Escaping the Statrix: Trevor Burrus’s Rent Control Red Pill
2021-03-30 · Guest: Trevor Burrus (Cato Institute Research Fellow) · 51:41
Economic and constitutional failures of rent control
Bob Zadek and Trevor Burrus discuss the economic and constitutional failures of rent control. They explore how rent control acts as an unconstitutional wealth transfer from landlords to tenants, creates housing shortages, and persists due to political incentives rather than sound policy.
Topics: Rent Control, Economics, Constitutional Law, Takings Clause, Housing Policy, Property Rights, Public Choice Theory, Kelo v. City of New London
Speakers: Bob Zadek, Trevor Burrus
The Progressive Experiment and Rent Control [00:21]
Bob Zadek: Hello, everyone. Welcome to The Bob Zadek Show, the longest-running live libertarian talk radio show in all of radio. Thank you so much for listening this Sunday morning. We are this Sunday and always the show of ideas, never once the show of attitude.
Well, here we are. We’re in the thick of the Biden administration. We are starting to watch an economic transformation in our country as perhaps we have never seen before. We are on uncharted territory. This is all one mega—as opposed to MAGA—one mega experiment, and nobody quite knows where it’s going to go, although many of us have a really good idea.
One of the carryovers in the Biden administration, strongly embraced by Bernie Sanders when he was a candidate and not unembraced by Biden, is one of the more obnoxious economic inventions of the progressive era, and that is the subject of rent control. Rent control is profoundly misunderstood by the country at large. It represents so much that is contrary to the core principles of our country—of the private ownership and enjoyment of one’s property, the prohibition in the Constitution that the government cannot take our property from us without giving us just compensation. There is so much that is core to what makes us a country, at least economically.
And rent control is a concept that crashes into all of those core values. Rent control always seems to be out there naggingly in the news from time to time, and occasionally hope arises because a rent control case finds its way into the judicial system, and all of us who are freedom-loving and who respect private property rights, all of us hope that the Supreme Court will come to its collective senses and undo the damage of rent control.
To help us understand all of the unseen adverse effects caused by rent control, how rent control as one concept damages the cities, denies us—us being citizens at large—a place to live where we can afford, where it confiscates private property—to help us understand, to look under the hood of rent control, I’m happy to welcome to the show Trevor Burrus. Trevor is a research fellow at the Cato Institute’s Robert A. Levy Center for Constitutional Studies, and he is editor-in-chief—yes, the man at the top—of the Cato Supreme Court Review. Trevor has studied rent control in the courts and economically for quite some time, and I’ve asked Trevor to join us this morning to help us understand all that is wrong and nothing that is right with rent control. Trevor, welcome to the show this morning.
Trevor Burrus: Thanks so much for having me, Bob.
Defining Rent Control as a Price Ceiling [04:01]
Bob Zadek: Now, Trevor, rent control—give us, since most of the audience has some at least passing familiarity with rent control, even if they don’t live in geographic and political areas that actually have rent control, give us the big picture. When one says those two insidious words side-by-side, “rent control,” what is the concept of rent control? Although the form will vary from place to place, but we’ll drill down. Of course, what’s the big picture? What is rent control?
Trevor Burrus: Yeah, the big picture—I mean, it’s a very complex set of regulations depending on your locality. Of course, New York City probably has the most famous and now onerous rent control laws. Usually, this means that there are rules about what units it applies to. There are rules about what the board—usually some sort of rent control board—when they can increase cost, for example, based on some sort of formula saying, you know, it can only go up like 2% a year. It’s real haphazard. We had a case about nine years ago—
Bob Zadek: But let’s back up. Rent control in the very—a rent control statute, in general, what does rent control do? How does rent control change the world for those people who live in an area with rent control?
Trevor Burrus: It’s a price ceiling. So it means that they’re keeping the price below a level via some formula that it would be—at a lower than it would be in a market situation. And so what this ends up doing, it does two things. It makes people consume more of the product—this is what price ceilings always do. They consume more of it than they would if the price were higher. And also, the suppliers produce less of it.
So you’ve created a double whammy here. You’ve created both less incentive for people to build rental properties if they’re unable to get the kind of rents that they would be able to get out of them. There’s less incentive for landlords to maintain their properties if they can’t afford to get enough rent out of the thing to, you know, just keep up the properties, which means some of the housing stock continually sort of gets taken out of the market because they’ve become dilapidated.
