I’ve heard a lot lately about the “inefficient” economics of rent control in response to bills being debated by the Connecticut Senate Housing Committee. I’m no economist, but I’ve studied the subject enough to know how absurd these inefficiency arguments are.
In fact, they are so outlandish that I couldn’t help but write a brief explanation of how backward these arguments against the rent cap are. My goal here is to make one thing clear: A bill that aggressively limits annual rent increases will not only stabilize rents in our state, but vastly improve our economy. Once I’ve demonstrated this, it will be clear that any argument for allowing landlords unlimited increases is as untenable as it is morally reprehensible.
Let’s start with context: Over the past two years, rents in Connecticut have risen an average of 20%, and in many communities they have skyrocketed even more. I have friends who have been given two weeks to pay 75% more each month for homes that they cannot have maintenance personnel visit for months. Meanwhile, wages remain stagnant after being outpaced fourfold by soaring rental housing costs. This discrepancy is devastating, and not just morally. In a state where 52% of renters already spend more than 30% of their monthly income on rent, the unfair state of Connecticut’s housing market speaks for itself.
But the grossly inefficient economics of Connecticut’s rampant rent-cutting calls for explanation. As we’ll see in a moment, this is so straightforward that the anti-rent-cap lobby is fond of saying, “It’s just simple math.”
Renters make up a third of Connecticut’s population, and more than half of them are struggling financially to keep a place to live. Arbitrary and unwarranted rent increases not only fuel evictions and homelessness – as families are forcibly evicted from their homes, communities and even the state – they also force the market to sustain a rent well in excess of the efficient market rate.
It’s a thorn in my side when people use the logic of supply and demand curves to discuss the real prices people face as they struggle to keep food on their tables and rooftops above them, but themselves according to this oversimplified logic, the case for a rent cap is undeniably clear. According to Investopedia, “demand is an economic principle that describes consumers’ willingness to pay a price for a good or service,” while “supply is a basic economic concept that describes the total quantity of a particular good or service available to the consumer Available. ” Fair enough. In general, the price of a particular commodity is what motivates the seller to produce sufficient supply to meet consumer demand.
This principle becomes more complicated for inelastic goods. Investopedia defines these as “necessities” such as food, housing or health care – goods for which demand remains constant regardless of price fluctuations because consumers need them to survive.
Take rental apartments for example. People need places to live. That fact never changes; Housing demand remains a constant function of population growth and migration. However, decades of successful efforts to limit the construction of affordable housing have artificially held back supply, such that the constant and high demand for housing is driving prices far higher than they would be in an efficient market. In other words, if Connecticutr had a truly free and efficient housing market, developers would build large chunks of affordable housing, as the bulk of the working class who live in the state incentivizes it and hopes to continue to do so without incurring them Then more rent will be charged bringing you into full-time work.
Instead, Connecticut has a housing market where high housing costs are impoverishing the state’s working-class renters, or both, while investors and corporate landlords effectively block widespread construction of affordable housing.
This dynamic is disgustingly inefficient. On the one hand, when people cannot afford the advertised price for an inelastic good, it becomes an economic burden on society. Those left homeless due to housing shortages often require taxpayer-funded assistance to get back on their feet; Even after they have gone through the financial and physical and mental ordeal of eviction, in all likelihood they will still not be able to afford an artificially inflated market price. Instead, they are forced to use subsidies like Section 8 to secure homes, bypassing the market entirely by drawing on public funds so the out-of-state investors who own the properties can continue to direct their management companies to pay the interest increase on those who can still be bruised.
Alternatively, people in search of affordable housing may leave their community or even the state, losing not only their productivity as workers but also their contribution to the local economy as consumers. On the supply side, contractors and builders are missing out on great opportunities for lucrative economic production as they are preemptively prevented from building affordable housing that tenants demand and small landlords are forced to bear prohibitive renovation costs while their neighborhoods gentrify.
Now let’s paint another picture. Let’s look at Connecticut in a hypothetical future – one in which SB-138 existed.
Annual rent increases, capped at 2.5%, now reflect wage growth; both track net productivity. In this hypothesis, let’s assume that we are yet to pass an affordable housing law, so market supply is still artificially low. Even under these circumstances, the economy would be far better off with the Rent Stabilization Act than without it. Evictions and homelessness would be reduced, eviction costs and subsidies lowered, and people allowed to focus on their lives instead of where they will sleep.
When people have stable homes, they become embedded in their communities, grow their businesses, and advance their careers; They also visit local restaurants and theaters, shop at local stores, and get involved in community groups and organizations. What’s more, without massive rent increases eating away at their disposable income, they have more each month to spend on these other opportunities.
Finally, before I get accused of being anti landlords, I will show how this benefits local landlords as well. Right now, big companies are allowed to drive rents as high as they want, and they’re doing so while gobbling up an ever-increasing share of the market. This trend is driving rents to levels tenants can’t afford, leaving smaller landlords with the choice of either paying an inefficiently high interest rate and risking leaving their units vacant — a prospect far more palatable to their competitors can afford than they can — or undercut the market by maintaining their existing prices (and clientele) in the face of rising taxes and renovation costs driven by the same gentrification.
As long as Connecticut does not have a rent cap law, our communities will continue to experience a wave of crippling rent inflation and evictions, and local landlords will lose their lower-income tenants.
A nationwide rent control law is necessary for both economic and ethical reasons. Everyone except hedge funds and slumlords will benefit.
Peter Fousek is organizer of the CT Tenants Union/New Haven.
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