Rent Contol: Open-and-Shut Case?

[Brad De Long]

>  > June 7, 2000
>>  PAUL KRUGMAN
>>  A Rent Affair
>
>>  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.
>
>This argument makes no sense.  Landlords in New York have no fear that
>controls will be extended, and it's a rational lack of fear -- there's no
>chance of it, and there hasn't been for years.  Without that assumption,
>this whole argument falls to the ground.  Sky high rents should therefore
>lead to huge amounts of construction -- in fact, in a perfect market,
>there would be so much construction that the price of unregulated
>apartments would approach that of regulated apartments, on which landlords
>still make a profit.
>
>If none of those things happen, and they don't, the only fair conclusion
>is that the housing market bears little resemblence to a perfect market
>and therefore this reasoning doesn't apply.  It sure would be nice to know
>what rules do explain the housing market.  But I guess we'll have to look
>beyond elementary textbooks.

Powerful land use restrictions limiting higher density development?

Brad DeLong