And then if you have people in New York City, for example, two struggling actors maybe who are waiting tables and they pair up and they live in a one-room flat together, but if rent control comes in and says, “Hey, you can actually only charge $700 a month,” well, then those two people who would be living together each decide to get their own place because the rent control—if they can get it. That’s the big question. Getting a rent-controlled apartment is another question where you’re competing on first person to find it, first person to get in line, or pay some sort of maybe under-the-table payment. But if they can get it, then you have two people taking up two units.
The end result is, as famously said by an economist, if you want to destroy a city’s housing stock, short of bombing, rent control is one of the best ways of doing it. And we’ve had situations economists have noted about for years. In the ’70s, Sweden had very onerous rent control laws and they were building houses faster than any country has ever built, but they still had a shortage of housing because people were taking up too much housing with this artificial price ceiling. So it’s a horrible idea. It’s great politically. You know, politicians, like so many things, they can say, “Look, the rent is too high,” and then they believe in magic words, which includes just “How do you stop rent from being high? You pass a law that says rent can’t be high.” It’s that sort of sophomoric belief that magic words can make rent go down. It just shifts everything around and privileges certain people who get a house over people who are blocked out of the housing market.
The “Emergency” Justification [08:30]
Bob Zadek: Now, rent control came into its own, if you will, although the first rent control case I believe in the courts was somewhere in the 1920s, but rent control took off, if you will, in the New York metropolitan area at the end of World War II. We had lots of GIs returning from battle, all wanted to start families, needed a place to live, and there was all of a sudden an extraordinary and quite sudden demand for housing in New York City, of course in the rest of the country, but we’ll focus on New York City because New York City gave birth to modern rent control. So New York City enacted emergency—there comes that word—emergency legislation just, if you will, to get us over the hump of the returning GIs.
Remember COVID? The emergency which caused an incredible disruption in economic life in the entire country? Remember that, my friends? Well, emergencies are a wonderful place to hide if you want to jiggle the free market. So we had rent control as an emergency measure right after World War II, and the emergency from returning GIs, even though very few of those GIs are probably still alive, but the emergency will outlive them, and we have to this day more vibrant than ever rent control.
So rent control, as Trevor says, simply says the price cannot go up. Now, those of us who have ever bought or sold anything, we understand that price is a message that the economy gives to all of us as to what something is worth. You can’t legislate what something is worth, at least you can’t sensibly. It is worth what a willing buyer is willing to pay and a willing seller is willing to accept. So you cannot legislate price. Yes, you can say you can criminalize the transfer of, in this case, rental property at too high a price, but it doesn’t mean it’s still not worth the higher price. You’re simply telling the landlord, even though your two-bedroom apartment is worth in the market X, you must sell it or rent it below that which it is worth.
And Trevor, you have pointed out that once you do that, once you keep the price low, then just like in the legislation we have that criminalizes price gouging—most states have price gouging statutes—this is the same thing. This is a wealth transfer from the owner of real property to the renter. It is simply a statute that says A must transfer value to B. Now, you hinted at this, Trevor, but please expand upon it. Once you do that, no landlord is going to self-destruct. So landlords will say, “Okay, if I cannot charge what my apartment is worth, then I have to make it worth less.” And what do landlords do so they can still, if you will, beat the system? What happens automatically and quite naturally to the quality and the amount of rental property when landlords are told, “You must figure out a way to make your apartment be worth less so you’re getting a new fair value”? How do landlords beat the game by actually making their rental property be worth less? What happens?
Trevor Burrus: Oh, I mean, it’s—they don’t maintain the basic core of the properties. They don’t maintain, you know, keep appliances up to date. I mean, they do their minimum competences that are required by statute or by the lease, but that’s the minimum that they can get away with, and they won’t do anything to improve the property because they’re not going to get any benefit from improving the property. I mean, if you have a rental unit and you say, “Hey, I bet if I put hardwood floors in, if I change the doors, if I put double-paned windows, I bet I can charge $200 more for rent because it’s a better place to live,” but of course, if you can’t do that, then why would you do that?
And over time, of course, the housing stock does go down because of that lack of maintenance—the basic maintenance that you maintain on your house or your apartment is not being done. So it’s just one of the many things, as you pointed out, the interesting thing about these emergency laws. I mean, they really ramped up, as you said, in World War II, but the first real rent control laws came in World War I, and you mentioned the Supreme Court case that heard this in 1921 called Block v. Hirsh, which very narrowly scraped by a constitutional challenge. And interestingly enough, a few years later, this was a Washington, D.C. ordinance, so Congress was governing Washington, D.C. on the theory that there was an emergency. And so then a few years later, actually, the case came back to the Supreme Court, and in that case, the Supreme Court ruled that the emergency had expired, actually, and they struck down those laws.
