The San Francisco Chronicle reports that a growing number of cities in the bay area are passing rent control laws. Those laws, the headline states, could be a “turning point for the housing crisis.” However, the housing crisis is a supply shortage, and rent control doesn’t build housing.
Housing activists believe that more controls and restrictions on landlords will somehow solve the housing crisis. But the solution to a supply shortage is not more shackles on the producers. The solution is more freedom for producers. In regard to housing, that means abolishing zoning (and particularly single-family zoning), repealing rent control laws, and all of the regulations that make it more difficult and expensive to provide housing.
Price controls—and rent control is a price control—do not stimulate production. Price controls discourage production because the profit potential is arbitrarily limited. Individuals will not produce when their profits are limited, not by their ability to produce values, but by government dictates. “Protecting” tenants through measures such as rent control only exacerbates the problem.
Many housing activists claim that the housing crisis isn’t a supply shortage. There is plenty of housing, they argue, but that housing isn’t affordable for low-income households. The solution, they claim, is to make the existing housing more affordable for low-income households through rent control. This argument ignores a basic economic truth: for any product or service, there are different market segments.
For example, a wide range of automobiles are available. There are luxury automobiles like the Lexus, and economy vehicles like the Volkswagen Jetta. Nobody suggests that the government impose price caps on automobiles for the purpose of making the Lexus more affordable for low-income households. We recognize that individuals have different needs, desires, and budgets regarding transportation. Because automobile manufacturer are relatively free, they can produce a range of products to satisfy nearly every market segment.
If housing producers were free of government’s strangling controls and regulations, they too would produce a range of products to satisfy nearly every market segment. As it is, absent government subsidies, regulations make it impossible to build housing that is affordable for low-income households.
Rent control doesn’t build housing. Housing producers do.