Having spent a lot of time looking for a job in NYC but no luck with an apartment (in Manhattan), I have a question.
Basically, if NYC did away with rent control would the rents come down?
A person I know claims the rents in Manhattan are high because of rent control. He says (this is an oversimplification to state a point) it works like this now.
A landlord has 20 apartments. 10 are rent controled. In a free Market he could get $1,000.00 a month for each apt. or 20,000 a month. But since 10 are rent controlled for 600.00 a month he must charge $1,400.00 for the other 10 to make up the fair market price. (600.00 X 10 = 6000.00 and 1,400 X 10 = 14,000 thus 14,000 + 6,000 = 20,000)
Is this a fairly accurate picture of what is going on?
Rent control makes rent higher because it makes other investments more attractive and creates a shortage of supply. If rent control disappeared tomorrow the immediate effect would be that rents would go up but as more investors came to the supply side the rents would go stabilise. Places with rent control * always* have the most expensive rents but also the tightest supply. Spain is a clear example of this. It has had the tightest rent control for decades and you just cannot get rid of tenants no matter what. The result is that the supply of housing for rent is minimal in spite of the fact that there is a huge number of empty dwellings. the owners would rather keep them empty than rent them. Spain has one of the highest rates of home ownership, which sounds like a good thing until you realise young people are totally priced out of the market and are living with their parents well into their 30s or have to buy some place way out in the country and commute for hours every day. Anyone who says rent control is a good thing should study the situation is markets where it exists.
Yes, rents are higher in Manhatten than they would otherwise be because of rent control.
The major problem with rent control is that it severely reduces the incentive to build new housing units–thus legistation that allegedly tries to make cheap housing available to all ends up reducing the amount of housing, serving no one (except for the lucky few who get the juicy rent controlled apartments.)
“Economists argue passionately about most issues, but not about rent regulation. When the American Economic Association polled its members in 1992 on a variety of topics, the proposition that elicited the greatest consensus—93 percent agreement—was that “a ceiling on rents reduces the quality and quantity of housing.” The most quotable summary of the research comes from a Swedish economist, Assar Lindbeck, the former chairman of the Nobel Prize committee for economics: “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities, as the housing situation in New York City demonstrates.””