It’s one of the only times of all these times that the Supreme Court has heard cases or had cases brought to them on rent control where they say, “Look, if you say emergency, it has to actually be an emergency. We’re not just going to rubber-stamp everything because you say emergency.” Now, that was in 1924, and now we have a different situation of whether or not the courts will just every time that the legislator says “emergency”—and that, of course, is true, as you pointed out, it’s true for COVID things. It was true during the New Deal when we had cases that dealt with, say, mortgage moratorium, and justices at different times have been very upset by this and dissent, saying, you know, the Constitution does not get suspended in times of emergency, and the legislator can’t just say emergency and do whatever they want. And so that’s sort of where we are today with this ongoing emergency that the New York City reauthorizes about every three years. Every three years, they say, “Yep, still an emergency.” And for the reasons you stated and I just explained, one of the reasons it might be an emergency, although I doubt it is, is because the rent control laws themselves are creating the housing emergency because of the economic phenomena just described.
The “Best Case” for Rent Control [14:22]
Bob Zadek: Now, what is—give rent control more than the benefit of the doubt. Become, if you will, the most passionate advocate of rent control. And what is the alleged evil, the alleged circumstance, the negative circumstance that rent control is seeking to fix? Because what we’re going to do, Trevor, we’re going to see if rent control fixes the problem or, as you pointed out in terms of cutting back on the supply of housing, rent control actually provides no benefit to the intended beneficiaries. So who are the sympathetic citizens who rent control is trying to benefit?
Trevor Burrus: Well, I mean, if you get a rent-controlled apartment, you absolutely benefit from rent control. And that’s one reason why it’s very difficult to kind of get rid of these laws because if you have a constituency, you know, maybe 500,000 people in New York who have a rent-controlled apartment, well, they’re very, very interested in maintaining their rent-controlled apartment. So on one level, it’s just a concentrated benefits, diffused cost question where these very interested people who happen to win the lottery, so to speak, and get a rent-controlled apartment—and there’s a variety of ways you can do that. You know, the joke in New York City has always been looking in the obituaries to try and find someone who died in a rent-controlled apartment, you know, that’s paying 1950 rent, and then trying to get in there. And many of these laws, including New York City’s, have ways of transferring essentially to family members and other people who live there kind of in perpetuity the apartment at the rent that it was controlled at.
So what you see, as you said, there are beneficiaries. There are absolutely beneficiaries. This is like minimum wage, right? If you get a wage hike from minimum wage, then you believe that you are a beneficiary of minimum wage laws, which you are. What you can’t see are the ones who don’t get a job. And similarly speaking for rent control, the people you can’t see are the ones who don’t get an apartment, and then all the people who aren’t getting cheaper housing because apartment buildings are not being built at the same rate that they would be built if you had a free market system.
But I mean, on your point, though, like how do you make the best case for rent control? The most sensible case for rent control is based on the unequal bargaining power that is presumed between landlords and tenants. So the idea is that landlords have a lot of power over tenants. Moving is very, very difficult. So, you know, if landlords continually kind of squeeze you and you’re like, “Well, I can’t move because of my job, and I can’t afford a different place, and I can’t afford moving costs,” so the landlord can continually kind of squeeze you and raise your rent and all this stuff. And so the idea here is that these rent control laws equalize that and prevent the landlord from squeezing you. Now, that is not actually I think what is the case in bargaining power, but it is true. It’s hard to move, and landlords can maybe take advantage of that. So that’s one theory behind this.
Bob Zadek: Trevor, you said so much in that last explanation. It’s like the embarrassment of riches. First, you said the landlords can squeeze the tenants because of unequal bargaining power. Trevor, I would challenge anybody in the audience and my guest, you, Trevor, think back in your personal life the last time you bought or sold anything other than selling stuff on eBay. Putting aside eBay, when was the last time you bought or sold anything and there was equal bargaining power? It’s fair to say there sort of never is. When was the last time—sure, you went and bought a car from a dealer, if you did, and you can negotiate within about a $200 range, but other than that, you don’t have equal bargaining power. It costs what it costs. If you don’t like it, don’t buy the car.
So the concept of unequal bargaining power is kind of fake because the market—the overall market, the demand—will dictate the value. And while yes, the landlord has somewhat an advantage, but if the landlord charges too much—whatever that means, it means above the market—he will not have any takers. And the fact that rent is expensive—whatever that even means, because it’s all relative—it doesn’t mean the landlord is charging too much. By definition, the landlord is charging exactly what it is worth if somebody is willing to pay it. So that’s never—you almost can’t charge too much if somebody is willing to pay it.
