Introductory economic theory predicts that imposing a price ceiling on any market, including housing, will reduce supply by preventing the price from rising to the level that would prevail in an open market. As Summers argues, rent controls cause “under investment in repairing, maintaining, constructing new apartments,” which, he asserts, “is likely to exacerbate rather than improve issues around housing affordability in New York.”
The intuition behind the Econ 101 argument is simple: since it’s costly to build and maintain housing, capping the price of housing in a market reliant on private developers and landlords for housing supply will discourage investment and reduce supply. Some people, particularly those with the willingness and ability to pay rents above the rent cap, will have their demand for housing unmet.
The result, in this simple blackboard model, is a housing shortage: there are people willing to pay for housing, at a price landlords will accept, who are unable to make a mutually beneficial transaction. This, for economists, is deadweight loss: stuff that we have the capacity to produce (rental housing) and desire to consume (demand for housing) that goes unproduced and unbought— the supreme social evil.
Econ 101 treats its own policy goals, particularly eliminating shortages and deadweight loss, as paramount. But the publics that have enacted rent regulation across the country have other goals in mind as well. These include, most obviously, limiting rent increases but also preventing displacement and evictions, slowing the pace of gentrification, and even guaranteeing a right to housing for all.
While the Econ 101 view treats its own goals as a trump card, democratic societies — accountable to the public, not only economists — are permitted to weigh these competing policy goals against each other. Controlling rent is an important policy outcome in its own right….
Auteur: Brian Callaci
