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Back to Subjects - Economics

Unintended Results

Unintended Results Almost everyone looks with disfavor on slums. In certain areas of any city, one sees housing conditions that are distressing to say the least. Several families may be using the same bath and toilet facilities. Two or more families may be living in the same apartment. The buildings and apartments may be in various states of disrepair. Why do people live in them? Usually these are as much as lower-income families can afford. Some people think that this situation should be changed. They could not agree with the fact that so many families, of three people with one employed, cannot afford at least one-bedroom-apartment, and with time they urged the government to change this situation and to take control over the rent prices. According to Ansel Sharp, “In the United States, following World War II, numerous cities elected to continue rent controls established during the war” (68). The main purpose of rent control is to support lower-income residents. The most well known example of such control is undoubtedly that of New York City, which has some of the strictest rent control in the country. By analyzing the actual effect of the controls, we certainly could conclude that the local government should abandon rent controls in New York City because market tends to react in ways that offset the intended impact of that action. Such control may involve consequences that are clearly unintended. The first unintended problem generated by the rent control is housing shortage. In other words, the demand for rent-controlled apartments overcomes the surplus. That is why so many individuals and even families are forced to share the same apartment. Many young adults encounter difficulty finding an apartment when they decide to leave the family home and to start their independent lives. The chance of finding a job in a big city is greater than in a small town. That is why so many people tend to live in New York City. In most cases, searches for rents are unsuccessful. Ansel Sharp writes, “Today in New York City, for example, it remains popular for those seeking rent-controlled housing to daily scan the obituaries looking for recently freed-up space” (68). Of course, it was not the original intention of the local government but this is the inevitable outcome of price control. Secondly, the price control in New York City fails to satisfy the needs of those who are supposed to benefit from it. As a new housing unit becomes available, landlords try to make as much profit as they can. Profit could be either in terms of money or in terms of personal satisfaction. For example, it is obvious that if two families are willing to rent the same apartment, landlord will prefer a family that has a stable income and maybe no kids or pets to a young family with kids and one of the parents is unemployed. In terms of monetary profit, a housing shortage will lead to under-the-table payment to landlord for the privilege of a new lease. We have to consider, that people who gain from rent controls are those who already had a rented apartment before the controls were put into effect and who did not move after become effective. However, even these people, who already benefit from rent control, become prisoners of their own apartment. They are afraid to leave their apartments because it means being thrown into the market, where prices may be three or four times as high for an almost identical apartment. Many examples from real life demonstrate that some tenants could hardly be considered as those whom the government intended to help. In the letter to the New York Daily News, mentioned in the William Tucker’s article, a woman wrote the following: I recently moved to New York and I pay almost $1,200 a month for a nice little apartment on the lower East Side. . . . Still, when I found out at a tenants’ meeting that 30 of the building’s 34 apartment rent for below $300 and that most of the tenants in those cheap apartments make more money that I do, I was a bit Ansel Sharp provides us with an excellent example that shows another failure of rent controls as well: “For example, it has been reported that a judge in New York City’s housing court, whose job is to enforce the City’s rent control program, rents a two-bedroom apartment for less than $100 per month, which, if it were not rent-controlled, would bring well over $1,000 per month” (68). One more time, these facts prove that government actions may involve consequences that are unintended. Finally, if we assume that the lower quality of any good sold at the same price per unit is equivalent to an increase in income, we will understand why landlords faced with rent controls tend to maximize their profit by allowing the quality of their properties to deteriorate. This is the only escape left to landlords by the local government to keep getting any profit from their price-controlled units. This is also explaining why in certain areas of any city, including New York City, one can find slums. What then can be said concerning the local government’s attempt to serve the best interests of lower-income groups through rent controls? Undoubtedly, some win-those who already have a rent controlled apartment. However, the example of the judge living in a rent-controlled apartment attests that people who do win are not always the ones who policy was designed to help. Moreover, even these folks do not tend to win in the longer term since the quality of apartments decays with the time as a result of limiting potential profit of the landowners by the price control. Many others directly lose. Especially hard hit are the young families who cannot find adequate apartments as a result of the shortage. Others are negatively affected as they spend their time and money commuting to the work. Still others have to make under-the-table payment to landlord for the privilege of a new lease. In each case, certainly we can conclude that the market reacts to government action such as price control in ways that offset the intended impacts of that action, and this action may involve consequences that are clearly unintended. Thus, the local government should abandon rent controls in New York City. Bibliography: Work Cited Sharp, Ansel M., Charles A. Register, and Paul W. Grimes. Economics of social issues. 15th ed. New York: McGraw-Hill/Irwin, 2002. Tucker, William. “How Rent Control Drives Out Affordable Housing”. The Cato Institute. 274 (May 1997). 15 March 2002.

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