And Trevor, the point you made, and it was such an important point, is that if we conclude, giving rent control the benefit of the doubt, if we conclude that rent control provides needed relief to people who can’t afford to pay market rent, if that’s the conclusion—it’s probably the only rational justification—then rent control is an absurd way to fix it because rent control doesn’t have a means test. It doesn’t say only people who have less money are protected by rent control. Rent control affords a benefit to whoever, as you said, Trevor, gets there first, not who is the most needy. So tell us a bit more about how little rent control as a concept focuses on a target audience of people who need it and how it doesn’t do that at all.
Rent Control as a Wealth Transfer [20:29]
Trevor Burrus: Yeah, the—so on your point about unequal bargaining power, like, you know, I think it’s important to say that, you know, this is—you mentioned price gouging laws earlier. This is one reason why people find those very attractive because they do—they do look at a situation, they imagine a situation of someone in need. Like, you could think of hypotheticals and say, you know, you’re driving through the desert with a bunch of bottles of water and you happen upon some guy who’s dying in the desert and you say, “Hey, I’ll sell you this water for $1,000,” right? People say this is not okay, right? That’s sort of where they’re coming from. Now, this, you know, I think this is not really what happens with price gouging laws or rent control.
But back to your question, I think that it’s important to note that in some sense, the price will always be paid, even if the money price is limited. Like, the best analogy here is to think about, say, Free Ice Cream Cone Day. Free Ice Cream Cone Day is not Free Ice Cream Cone Day. Free Ice Cream Cone Day is “pay with your time for an ice cream cone” day because you basically—you get a huge line outside of the ice cream shop, and then you wait, you know, 20 minutes to get a free ice cream cone wherein you don’t have to pay any money at the time, but you just paid 20 minutes of your time. So the new distribution price that they’re distributing the free ice cream cones are people’s time.
And in that situation, someone who has more free time, who doesn’t have a job or doesn’t have maybe anything to do that day, they’re going to get more of the ice cream cones or they’re going to get a privileged spot for the free ice cream cones compared to someone who maybe has to work that day. So you’re just choosing a different distribution principle. The price—the money price for ice cream cones on normal days are what make lines disappear, right? For economists, when they see a line, they basically say, “Well, why aren’t you just charging more money? Why is this line making people pay in their time, which no one captures?” That’s a deadweight loss, right? If you just waste 20 minutes of your time, no one is benefiting from that. But if you say, “How about I just pay you four bucks for an ice cream cone?”
The same principle is true for rent control. If you have an artificially low rent, the people who get it—we’re not distributing these apartments on the basis, as you pointed out, of like need or merit. You have rich people and wealthy people who get these apartments all the time. We’re distributing it based on some principle of time and luckiness. It’s like a lottery. And so in terms of attacking the problem for, you know, “Does this help the poor?” Like, they’re not even designed that way.
Now, there are like federal housing subsidies and different kind of vouchers that do go directly to people who demonstrate need, but rent control is not one of those. And as you pointed out a few minutes ago—and this is absolutely crucial for the constitutional question, and I want to make this very clear—that you are basically forcing a transfer. You’re—you know, this is what the Takings Clause, which we’ll get into, like says that private property cannot be taken except for public use and with just compensation. The point of this clause is to stop politicians from basically saying, “We need to do this. We need to provide better housing for people as a collective,” and then saying, “Well, we are going to do it, but the way we are going to do it”—this is a royal “we” in quotation marks—“is we’re going to make Dan the landowner essentially subsidize them.” So although we’re claiming that we care about fair housing, we are going to make Dan basically lose money because of our, you know, how beneficent we are.
And the Takings Clause said, “Sure, if you want to do that, if you’re doing something for a public benefit that quote-unquote we are all doing together, then pay Dan. I mean, compensate him. Why do we put all of this onto Dan the hypothetical landlord if we’re supposed to be beneficent people who care about our fellow citizens? Then Dan is the one taking the hit.” And this has come up in a lot of Supreme Court cases. Justice Scalia at one point was like, “That’s the purpose of the Takings Clause is to not put the onus on one person or one group of landowners or property holders that the rest of—that all of us are supposedly supposed to bear together.” But politicians don’t like that, right? It’s really attractive to just surreptitiously make people bear the brunt of the costs of the beneficence—I put that in quotes, too—of the politician and then not have to raise taxes and not have to compensate landlords. So it’s like a win-win for the politicians. But when we go back again, we cannot obscure what we’re doing. We’re forcing some people to bear the brunt for quote-unquote all of us, and that’s why compensation should be owed at minimum to these people.
