non-paying or obstreperous tenants.  Will they be more or less likely to build, upgrade, repair apartment dwellings?  To ask this question is to answer it.  They will tend to seek greener pastures elsewhere.  They will try to convert extant dwellings into condominiums, commercial space, etc.  But with less residential housing available, the situation of renters will become more dire, not less.  Remember that downward-sloping demand curve: with a lowered supply, rents will rise, not fall, and a given square footage will accommodate fewer people, not more.  More homelessness, here we come.

The same analysis applies to other efforts to "help" tenants.  Under economic freedom, landlords may demand as much as several months' worth of security deposits.  This will indemnify them if there are damages.  It will also protect them from bankruptcy, since it typically takes months to evict non-payers.  This problem arises especially during the Christmas season; judges are particularly reluctant to toss people out onto the street during these times.  Curiously, they do not at all have the same attitude regarding robbers during December.  But what are non-paying tenants other than thieves of accommodation?

Next, consider the labor market.  In France in particular, and other countries as well, the law makes it more and more difficult to fire employees.  The authorities want to protect workers, and they also do not relish increased unemployment statistics.  This "remedy" of theirs also fails to take into account downward-sloping demand curves; it looks only to the immediate run, avoiding long-run effects.  For when barriers are placed in the way of laying off wage-earners, less of it will occur.

How do rational profit-seeking entrepreneurs react?  Why, by not hiring workers in the first place!  Instead of offering full-time employment, they take on only part-timers.  Firms resort to contracting out to smaller firms, or to the individuals themselves.  The latter take on what are called "gigs" so as to escape these unwarranted legislative enactments.

These laws are also discriminatory.  Workers can quit with no by-your-leave.  Unless and until employers can sever relationships with employees as easily, justice, to say nothing of full employment, will not prevail.

If society really has the best interests of tenants and employees, it will not in effect charge higher "prices" for them.  The very opposite policies would be pursued.

Demand curves slope in a downward direction.  This means that the higher the price, the less of an item, or good, or service, will be sought.  The more road blocks, hurdles, thumbtacks placed in the way of any given action, the less likely it is to occur.  Economists do not agree on many things, but on this insight, there will be nary a dismal scientist who will not acquiesce.

Yet there are several public policies in place that are incompatible with this commonsense understanding.

Consider first residential rental units.  New York City, San Francisco, Cleveland, and another half-dozen major cities are now offering free legal advice to tenants threatened by eviction.  At present, this benefit is afforded mainly to those accused of a crime who cannot afford a lawyer, on the grounds that such legal aid is needed to provide equal justice for rich and poor alike.  Now it is being extended to renters.

Some commentators even think this strengthens the hands of tenants and reduces homelessness.  They reckon, however, in the absence of downward-sloping demand curves.  They think only in terms of immediate, not long-term effects. Yes, give them free legal advice, and fewer people will be evicted — one point for the tenant.

But look at this from the point of view of the landlord, or the would-be investor in residential real estate.  It now becomes more difficult to evict non-paying or obstreperous tenants.  Will they be more or less likely to build, upgrade, repair apartment dwellings?  To ask this question is to answer it.  They will tend to seek greener pastures elsewhere.  They will try to convert extant dwellings into condominiums, commercial space, etc.  But with less residential housing available, the situation of renters will become more dire, not less.  Remember that downward-sloping demand curve: with a lowered supply, rents will rise, not fall, and a given square footage will accommodate fewer people, not more.  More homelessness, here we come.

The same analysis applies to other efforts to "help" tenants.  Under economic freedom, landlords may demand as much as several months' worth of security deposits.  This will indemnify them if there are damages.  It will also protect them from bankruptcy, since it typically takes months to evict non-payers.  This problem arises especially during the Christmas season; judges are particularly reluctant to toss people out onto the street during these times.  Curiously, they do not at all have the same attitude regarding robbers during December.  But what are non-paying tenants other than thieves of accommodation?

Next, consider the labor market.  In France in particular, and other countries as well, the law makes it more and more difficult to fire employees.  The authorities want to protect workers, and they also do not relish increased unemployment statistics.  This "remedy" of theirs also fails to take into account downward-sloping demand curves; it looks only to the immediate run, avoiding long-run effects.  For when barriers are placed in the way of laying off wage-earners, less of it will occur.

How do rational profit-seeking entrepreneurs react?  Why, by not hiring workers in the first place!  Instead of offering full-time employment, they take on only part-timers.  Firms resort to contracting out to smaller firms, or to the individuals themselves.  The latter take on what are called "gigs" so as to escape these unwarranted legislative enactments.

These laws are also discriminatory.  Workers can quit with no by-your-leave.  Unless and until employers can sever relationships with employees as easily, justice, to say nothing of full employment, will not prevail.

If society really has the best interests of tenants and employees, it will not in effect charge higher "prices" for them.  The very opposite policies would be pursued.