Why Rent Control is Destructive

Most people are under the impression that price controls serve to make things more affordable for the less wealthy element of a particular society. A closer inspection, however, reveals that price controls will, without failure, create shortages in those products or services that they are applied to.

An example of this could be rent controlled apartments in an urban region. Let's say that apartments are "spiraling" out of control as far as rents being charged. The lower economic strata will protest that housing has become largely unaffordable and something must be done. Well-intentioned government officials may well react by placing a ceiling on rents; let's say at a rate of $500/month. The poor will be overjoyed and quickly occupy any available housing. This is where this city's problems will begin.

As time goes on, landlords will no longer invest money in the upkeep of their properties; the reason is that while there is a control on how much money they can charge for their apartments, there is no such control on the materials and utilities needed to keep these units in good repair. Eventually, the landlord will find that he's losing more money to keep the apartments in shape than he is getting as a return on his investment in the form of monthly rent payments. He will do one of two things at this point: either allow the apartment to fall into gross disrepair, or abandon it altogether to avoid losing even more from his investment. As this goes on throughout the city we see that it has the net affect of degrading existing housing and also inhibiting new housing from being built; being a landlord is no longer profitable under the price control so why bother being one?

The above example was taken from a real world situation which developed in NYC - the situation became so bad that by the mid 1980's there were 4 abandoned apartments for every homeless person within NYC limits. I'd suggest the lesson to be learned here is that economics aren't emotional and so decisions concerning economics shouldn't be either.