Rent Contol: Open-and-Shut Case?

[Seth Ackerman]

June 7, 2000
PAUL KRUGMAN
A Rent Affair
Economists who have ventured into the alleged real world often quote
Princeton's Alan Blinder, who has formulated what he calls "Murphy's Law of
economic policy": "Economists have the least influence on policy where they
know the most and are most agreed; they have the most influence on policy
where they know the least and disagree most vehemently." It's flip and
cynical, but it's true. 
Consider, on one side, really tough issues -- where there are plausible
arguments on both sides, where nobody really knows how to measure the
tradeoffs. Should Microsoft be broken up and, if so, how? Should Britain
adopt the euro? Let's ask the economists! And those economists who are
prepared to express strong opinions on such inherently ambiguous questions
command rapt attention. 
On the other side, consider an article that appeared in yesterday's New York
Times, "In San Francisco, Renters Are Supplicants." It was an interesting
piece, with its tales of would-be renters spending months pounding the
pavements, of dozens of desperate applicants arriving at a newly offered
apartment, trying to impress the landlord with their credentials. And yet
there was something crucial missing -- specifically, two words I knew had to
be part of the story. 
Not that I have any special knowledge about San Francisco's housing market
-- in fact, as of yesterday morning I didn't know a thing about it. But it
was immediately obvious from the story what was going on. To an economist,
or for that matter a freshman who has taken Economics 101, everything about
that story fairly screamed those two words -- which are, of course, "rent
control." 
After all, the sort of landlord behavior described in the article --
demanding that prospective tenants supply résumés and credit reports, that
they dress nicely and act enthusiastic -- doesn't happen in uncontrolled
housing markets. Landlords don't want groveling -- they would rather have
money. In uncontrolled markets the question of who gets an apartment is
settled quickly by the question of who is able and willing to pay the most.
And so I had no doubts about what I would find after a bit of checking --
namely, that San Francisco is a city where a technology-fueled housing boom
has collided with a draconian rent-control law. 
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. 
And as for the way rent control sets people against one another -- the
executive director of San Francisco's Rent Stabilization and Arbitration
Board has remarked that "there doesn't seem to be anyone in this town who
can trust anyone else in this town, including their own grandparents" --
that's predictable, too. 
None of this says that ending rent control is an easy decision. Still,
surely it is worth knowing that the pathologies of San Francisco's housing
market are right out of the textbook, that they are exactly what
supply-and-demand analysis predicts. 
But people literally don't want to know. A few months ago, when a San
Francisco official proposed a study of the city's housing crisis, there was
a firestorm of opposition from tenant-advocacy groups. They argued that even
to study the situation was a step on the road to ending rent control -- and
they may well have been right, because studying the issue might lead to a
recognition of the obvious. 
So now you know why economists are useless: when they actually do understand
something, people don't want to hear about it.