Henry Hazlitt: How to Taper Off Rent Control
Henry Hazlitt (1894-1993) was one of the 20th century’s greatest writers on economics. His 1946 classic Economics In One Lesson is still an excellent introduction to the subject for the general reader. And, for a number of years, he was columnist in Newsweek, bringing economic insights to the issues of the day and expressing them with clarity. The article below is a classic example of this. It appeared in Newsweek on this day in 1946.
Now that ceilings have been removed on everything else, it is clear that rent controls ought to be whittled down. With the ceilings removed on wages and materials, on everything that goes into a house, it becomes administratively and economically absurd to maintain price ceilings on new houses. That is the best of all ways for assuring that they will not be built. For the same reason, it is obvious that rent ceilings of any kind should be removed on new housing. The only way to solve the housing problem, the only way to bring down rents in the long run, is to increase the supply of housing. The quickest way to increase the supply of housing is to provide the maximum incentives for its production. It is preposterous that the only major thing on which we should continue to squeeze down the profit margin is precisely the thing of which we are most eager to increase the supply.
It will be argued by many, however, that price and rent incentives are needed only to maximize the production of new housing, and that to take the ceilings off rents of existing houses would merely increase the living costs of tenants, and put windfall profits into the hands of landlords, without doing anything to increase the housing supply. But this argument has several flaws. It is not so easy to differentiate between “old” and “new” housing. Housing is not merely to be measured by square footage of floor space; it must also be measured qualitatively. Housing is continuously being repaired, improved, modernized; remodeled, extended, transformed from single homes to small apartments, from residential to business use, and vice versa. Whether or not any of these changes are made in rented property depends upon the absolute or relative profit incentives involved. When rent control removes these incentives, property is simply allowed to deteriorate.
The country’s available housing must at any time be rationed among its families. Under normal conditions it is rationed, like every other commodity, through the price or rent system through the competitive bids and offers of buyers and sellers, of tenants and landlords. Under rent control it is rationed by chance, luck, and favoritism. Those who happened to be in the housing they wanted to be in at the end of the war found themselves comfortably frozen in by OPA regulations. Veterans, war workers, and others who had given up their housing during the war found themselves frozen out by the OPA regulations and unable to compete on an equal bidding basis against existing floor-space holders.
In August, according to the Department of Commerce, the nation’s income payments were 152.3 percent greater than in 1935 to 1939. In the same month, however, according to the Bureau of Labor Statistics, average rents had gone up only 8.7 percent. This means that the overwhelming majority of people have been called upon to pay a much smaller percentage of their income for rent than before the war. The result has been that residential floor space has been used more wastefully. An average of 3.1 persons, according to a census report, occupied the same number of rooms in 1945 as 3.3 had occupied in 1940. This is the real secret of the housing “shortage.” It is caused primarily by rent control itself. Yet this shortage has become in turn the basis for insisting that rent control must be continued.
One final argument is that the removal of rent control would cause inflation, and raise the cost of living. Inflation, however, is caused by the overissuance of money and bank credit. It is true that the removal of rent ceilings would be followed by an increase in rents, but this would not necessarily lead, in the long run, to an increase in living costs. For with more of consumers’ incomes being paid for rent, just that much less would be left to bid up the prices of everything else. It is precisely because rents have been kept down so drastically that, with existing money incomes, other prices have been bid up as high as they have.
Popular adherence to artificially low rents is still so powerful that it would be doubtless politically unrealistic to recommend immediately the entire elimination of rent controls. A possible compromise might involve (1) an immediate removal of all price and rent controls on new houses; (2) a maximum permissible increase in rents for existing tenants of 15 percent in the next calendar year, with complete decontrol thereafter.