The Constitutional Framework: Takings Clause [25:05]
Bob Zadek: I’m so glad you mentioned it. It was my very next topic I wanted to raise, and just as if I was kicking you under the virtual table and saying, “Get to the part about unfair taking from A to give to B.” You did it perfectly, and thank you so much for that. And just to emphasize it, because it’s one of the most important takeaways I would like our audience to have from our hour together, is that rent control—the politicians get to give wealth, do a wealth transfer to the tenant—and remember, it’s not necessarily a needy tenant. It’s a random tenant who happens to be at the right place at the right time or has political clout or savvy in the marketplace, but it certainly has nothing to do with wealth. It allows government to generously give a benefit to the tenant without raising taxes, at least not broad-based. It raises a tax, but it’s a really specific tax. It’s a tax on landlord to benefit a tenant.
What could be more offensive to how we see our relationship to government than government, just because somebody happens to own a residential dwelling, an apartment building—because somebody chose to own an apartment building, that fact alone, there’s no other fact, means that apartment building owner must bear the burden of a wealth transfer to a tenant which the landlord has never met, just because B is a tenant and A is a landlord. Nothing in my mind could be more offensive and more, if you will, un-American, at least in terms of how we see our economic life. Nothing could be more offensive than that.
So it’s simply a wealth transfer from landlords to tenant. Now, Trevor, thank you so much for teeing up the constitutional topic, because after all, this has profound constitutional implications, and these cases are still alive, and who knows what will happen? There are cases which I hope you’ll explain working its way through the system now. But you mentioned a second ago, and I want to just remind our audience that the Constitution prohibits government from taking property, confiscating somebody’s property. It’s in the Bill of Rights. You can’t do that except with just compensation and for a public purpose. And the Kelo case, although it was decided the wrong way, the aftermath of the Kelo case we all remember that—the little yellow house in Connecticut—the Kelo case and the aftermath taught us that you cannot use the Takings Clause to transfer property merely to transfer it from one private actor, the owner, to another private actor, a person—a private body who wants the property. But that is kind of what rent control does.
But now, Trevor, we get a chance to help our audience understand the principle between an absolute taking, which is eminent domain, and what has come to be called the regulatory taking, which more applies to rent control. So give us the picture of the constitutional framework in which rent control fits in so far as taking is concerned.
Regulatory Takings and Current Litigation [28:59]
Trevor Burrus: Traditional taking, as you pointed out, like the traditional idea of a taking is that the—it is a power, obviously, in the Constitution. Like, it says—it implies in the Fifth Amendment—that “nor shall private property be taken except for public use and with just compensation.” That means that private property can be taken if there is a public use and they give just compensation. And, you know, this was very important to the Framers, first of all, going to the broader point here. The Framers were extremely concerned with the way that political actors could misuse their power. And much of the Constitution is about that. That they would have called that a type of corruption—a corruption of the public zeal, the public responsibility that you have if you’re a politician. And if you remember at the time of the Constitution, like James Madison in particular, but pretty much everyone in Philadelphia convention, had looked at the way that different state governments under the Articles had become dominated by various interests who used the government to, you know, forgive debt, for example.
So the Takings Clause fits into that rubric. It fits into a rubric of saying if you don’t make the government pay just compensation, then they’re going to, you know, misbehave because all the incentives are there to misbehave if we don’t put this check on them. Now, to the question, so your classic example, you know, is just you have a house in the middle of what’s going to be a highway or a park or something like that or some new development, and the government comes and says, “We’re going to take your house, knock it down, but we’ll pay you the just compensation.” That, you know, that’s a pure confiscation of property. That’s what happened to Susette Kelo—it was a pink house—in the Kelo v. City of New London case. Like, her house, although eventually her house was moved, but everyone in that neighborhood had their houses taken and torn down.
The other type of taking is when the government puts so many regulations on your property that they essentially either—there’s a variety of ways you can look at this—destroy like essentially all economic use of it, or they maybe do something that allows someone, say a tenant, to occupy your property at a lower rent than you would want them to pay. And so essentially, they’re via regulation—the government is not directly taking it for the government’s purposes, but they are letting other people occupy your property. And I mean, it would be obvious to some extent, right? If the government passed a law that said anyone can go into your home at any time, like, that would be kind of like taking your property. Or someone has to live—you have to let someone live in your house, right? They just took your room, right? And they’d be like, “Well, you still have the whole house.” Well, yeah, but you took my room, like you took a room in my house but gave it to someone else.
