Jewish World Review July 12, 1999 /28 Tamuz, 5759
Cutting edge California retreats to old, failed ideas
IT WAS SHOCKING FRONT-PAGE NEWS in San Francisco when the courts ruled recently that landlords had a right to stop
renting property they owned, despite local rent-control laws to the contrary. Needless to say, there are rumblings of an
One San Francisco supervisor lamented a "shortage of even semi-
affordable housing" in the city, which is "a real crisis." There was no indication of any awareness that rent-control laws have
caused housing shortages wherever they have been imposed, whether in Hong Kong or Paris, New York or Melbourne.
Sometimes, rent-control advocates claim that there was already a housing shortage and that rent-control laws were
enacted to keep landlords from taking advantage of the situation by "gouging" tenants. But history says otherwise.
New York City had a high vacancy rate when rent-control laws were first passed, early in World War II. A housing
shortage then developed and became a lasting part of the New York way of life.
Housing shortages, like other shortages, are too often thought of as a physically inadequate amount, either absolutely or
relative to the population. It is neither. It is an inability to obtain the desired amount at the current price.
Ordinarily, in a free market, such a situation leads to a rise in price, which simultaenously reduces the amount demanded
and encourages an increase in the amount supplied, until the two come into balance. Price controls prevent that rise in price
from changing the behavior of suppliers and demanders, so the shortage persists.
Rent control in Sweden was a classic example of a price-induced shortage without any greater physical scarcity. After
rent-control laws were enacted during World War II, Sweden began having housing shortages -- and began a massive
program of government-sponsored building of housing. At one time, Sweden had the most rapidly growing housing stock in
the world -- and yet the waiting lists for applicants for housing grew longer.
There was more housing per person but, at the artificially low price of housing, rising incomes allowed increasing
numbers of people to afford ever-
increasing amounts of housing space. For example, many young adults who would normally be living with their parents rented
their own rent-controlled apartments instead.
In short, the amount of housing space demanded at artificially low prices vastly exceeded even the rapidly increasing
housing supply. The fact that there was plenty of housing in Sweden was dramatically revealed when the rent-
control laws were repealed. Immediately there was a housing surplus.
As rents rose to levels determined by supply and demand, private builders found it profitable to start constructing
housing. Since privately constructed housing was built to suit the tastes of tenants and homeowners, rather than government
planners, many people moved out of the government-
built housing, leaving vast numbers of vacancies.
Like other laws keeping prices below the level produced by supply and demand, rent control leads not only to a
shortage of the product but also to a deterioration in its quality. This has happened not only with housing but also with cable
television service, medical care and other goods and services.
Yet it always seems to come as a big surprise to politicians, journalists and others for whom indignation is a way of life.
Across the Bay from San Francisco, Oakland officials are waxing indignant at landlords for neglecting maintenance on
rent-controlled apartments. Inadequate maintenance of course speeds the deterioration of the existing housing stock, while
rent control discourages building replacements. The net result can be a declining housing stock and higher rents in the long
run. But who in politics worries about the long run?
California prides itself on being on the cutting edge of new advances. Unfortunately, many of these new advances are in
fact retreats to old ideas that have failed repeatedly -- but whose failures are unknown to those who are so modern that they
disdain to study history. Two thousand years ago, when Roman emperor Diocletian issued a sweeping edict controlling the
prices of innumerable goods, "people brought provisions no more to markets," as a contemporary put it.
What is happening in California's rent-controlled housing is as predictable as the swallows returning to Capistrano -- but
not nearly as
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©1999, Creators Syndicate