Tuesday, June 12, 2007
The Ethics of Rent Control
As I have noted before, I have a running discussion, debate, or argument with several e-mail friends. I identify them by initials of their first names: H, M, R, S, etc. Recently we stumbled into a heated argument about rent control. M and R have experience with owning and operating rental housing. They both vehemently oppose rent control. R argues that rent control is unethical because it amounts to penalizing or taking from the landlord, who is trying to make a living by offering apartments and houses for rent, and giving to the tenants, mostly themselves middle-class, and hardly deserving of such favoritism.
I was astounded by the argument that rent control is unethical. I can agree that it may be counterproductive; it probably will have unexpected consequences; and in the long run it is an unworkable solution to the problem of providing housing for people at prices they can afford. I still can't agree that it is unethical.
Reductio ad absurdum: Rent control is a limit on the money that a property owner can charge for the use of his property. Cab fare is limited by city ordinance and is a limit on the money a cab owner can charge for the use of his property. Charges for electric, gas, and water utilities are limited by State regulatory commissions and these limits are placed on the money that the owners of these utilities can charge customers for the water, electricity, and gas that they supply. If rent control is unethical, all of these other legal limits on profit must also be unethical.
M and R will immediately argue that electricity, gas, and water are provided by monopolies, in some cases by municipal-owned firms. There is no competition among competing providers and therefore it is reasonable to limit the charges to what is reasonable. That is, the monopolies are to be allowed to make roughly the same profit that they would make in a competitive situation. Housing rent, on the other hand, is competitive. If you are dissatisfied with your landlord's charge for rent, you can move somewhere else.
My counter argument is that times are changing. At one time we had in this country a large area of unused land. Even in cities, land for residential use was cheap. Houses and apartments were built as fast as the need for housing grew. If a landlord charged too high a rent, he would find that he couldn't find any tenants. There was a competitive market in renting and in buying housing.
That situation no longer exists in many of our largest cities. Land alone can amount to one-fourth the cost of housing erected on it, especially single-family units. A person seeking to buy or rent a house or apartment or condominium in Los Angeles or San Francisco will find few units available, mostly at prices that may be out of his reach. Because of the increase of population, there is no longer an effective competitive market in housing. Housing is becoming de facto a monopoly. Limiting the profit of a landlord is no more unethical than limiting the profit of the cab company or the electric utility company. Utility companies are allowed to set rates high enough to enable them to make a profit and to set aside funds for future repairs, maintenance, and improvement. They are not allowed to set rates at the level determined by "as much as the market can bear." I think it is ethical to establish the same regime on landlords in cities where housing is limited by the limited land area available for it. Just as in the case of the utility, the landlord must be allowed a reasonable profit, enough to provide for maintenance and improvement and investment in new construction.
I was astounded by the argument that rent control is unethical. I can agree that it may be counterproductive; it probably will have unexpected consequences; and in the long run it is an unworkable solution to the problem of providing housing for people at prices they can afford. I still can't agree that it is unethical.
Reductio ad absurdum: Rent control is a limit on the money that a property owner can charge for the use of his property. Cab fare is limited by city ordinance and is a limit on the money a cab owner can charge for the use of his property. Charges for electric, gas, and water utilities are limited by State regulatory commissions and these limits are placed on the money that the owners of these utilities can charge customers for the water, electricity, and gas that they supply. If rent control is unethical, all of these other legal limits on profit must also be unethical.
M and R will immediately argue that electricity, gas, and water are provided by monopolies, in some cases by municipal-owned firms. There is no competition among competing providers and therefore it is reasonable to limit the charges to what is reasonable. That is, the monopolies are to be allowed to make roughly the same profit that they would make in a competitive situation. Housing rent, on the other hand, is competitive. If you are dissatisfied with your landlord's charge for rent, you can move somewhere else.
My counter argument is that times are changing. At one time we had in this country a large area of unused land. Even in cities, land for residential use was cheap. Houses and apartments were built as fast as the need for housing grew. If a landlord charged too high a rent, he would find that he couldn't find any tenants. There was a competitive market in renting and in buying housing.
That situation no longer exists in many of our largest cities. Land alone can amount to one-fourth the cost of housing erected on it, especially single-family units. A person seeking to buy or rent a house or apartment or condominium in Los Angeles or San Francisco will find few units available, mostly at prices that may be out of his reach. Because of the increase of population, there is no longer an effective competitive market in housing. Housing is becoming de facto a monopoly. Limiting the profit of a landlord is no more unethical than limiting the profit of the cab company or the electric utility company. Utility companies are allowed to set rates high enough to enable them to make a profit and to set aside funds for future repairs, maintenance, and improvement. They are not allowed to set rates at the level determined by "as much as the market can bear." I think it is ethical to establish the same regime on landlords in cities where housing is limited by the limited land area available for it. Just as in the case of the utility, the landlord must be allowed a reasonable profit, enough to provide for maintenance and improvement and investment in new construction.
Labels: cost of land in cities, population increase, public utilities, Rent Control