The difficulty is using these complex formulas to try and weigh them together, right? So because there’s a lot of rules—this is where the justices and judges kind of struggle sometimes. If you think about all the rules that affect your property, you know, some of them make the price go up and some make the price go down, and like every rule that the government passes is not something maybe that you’re owed money for as just compensation because they took some part of your property. And so there’s a really complex Supreme Court jurisprudence on this, so we don’t have to get too much in this.
But like the challenges right now working their way up in the Second Circuit, they allege both like a regulatory taking—that the laws that are—they’re diminishing the value of the property in a way that requires just compensation—but they’re also just—they’re saying this is just an actual taking because the property is being occupied, right? Someone is actually, you know, being forced to rent to someone that they don’t want to rent to, so just like someone living in your house. And both claims are being brought. You know, it’s—the Second Circuit is getting ready to hear this. It kind of cruised through the district court, but, you know, we’ll see. But again, like the thing that I think is important is we understand the Takings Clause as the Framers did. It prevents the kind of malfeasance, it’s supposed to, that we see politicians doing with rent control laws, and that we need to have a really good test that is clear and says, “Look, if the government is making you—making someone occupy your land, that’s just a taking. That’s just is. Like, that—it couldn’t be clearer kind of,” which is the test that we’re pushing at the Supreme Court and elsewhere.
The “Housing Shortage” Myth [34:50]
Bob Zadek: Now, as a result of rent control, of course, landlords being rational economic actors, they respond to rent control. And remember, the purpose of rent control is there is an alleged shortage of—and I hate the phrase, I almost slap myself for even saying it, but I’m going to have to say it because I don’t have a better way to express my thought—there’s a shortage of—here comes the phrase—affordable housing. Ugh, God punish me for saying that. There’s a shortage of affordable housing, a shortage of housing which causes prices to go up, and rent control will fix that.
Now, one would think if there’s a shortage of affordable housing and that causes prices to go up, that means if there’s more housing, prices will go down. But rent control has the opposite effect, as Trevor said in the introduction to our topic, that rent control obviously exacerbates the supply. It prevents houses from being built. Who in the world would build rental property if you’re limited how much you can make and you cannot charge what the market will bear? You have no incentive to build and no incentive to improve. So the first thing, Trevor, that you mentioned earlier is landlords simply do not build housing, at least not rental housing. And also, there’s a lot of, I believe, Trevor, you’ll help me with this, conversion of rental property to cooperative or condominium housing, which happens. So tell us about that dynamic and how that also exacerbates the problem but sure doesn’t fix it.
Trevor Burrus: Yeah, it’s interesting because, you know, when these lawmakers who continually believe that magic words can solve problems—“health care is not affordable, pass the Affordable Care Act; rent is not affordable, pass the Affordable Rent Act”—and then of course, people respond with the incentives to those new laws. And then they’re like, “Well, we have to”—one of these, as you point out, is to take things and stop them from being rental properties because you can’t maintain the thing and you’re not making any money, and so you start converting them to condominiums or cooperatives.
And so then the lawmakers go with this obvious, you know, clear incentive that the landlords are responding to, it’s like, “Okay, now we have to pass another law.” This is this sort of perpetual game of—I always call these the “There Was an Old Lady Who Swallowed a Fly,” if you remember that old nursery rhyme where she swallows a fly and then she swallows a spider to get the fly and then she swallows like a cat and, you know, that whole thing. But that’s a lot of times what lawmakers are doing. They’re continually passing something to band-aid over what was ultimately created by the first law or the second law or the third law.
So then you have laws that come into place that say, “Okay, we’re going to restrict how landowners can convert something into condominiums.” And so New York has one that says that 51% of existing tenants have to vote essentially, so they empower tenants to be able to determine how a landlord can use their property. We recently will be filing in a case this week called Pactel, which is at the cert stage at the Supreme Court, wherein San Francisco has an ordinance again—it was an ordinance that comes from all the onerous property regulations in San Francisco, including rent control—that says if you do turn your apartment building into condominiums, you have to offer existing tenants essentially a lifetime rental contract. And so that one’s being challenged on similar grounds. So yeah, again, people respond to incentives. It seems—it shouldn’t blow anyone’s minds, but it continually blows a lot of politicians’ minds that these things don’t end up working the way that they thought they would work because they haven’t taken an economics 101 case, and so they keep having to kind of, you know, double down and double down. And again, all these are just onerous regulations on property where we’re making these landlords—the thing that I want to say that again, but I mean, for me, it’s like when the—if we are supposed to care about this, then why are we making one person bear all the brunt of this cost? I just say it over and over, it’s the same with the Endangered Species Act and all these other things. If this is about we, then pay for it. But it’s not about that. It’s about political theater. It’s about putting costs onto certain people and not having to raise taxes.
