Swedish economist Assar Lindbeck, "rent control appears to be the most efficient technique presently known to destroy a city – except for bombing".
Swedish economist Assar Lindbeck said, "rent control appears to be the most efficient technique presently known to destroy a city – except for bombing". He was understating it. Like other price/wage controls, you can control the prices, but not the unintended consequences of controlling the prices. It makes things worse, virtually everywhere it has been tried. Help the few: hurt the many.
The sane and informed (non progressives) know that forcing one customer to pay less than everyone else, is not only unfair, but it means that the landlord either jacks up everyone else's rates to make up for it, or the lower returns means that there's less development and investment goes to other places that don't have that burden on investment. But reasonable people are not the people attracted to rent control -- it's more the progressives, kids and just plain economically ignorant that think you can help one person by hurting many others.
Rent Control helps the poor or middle class combat rising costs.
Rent Control tells landlords to stop doing improvements or maintenance, since those re-investment costs can not be recouped, thus it harms quality. It tells developers not to build more housing (by capping returns on investment). So since it drives down availability, the costs for everyone else go up (by far more than the savings to the few it helps). Supply and demand: it's not just a good idea, it's the law.
Demanded is always greater than the quantity supplied (Qd-Qs >0), so rent control causes a shortage of rent controlled housing.
The shortages in the controlled sector cause the demand to spilled over into the uncontrolled sector.
That is why depressing some prices (in the controlled sector), contributes to a rise in the uncontrolled sector. This is shown in every city that has rent control -- the cost of housing is higher than those without, and rises faster than those without (and higher than before enacting rent control).
Because of the shortages, the landlords are disincentivized to upkeep the apartments under rent control (given the difficulty to make profit due to depressed prices and the long long lines of people who want to acquire the rent-controlled housing).
Every landlord knows that you improve the apartment so you can increase the rents. But if you can't increase the rents, then you don't waste money on improvements (or repairs). As a result, the apartments become run-down. What are they going to do, leave? The whole idea of a "slum lord" is evidence of, and was caused by, Rent control.
Rent Control also discourages incentive to build new, improved housing, because your returns are less on rentals. They build things they can sell instead, or only in sectors that don't have the burden of rent control.
This is not unique to rent control, all price controls end it disaster. There's 3 ways to set the price: (a) too low (b) too high (c) just right. Too high means it didn't help anyone because it didn't matter (it's above the going rate). Too low means that it suppresses supply and then you get long lines. And just right is a fantasy that you can never hit everywhere in a city or nation at once, and even if you could hit it for a nanosecond would be invalid because the price set by bureaucrats will never float fast enough with real changes in the market. To quote Cato, "When the federal government restricted gasoline price increases in the 1970s, long lines formed at gas stations and only those motorists who waited long hours in line received the scarce gasoline"[1]
Many countries that had wide rent controls: (France, Vietnam, the United Kingdom), had to eliminate their rent control policies, and the results were things got much better. But overhwelming evidence will never convince provencial progressives in places like NYC, SF, San Jose, or Seattle.
Poll of a bunch of economists on their opinions on Rent Control, and you have near unanimity that it does NOT work (there always has to be one idiot): http://www.igmchicago.org/surveys/rent-control
Great paper on SF rent control that concludes it decreased mobility by 20% (mobility is good), it reduced rental housing supply by 15%, and that causing a 5.1% city-wide rent increase - so it hurt the people it was trying to help: http://www.nber.org/papers/w24181#fromrss
MIT Paper on how removing rent control increased the values of property (duh!). Which of course results in more investments in property, which should help increase incentives for increasing supply. Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts: http://economics.mit.edu/files/9760
