Rent Control in Alberta? Some old insights from three economists

Since my learned friend Tyler (we are working together on the Calgary chapter of Fair Copyright for Canada) is an aspiring politician proposing to have Rent Control in Alberta, it gave me an excuse to blog briefly about Rent Control very reluctantly.

I will quote from three economists on the topic of Rent Control. Please note that the three economists I pick here can probably be considered to be coming from two opposing views on economics and politics — Nobel Prize winners Milton Friedman and George Stigler on the “right-ish” side, versus New York Times Columnist Paul Krugman on the “left-ish” side. But they are all in agreement with respect to Rent Control. (note: I hate general terms like “right” vs “left” but then I am too lazy to be specific here. So please excuse my “short hand”.)

From Friedman and Stigler’s 1946 “Roofs or Ceilings? The Current Housing Problem” (emphasis mine) (note: see their published JSTOR article here),

The advantages of rationing by higher rents are clear from our example:

1. In a free market, there is always some housing immediately available for rent—at all rent levels.

2. The bidding up of rents forces some people to economize on space. Until there is sufficient new construction, this doubling up is the only solution.

3. The high rents act as a strong stimulus to new construction.

4. No complex, expensive, and expansive machinery is necessary. The rationing is conducted quietly and impersonally through the price system.

And here is Krugman’s 2000 “A Rent Affair” (emphasis mine),

The analysis of rent control is among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial. In 1992 a poll of the American Economic Association found 93 percent of its members agreeing that “a ceiling on rents reduces the quality and quantity of housing.” Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go — and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable. Bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out — what yesterday’s article oddly described as “free-market horror stories” — and constantly proliferating regulations designed to block those strategies? Predictable.

Now, I write a lot on many things and welcome debate *usually*. But I do have my limits and dislike. And debating about Rent Control is one of my dislikes because I am honestly bored by this really really old textbook economics debate that anyone with some economics training should understand well.

Since I feel any debate will be too much like answering a first year university Econ 101 exam question, I shall limit the discussion on this post (by possibly not responding to comments). As always, since the comments section is moderated by me, I also have the option to close down the discussion (will see on this) as I would rather spend time blogging and writing about *anything ELSE*. (big smile)

If you asked me ten years ago if I would write about Rent Control willingly and not as a part of a contrived silly university exam, I would have said “Are you nuts? No way!” Well, here I am, just finish writing about Rent Control in my blog here.

I hope my learned friend Tyler is not forced by party politics to take a position that is widely understood to be bad and ill advised. But then politics has done stranger things to stranger people.

Regardless of our disagreement on the issue of Rent Control, I hope and trust that Tyler and I can work well on the important issues of Fair Copyright for Canada in the work related to the Calgary chapter of Fair Copyright for Canada.

P.S. As an aside, I am renting my place for personal reasons and my landlord has been increasing my rent like crazy! But my distain in paying more money to my landlord has no bearing on my views and analysis in the idea and lunacy of Rent Control. I think my economics professors should be proud of me. (big smile)

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Jan 21, 2008 update: Quoting this Library of Economics and Liberty entry on Rent Control,

Economists are virtually unanimous in the conclusion that rent controls are destructive. In a late-seventies poll of 211 economists published in the May 1979 issue of American Economic Review, slightly more than 98 percent of U.S. respondents agreed that “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, the June 1988 issue of Canadian Public Policy reported that over 95 percent of the Canadian economists polled agreed with the statement. The agreement cuts across the usual political spectrum, ranging all the way from Nobel Prize winners Milton Friedman and Friedrich Hayek on the “right” to their fellow Nobel Laureate Gunnar Myrdal, an important architect of the Swedish Labor Party’s welfare state, on the “left.”