The Price of Housing vs. Shortage [37:58]
Bob Zadek: And of course, we—you and I know, Trevor, that the reason rent control as a way to convey value to—allegedly, of course, as we said earlier, it doesn’t work—but to convey value to B and curry B’s favor because the government is giving B something. What you do is you can give value from the government, which means the government has to acquire the value, i.e., raise taxes. But the government can appear to be generous by giving a benefit to B, but all the government is doing is compelling A, the landlord, to give the benefit. So the government gets the credit from B, and there are more tenants than landlords in this country. Therefore, that is a sure vote-getter because if you’re running for office, you’re better off having the support of multiple tenants than much fewer landlords. So it actually makes political sense. It just violates everything that we stand for.
And I’d like to go back, Trevor, to the one of the core reasons for rent control, which is we have allegedly a housing shortage. Because if there wasn’t a housing shortage, then rents would not go up, whatever “up” means. So it is the housing shortage, in air quotes, that is the core source of the problem. Trevor, I’d like to have an enjoyable exchange—I think an enjoyable exchange with you. What does “housing shortage” mean in everyday conversation? Because I would maintain we never have, ever have had a housing shortage, and indeed we always will have a housing shortage depending upon how you define it. So Trevor, as that phrase appears in everyday conversation, what do people think it means for there to be a housing shortage?
Trevor Burrus: Well, I mean, there’s—you know, in everyday conversation, it means that people are not getting what they think that they as much as they want and which is—at the price that they can afford, which is a fairly mundane, you know, observation on one level, right? Like, is there a shortage of, you know, anything if you—if you can’t consume, you know, as much as you want of it?
Bob Zadek: We have a shortage of diamonds. A terrible shortage of diamonds because they’re too expensive. You can’t buy a dozen at a time. Too expensive.
Trevor Burrus: So that’s one way of looking at it. But I also think the economist, you know, uses the term “shortage” in a more specific way because there’s two terms in economics that matter. One is scarcity. So some things are inherently scarce, like platinum or plutonium or diamonds to some extent. And the other one is shortage. And shortage in economics terms is a combination of a price and supply. So shortages can occur in this sense, not in the colloquial sense, but they can occur if the government comes in and meddles with the price and then creates artificially high demand that can’t be—and then restricts supply. That is a classic shortage. But it’s not what people mean when they say, “Oh, I want a bigger house and more housing and I want diamonds and I want all this stuff.” But like, it is true that the rent control creates an economic shortage because of how it messes up the demand and supply.
Bob Zadek: I would say there never is a shortage. That is to say, if you mentioned precious metals as being sometimes there is a shortage of them. Well, not really. If somebody—if price was no object, anybody who wanted a precious metal or an apartment in Manhattan, anybody who wanted either of those two commodities, if price was not object, they would get it. So the shortage is never of the number of units available. It’s only the price. So price shortage—so shortages, physical shortages never exist, only price gets to be too high.
Therefore, a housing shortage merely means that there’s housing for anybody who wants it anywhere on Earth. However, that person may not be able to afford it. But people have no inherent right to be able to buy anything. The fact that many people can’t afford to live in Manhattan at market rents doesn’t mean there’s a shortage. It just means it’s too expensive, so some people can’t afford to live there. Well, since nobody has an inherent right to live there, ergo, there can never be a shortage, and therefore this is never a housing shortage, only the issue is only the price. And if you—if you have agreed with me in what I said, then if the problem is only price, there’s only one sensible cure for the price of anything, which is increase the supply, and like magic, the price will go down. And Trevor, of course, respond to my analysis that I just gave.
Trevor Burrus: Well, I think you’re saying the same thing that I’m saying, but I do want to be clear, though. Like, the economists use the term—they believe in shortages because there are. Like, so if—in this term, we—you’re right, it’s a—as I said before, it’s a function of price. So if—right now, you know, Lamborghinis cost whatever, $500,000, and the people who want a Lamborghini for $500,000 go out and get a Lamborghini for $500,000, and so there’s no shortage of Lamborghinis. But if the government passed a law that said you can’t charge more than $200,000 for a Lamborghini, then a lot more people are going to want to buy Lamborghinis, and Lamborghini is going to sell fewer Lamborghinis, and that gap at the now mandated price is a shortage.
