In May 1976, in a poll in the issue of American Economic review, ninety-eight percent of economists agreed that, “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, in June 1988 issue of Canadian Public Policy reported that over ninety-five percentage of the Canadian economists polled also agreed with the statement. Assar Lindbeck asserted, “in many cases rent control appears to be the most efficient technique presently known to destroy a city, except for bombing.”(Hazlitt H, n.d.)
Economists have shown that rent control diverts new investment, which would otherwise have gone to rental housing toward consumer needs. Rent control leads to housing deterioration, whereas there is fewer repairs and less maintenance. In most cases, tenants are protected by rent control but in some cases, they do not receive no real rental bargain because of improper maintenance, poor repairs and painting. A further consequence is in the deterioration of city revenues, as the value of the property base for taxes continues to diminish. Cities can go bankrupt or cannot continue to supply basic services.
(Block W,2002)
Inhibition of new construction is when rents are forced below the market price, rent control reduces profitability of rental housing and directs investment out of the market and into more profitable markets thus construction declines and existing rental housing is converted to other uses.
Deterioration of existing housing: rent control can lead to a drop in the quality and quantity of existing rental stock, as providers faced with declining revenues maybe forced to substantially reduce maintenance and repair of existing housing.
Reduced property tax revenues: rent control also reduces the market value of controlled rental property, both in absolute terms and relative to the increase in property values in unregulated markets. Implications of this reduction can be significant, as taxable assessed rental property values decline relative to unregulated property.
Rental control promotes housing discrimination by eliminating rents as the basics of choosing among potential consumers, rent control opens the door to discrimination based on other factors. For example: rent control forces housing providers to look to income and credit history in choosing among competing consumers, factors which are bias to the selection process against poor and young consumers. (NMHC Corporation, 1996)
Rent control, however, encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants’ equal opportunity to bid for space.
Under conditions of monetary inflation or real housing shortage, rents would rise just as surely if landlords were not allowed to set an asking price, but were allowed merely to accept the highest competitive bids of tenants. The reduction in housing caused by rent control also can slow down the process of racial and economic integration of many communities, by limiting the opportunities of certain classes of consumers to reside in rent controlled communities.(Sheffrin S, 2003)
In conclusion, the pressure for rent control comes from those who consider only its imagined short-run benefits to one group in the population. But when we consider its long-run effects on everybody, including the tenants themselves, we recognize that rent control is not only increasingly futile, but increasingly destructive the more severe it is, and the longer it remains in effect. Economists have long considered rent control a failed housing policy. As Dr. Anthony Downs, a leading economist and nationally-recognized expert on housing policy, concluded in a recent report on rent controls, other than during wartime, the economic and social costs of rent control "almost always outweigh any perceived short-term benefits they provide." He also found that rent controls are both "unfair to owners of rental units and damaging to some of the very low income renters they are supposed to protect." Given this fact, reliance on rent control as a solution to the problem of housing affordability cannot be justified.
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