Economics 101 How Did These Idiots Get Elected To Public Office With No Understanding Of Economics

OpinionJournal: New York’s Self-Destruction: By vetoing rent control, Pataki can help save the city.
That state legislators and other officials can get elected without even a rudimentary understanding of economics amazes me. If it were up to me they would be required to at least take a course in price theory — microeconomics — or in its place, be required to read this book.

Rent control defies every known theory of economics short of Marxism — yes, that idiot Marx was actually an economist and probably the worst in history judging from his record. You need no more than a supply and demand curve to see that placing a ceiling on prices that’s lower than the market price will lead to shortages. And shortages don’t have to manifest themselves as buildings being knocked down, they can simply be poorly maintained. Landlords will refuse to do improvements because they have no hope of recovering the investment.

Also note that when Cambridge removed price controls, as it says in the column, there weren’t throngs of little old ladies getting evicted from their homes. Instead, a construction boom took off and there’s no reason to believe New York would be different. In fact, removing rent controls could be just the shot in the arm the city needs to get back on its feet again.

“Rent control appears to be the most efficient technique presently known to destroy a city–except for bombing,” Swedish economist Assar Lindbeck observed in a 1972 book. Rent control is a big cause of the city’s chronic financial mess, a huge cause of its notorious housing scarcity and a neat illustration of its political unreality. Ending it would be a big step toward unleashing a construction boom and boosting its economy to offset destructive tax increases.

New York has maintained price controls on rent since World War II, and as it took over buildings abandoned by landlords at one point it found it owned 70% of Harlem. The Koch administration borrowed $5.1 billion to rehabilitate abandoned buildings and return them to the market. The program has been largely successful, but interest on the borrowings costs $350 million a year, plus $100 million to operate the rehabilitation department. The city also has huge programs for public housing, publicly assisted housing and the homeless. William Tucker, the writer who has studied the costs most closely, estimates the direct costs of rent control at $2 billion a year, exclusive of the effect of shrinking the property tax base.

Rent control, in addition to bewildering zoning regulation and corruption in the building trades, has inhibited construction in the city. During the recession of 1990-91, the city actually lost more housing units than it gained. During the subsequent boom, its best year was in 1998, when developers completed 11,432 units and rehabilitated 6,967. However, household formation exceeded housing increases in every year of the decade, the peak reaching 44,700 in 2000. Prior to rent control, builders regularly completed 30,000 units a year, or 90,000 at the peak in 1927. Price controls do not apply to new, nonsubsidized units, but do continue as an overhanging threat, so that the construction that does take place is concentrated in luxury development.

Price controls on housing, as with any other commodity, produce shortages and push up prices on whatever supply is exempt. In New York City, only 30% of rental units are exempt, so their rents naturally soar, and high prices are then used to justify price controls. Controls also reduce mobility in housing as long-term tenants stay with good deals even when they no longer need as much space. In a particularly lunatic provision of the New York law, tenants are allowed to pass along their tenant rights under rent control to relatives.


Today the institute will release a second Pollakowski study of the effects of terminating rent control in Cambridge, Mass. Harvard’s home regulated rents from 1971 to 1994, when the practice was precipitously terminated by a statewide referendum. “Remember the tidal wave of evictions, the masses of poor senior citizens kicked out of their homes?” Boston Globe Columnist Jeff Jacoby wrote. “Of course you don’t. It never happened. There was no crisis.” Mr. Pollakowski found that Cambridge deregulation was followed by a boom in housing investment. Mr. Tucker says that 50-years of pent-up housing demand is an “ace in the hole” in reviving the city.

The evidence is clear: use rent control and investment in housing dries up, buildings are abandoned and, next thing you know, you’ve got Elvis singing In The Ghetto.

For additional reading on this subject look here.

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