Bob Zadek: That’s correct. It’s—but it’s caused by messing around with the price. If you don’t mess around with the price, there cannot be a shortage. There can be—I often have—we have discussions once in a while on my show about California’s water problems, and we always have like droughts and water shortages. And I respond by saying, “No, there’s no shortage of water in California. There’s only a shortage of free water.” There’s plenty of water if you want to pay for it, but it’s not free. So it always comes back to price. If you allow prices to reach their natural level, there never can be a shortage per se. And that’s the important point that rent control misses.
Evidence from Repeal and Implementation [46:00]
Bob Zadek: And now, Trevor, there’s been—I mean, you’re—I just—there’s—are there any examples, Trevor, where cities or states have repealed rent control and there is tangible statistical data that shows the housing problem was relieved? And also, are there studies where areas have imposed rent control, it is the data is clear that the housing problem, if it is a housing problem, became exacerbated? Is this—are there studies that support what you and I know has to be the case?
Trevor Burrus: Oh, yeah, absolutely. And, you know, this isn’t a complicated issue. Like, in one survey that was done, I remember a couple decades ago, 93% of economists said that rent control was a bad idea. So this isn’t like a really controversial position. It’s just politically difficult. Like I mentioned earlier, like Sweden was one that, you know, everyone talks about Sweden as so socialist, quote-unquote socialist, but like beginning in the ’70s, they started repealing a bunch of these anti-market laws, and one of them was a really, really massive rent control housing subsidy that was causing a huge housing shortage. They were building houses really quickly, but like people were occupying more housing than they needed. So we’ve seen that. We—I mean, there are studies about like the slow diminishment of the housing supply in New York City as every year because of lack of maintenance costs, they start taking—you know, people start taking these rental places, either they tear them down or they’re dilapidated. So yeah, it’s absolutely corroborated by the data. It’s just not, you know, it’s just politically a good idea, not an economically good idea.
The Creation of Property Interests in Tenants [48:07]
Bob Zadek: We only have a couple of minutes left, but I’m hoping you can explain one last dynamic in rent control, perhaps the most insidious of all. And that is, traditionally, an owner of real property owns the property and has all the benefits of ownership, and he then conveys an interest in the property to a tenant. “You can be here for a limited period of time. You don’t own anything. You have the right to be here for the term of the lease so long as you pay me rent.” So we all know, even without being lawyers, what it means to own something and what it means to rent something. Owning the car versus renting the car. We understand that.
But rent control laws have this insidious provision that in effect creates in a tenancy an ownership interest. Now, Trevor, if you can do so in about a minute, help us understand the big picture of how tenants end up by doing nothing other than signing a lease, they actually acquire an ownership interest which is transferable in the property in which they are renting.
Trevor Burrus: Yeah, the most—many rent control laws, and especially New York’s and these amendments that they passed in 2019 made it even worse, where you have—you have some rule that a rent-controlled apartment can be transferred to someone, usually a family member, but New York’s law, I believe it says that anyone who has lived in that apartment with you for a period of two years can be a transferee, and the landlord has nothing to say about it. And that can go on forever and ever and ever.
Bob Zadek: So therefore, we end up with the landlord involuntarily being forced to convey an interest in real property that he owns or she owns and purchased to a tenant merely by accident of the tenant occupying the premises. So rent control laws violate almost everything we think we understand about private property in America. Now, Trevor, we have about a minute left. Tell us how our friends out there can follow your work at Cato and tell us about the blog that you do, which is a wonderful blog.
Trevor Burrus: Yeah, you can follow me at cato.org. All my stuff is there. And I also co-host a weekly podcast that is called Free Thoughts. It’s from the Cato project libertarianism.org, and we cover libertarian history, philosophy, theory. We have about 400 episodes. We’ve been going for about eight years now. You can find that at libertarianism.org or you can find it on Apple Podcasts or Stitcher or wherever you listen to your podcasts.
Bob Zadek: And what information on Cato itself is available?
Trevor Burrus: Cato, yeah, Cato is a, you know, think tank in Washington, D.C. If you go to cato.org, you will find stuff covering pretty much any public policy question that you have, from trade to foreign policy to law, criminal justice, and it’s sort of a one-stop shop if you’re looking for solutions that focus on limited government, free markets, and individual liberty.
Bob Zadek: Thank you so much for your time, Trevor, and thank you to my friends out there for listening. I’ll be back again next Sunday. Have a good balance of the weekend.