Rent Control Could Create Ghettos
Rent control is a government policy that begins with good intentions but brings with it many detrimental effects. There are two hundred cities in the United States and 40 countries globally that have rent control laws or rent subsidies in place. The results of these rent control policies are often deleterious in their effect on the economies, both local and national, where they are enacted.
I commonly hear politicians and intellectuals question why there are economic disparities in various communities. The irony about that very questioning, is that it is their (politicians’) focus is on the problems of racism and classism, and the solutions they implement as a response, that cause the problems and create the ghettos from New York City to Cairo!
The intention of rent control is one where the government implements a price ceiling for landlords in order to make housing affordable for tenants. This naturally (initially) provides incentive to those seeking housing below market value. However, this causes crowded properties due to overwhelming demand and, eventually, leads to homelessness for many due to housing shortages.
The alternative to the housing shortages caused by the “affordable” prices is the illegal practice of subletting; which is the practice where a tenant rents his or her property to another tenant without the authorization of the landlord. Hence, like in an impoverished community – or “ghetto” – there is a large probability of overcrowded homes. This is a disservice to the tenant who would have had legal alternatives if there weren’t rent control laws enacted. Additionally, since landlords can’t raise their rental prices to increase their incoming capital to cover operating costs (taxes, insurance, personal consumption, savings and other discretionary uses) it alleviates the incentive to maintain and make regular repairs to their properties.
The disincentives to continue upkeep and maintenance result in dilapidated and distressed properties, when that is paired with the previously-mentioned problem of overcrowding, it is a cause of bitterness and frustration both for the landlord (due to lack of rental income and the possibility of illegal tenants) and the tenants who are left to live in the derelict homes.
Some cities have laws where a landlord can raise their rent when a tenant moves. Through these laws however, the municipal government creates an incentive to either evict tenants or ignore their demands so that they will voluntarily move, at which point the landlord benefits from the ability to raise rents.
The aforementioned problems cause antiquated or old buildings to be left in a state of disrepair, as well as over utilization of apartment space where the people that mainly suffer are the “late” applicants for tenancy. These rent controlled properties, in effect, create the stressed slumlords who don’t quite have full control over what they can do with their own property! These landlords are stigmatized as “slumlords” when, in reality, it is not fully their decision to avoid upkeep on their property. It is, instead, a result of the effects of the omnipotence and “omniscience” of municipal and national governments and the regulations they enact; thinking that they know what’s in the best interest of the tenants, however this causes egregious and terrible living conditions for those same tenants!
The conditions of rent control are what create ghettos in so many communities throughout the country, all in the name supposedly meeting the needs of the underprivileged, impoverished, needy or deprived socio-economic groups.
Rent control also erodes a city’s taxbase due to the lack of affordability to pay taxes by both landlords and their tenants. This causes low quality public services such as schools, roads, and public transportation; as well as salary cuts and layoffs for government employees (firefighters, police officers, hospital workers, teachers etc.). In addition, this can cause an surge in new taxes, which is statistically proven to be a disincentive in entrepreneurship and commerce. This further exacerbates the problem, causing a lack in economic alternatives for consumers in the marketplace (due to a lack of businesses opportunity) which adds to economic recession in the city and the enhanced temptation for citizens to enter the black market as gangsters, drug dealers, pimps, etc.
The net effect of this is a rise in crime that becomes a safety threat for citizens, and further depreciates the value of property; this can cause hopelessness and nihilism within a given city or township.
The irony of the African proverb that Hillary Clinton borrowed – “it takes a village to raise a child” – is shown in these rent-controlled communities. If a child is raised in a rent controlled community, then there’s a high probability that this child will remain exactly that, even into adulthood! A community, for the most part, determines a person’s development; and it is rare to see children raised in these environments, who make it out and become successful. In this way, it is one of the few adages from her that I agree with!
A prime example of the failure of rent control is found in Egypt; specifically in its largest and most populous city of Cairo, which houses a population of 20.5 million people within 104 square miles.
Rent control laws have been legislated in Egypt since 1921. At the end of World War I there was high demand to provide affordable housing for Egyptians in response to price increases in their economy. Since that time, rent control laws have undergone numerous dynamic changes with the passing and repealing of various amendments. The most notable rent control law in Egypt was No. 49/197, which froze rental values and enforced the renewal of contracts between landlords and tenants; resulting in old and anachronistic buildings readily collapsing due to neglect.
Another aspect of the effects of this law is that tenants inherit apartments from their parents without authorization or approval from the landlords. This is exemplified in tenants requesting bribes from generational tenants (those who have inherited their apartments from parents) to take over the rental, allowing the generational tenant to move out!
In Egypt, (as of 2006) there are 7.5 million vacant properties due to the laws regarding inherited apartments that were enacted in 1977. To solve the problems of housing shortages, the Egyptian government created various residential developments in the bucolic, or rural, areas outside of cities like Cairo; however, the net effect of these developments was the creation Egypt’s globally recognizable traffic problem.
According to figures set out by the World Bank, Egypt’s traffic problem costs Egyptians 50 billion Egyptian pounds a year, or 4% of the country’s GDP!
When I was a student at the American University of Cairo for a semester, I missed many classes as a result of the intensity and tediousness of Egypt’s traffic; which I believe is an epiphenomenon of rent control!
The alternative to rent control (one which will ensure affordable housing) is for landlords to have the freedom to compete within the free market. The demand for properties usually has an enormous elasticity since populations are growing quickly, especially in the United States. So if there’s a scarcity of housing prices increase, which drives investment in real estate, which then causes a surplus of properties and prices decrease. When there is a surplus of housing (due to enhanced competition) the demand for housing is lowered which drives down rental prices, if not in one city then in another. Hence, the best way to address housing shortages is not rent control; rather it is in the deregulation of housing; primarily in major cities, that have become disastrous and dangerous ghettoes due to governmental regulation.
* Baruti Kafele, who is affectionately known as ‘Baruti Libre’, is an intellectual entrepreneur, social scientist, proud libertarian, and real estate broker who ensures quality and superiority from his enterprises to his scholarship. Baruti Libre is the chief executive of the successful fashion and multimedia firm called LiBRE BRAND-Freedom of Flyness which is a globally-recognized and viable brand based on the ideals of liberty and freedom. Follow him on Instagram and Twitter @BarutiLibre and visit his websites for literature and apparel.
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