Question: In your opinion, what would happen in the short and long term if the government did away with controls on housing (rent controls) and wages? e.g. equilibrium price/quantity, supply/demand, consumption, equity, availability, etc.
In order to understand what would happen in the short and long term if the government eliminated rent and wage controls, we first need to understand the impacts they have on our economy toady. I will start with rent control:
• It is a known fact that rent control creates a destructive shortage of apartments by setting the price below the market’s equilibrium price.
• We are told rent controls are put into place to keep apartments affordable for low and mid-income tenants. Although I am sure the idea was well intentioned, in most cases, I feel it is more of a political strategy to win over voters.
• Due to the shortage of apartments and housing in rent controlled environments, the left over demand floods the un-regulated markets causing property owners and landlords to charge unreasonable rents to subsidize the fear of potential regulation in the future. This further skews the price stability of the housing market for a given area.
• Last, rent control diverts investment in dwellings, which may need it the most, and tenants are forced to live in sub-standard dwellings. If an investor purchased a rental property for income purposes and is now limited to unreasonable returns, what keeps them from cutting their losses and diverting their funds to other investments that promise a greater return?
If the government eliminated rent control, I feel to following effects would be prevalent now and in the long run:
• The market system would inevitable regulate itself, finding an equilibrium between the price and supply of apartments and other housing for a given area.
• It would offer renters the ability to find comparable and affordable apartments elsewhere, instead of keeping them locked into apartments they currently reside in due to fear they would not be able to find suitable replacements.
• Property owners could relieve themselves of the fear of regulation and begin re-investing in existing dwellings they had previously ignored. The market may rebound and not only provide more attractive living spaces for renters, but better neighborhoods and housing prices for all.
• Improved neighborhoods would lead to an increase in local business activities and employment opportunities.
• Less government oversight would lead to less political corruption and administrative cost necessary to administer this policy.
In comparison to rent control, government wage control, also known a “minimum wage” have negative affects on the economy as well. Again, I have no doubt this law was crafted with only the best intensions, but it has proven to have burdensome effects on the economy we now live in.
• When the government inflicts price floors like minimum wage on the...