Rent control as a transfer of property rights
In a January 2016 episode, Bob Zadek introduced rent control as an interference in the housing market and asked Randal O’Toole how it affects the cost and quantity of available housing. O’Toole, identified by Zadek as being at Cato, answered that rent control takes away property rights: it says the owner of a house or apartment does not own the rights to price that apartment, so the renters own that price and the owner has lost property rights. A builder, O’Toole said, will respond by not building apartments and building only condos and single-family homes, because nobody wants to be a landlord when they lose the right to price the apartment. He added that it is no coincidence that the cities in America that have rent control also have some of the most unaffordable housing, and that they do not have rent control because housing was unaffordable but have unaffordable housing because of rent control. Randal O’Toole on Rising Rents (2016)
Zadek described the effect on existing tenants: people in rent-controlled apartments, such as a retired couple in a seven-room apartment, stay because they cannot afford to leave, leaving unused space that a family of four could use. O’Toole then raised a second policy he called equally bad—inclusionary zoning, or mandatory affordable housing requirements—under which a builder who builds more than a certain number of units a year must sell or rent a percentage, usually 15 to 20%, below market, often below cost. Builders build less because they cannot afford it, and the units they do build are sold or rented for more to make up for losses on the required affordable ones. O’Toole said inclusionary zoning lets a lucky few have affordable housing while everybody else pays more, and that rent control works the same way, with a few winners and a lot of losers; the winners lobby to keep their gains, and the losers do not realize what is happening. Randal O’Toole on Rising Rents (2016)
In closing, Zadek said inclusionary zoning creates so few units of affordable housing that it is virtually a lottery, providing no structural or institutional solution and creating a lucky few who live in housing they could not otherwise afford. O’Toole mentioned his book American Nightmare: How Government Undermines the Affordability of Housing, papers on the cato.org website, and his blog The Antiplanner. Zadek closed by saying the answer to why rent is too damn high is that government made rent too damn high so that government can accomplish other social, environmental, or economic goals at the expense of a population that never got to vote on those goals but gets to pick up the tab. Randal O’Toole on Rising Rents (2016)
Rent control as a taking
A March 2021 episode with Trevor Burrus moved the discussion to constitutional doctrine. Zadek framed rent control as a wealth transfer from landlords to tenants, in which government gives a benefit to a tenant without raising broad-based taxes—a specific tax on a landlord to benefit a tenant. He said the Constitution prohibits government from taking property except with just compensation and for a public purpose, and that the Kelo case and its aftermath taught that the Takings Clause cannot be used to transfer property merely from one private actor to another. Escaping the Statrix: Trevor Burrus’s Rent Control Red Pill (2021)
Burrus distinguished the traditional taking—the classic example of a house in the path of a highway, park, or development, where government takes the house and pays just compensation—from the regulatory taking, where government puts so many regulations on property that it destroys essentially all economic use, or lets someone such as a tenant occupy the property at a lower rent than the owner would want. He said the difficulty lies in the complex formulas courts use to weigh such rules, and that there is a complex Supreme Court jurisprudence on the subject. He described challenges working their way up in the Second Circuit that allege both a regulatory taking and an actual taking because the property is being occupied—someone is forced to rent to someone they do not want to rent to. Burrus said the Second Circuit was getting ready to hear the matter after it cruised through the district court, and that the test being pushed at the Supreme Court and elsewhere is that if government makes someone occupy your land, that is just a taking. Escaping the Statrix: Trevor Burrus’s Rent Control Red Pill (2021)
Burrus also described a case called Pactel, at the cert stage at the Supreme Court, involving a San Francisco ordinance that, if an apartment building is turned into condominiums, requires offering existing tenants essentially a lifetime rental contract. He said the ordinance comes from onerous property regulations in San Francisco, including rent control, and is being challenged on similar grounds. He described lawmakers passing one law after another to band-aid over what earlier laws created, comparing the process to the nursery rhyme “There Was an Old Lady Who Swallowed a Fly,” and said New York has a law requiring 51% of existing tenants to vote on conversion, empowering tenants to determine how a landlord can use their property. Escaping the Statrix: Trevor Burrus’s Rent Control Red Pill (2021)
The shortage question
In the same episode, Zadek said the alleged shortage of affordable housing is the stated reason for rent control, and that rent control has the opposite effect: it prevents houses from being built, since no one would build rental property when limited in what they can charge, and it creates no incentive to improve. He asked Burrus about conversion of rental property to cooperative or condominium housing. Burrus answered that landlords respond to incentives by converting rental properties to condominiums or cooperatives when they cannot maintain the property and make no money, and that lawmakers then pass further laws in response. Escaping the Statrix: Trevor Burrus’s Rent Control Red Pill (2021)
Zadek maintained that there is never a physical housing shortage, only a price problem: if price were no object, anyone who wanted an apartment in Manhattan could get one, and since nobody has an inherent right to live there, there can never be a shortage. He said the only sensible cure for price is to increase supply, and the price will go down. Burrus agreed in part but distinguished scarcity from shortage in economic terms: a shortage is a combination of price and supply, and can occur when government meddles with the price, creating artificially high demand while restricting supply. He illustrated with Lamborghinis: at $500,000, people who want one at that price buy one, so there is no shortage; if government capped the price at $200,000, more people would want to buy and Lamborghini would sell fewer, and the gap at the mandated price is a shortage. Zadek replied that this is caused by messing around with the price, and that if you do not mess around with the price, there cannot be a shortage. Escaping the Statrix: Trevor Burrus’s Rent Control Red Pill (2021)
Across episodes
The excerpts show the same question argued in more than one episode, with the treatment shifting from economic consequences to constitutional doctrine. In the 2016 episode, O’Toole advanced the argument that rent control and inclusionary zoning reduce supply and raise prices for everyone but a lucky few; in the 2021 episode, Burrus advanced the argument that rent control is a regulatory taking and described litigation in the Second Circuit and a San Francisco ordinance challenged at the Supreme Court. The 2022 episode with Art Carden, in the portion of the excerpt available, discusses competitive markets as a “world of truth” and the definition of economic waste, but the excerpt breaks off before any treatment of rent control or housing, so it does not develop the topic. Art Carden on Price Theory & Its Discontents (2022)
What the sources do not cover
The excerpts do not state the outcome of the Second Circuit litigation or of the Pactel case, nor do they identify the parties, the statutes, or the amendments on which those challenges turn beyond the general reference to the Takings Clause. The excerpts do not give the founding date or membership of Cato, the full title or publication date of O’Toole’s book, or the city or state in which the San Francisco ordinance was enacted beyond the name San Francisco. The excerpts do not state what Kelo held beyond Zadek’s characterization that it was decided the wrong way and that its aftermath taught a limit on transfers between private actors, and they do not state the ending of the 2022 excerpt, which breaks off mid-sentence.