Bastiat's Bastions

It seems that New Orleans Mayor, Ray “Willy Wonka” Nagin, is at it again. If you haven’t noticed, he recently told a group of publishers that he believes that there has been some plot to change the racial makeup of New Orleans. Sure, the proportion of the city’s population that is African-American has declined. Let’s take a look at some of what has happened, though. A city that was about 60% African-American was the site of one of the biggest disasters this nation has ever faced, with a month of flooded streets and housing. Hundreds of thousands of New Orleans residents evacuated the city, many after being caught in the devastating floods themselves. Hundreds of thousands of former New Orleans residents have moved elsewhere, many to other states. Some like their new cities better than New Orleans. And with skyrocketing rents, many just cannot afford to move back.

A solution that some have suggested (hear the story on the Free Speech Radio Network, click on Real Audio and go to 5 minutes and 10 seconds into the broadcast to hear the story) is to impose rent controls so that poor people can afford to move back.

There is just one problem: while rent controls will make it more affordable for people to move into New Orleans, it will bring the rebuilding, especially the rebuilding of rental property, to a halt. With no one willing to provide rental housing, the current shortage of housing will only be exacerbated by the short-sighted solution of rent controls. Affording apartments is one thing, finding such apartments available is another thing altogether.

For every rental unit a family moves into, someone else has to build and offer that unit on the market. Transactions are all two sided. If we focus only on one side of the market, the buyers’ side, we tend to forget about the other side, taking the sellers’ activities for granted—to our detriment.

For someone to build and offer housing units for rent, there has to be something in it for them, some profit of some kind. If rents are controlled and set below what they already are, it will only make housing shortages worse, not better. At low rents landlords will be unwilling to rent out their units and will turn to other, more profitable investments. Landlords will turn the few rental units they have into condos and offices. If forced to rent those units, landlords will be slow to fix things, and areas of rental housing will soon be blighted. As George Mason economist Walter Williams has said, “Short of aerial bombardment, the best way to destroy a city is through rent control.”

And, as we have discussed in class, rent controls also invite racial discrimination, favoring whites, and exploitation of the shortages by landlords who then demand payments in non-monetary forms.

The group, The People’s Hurricane Relief Fund, has also complained that renters have been denied the help that property owners have received (this is from the story above on Free Speech Radio). Both owners of owner-occupied housing and rental housing have been slated for help to rebuild their housing. You should be able to explain why it does not matter whether renters trying to come back to New Orleans or the landlords receive the housing subsidies, that ultimately, the rent will be the same no matter who receives the housing subsidy.

Two city councilwomen have tried to impose moratoriums on multi-family housing units. Read Bruce Eggler’s Times-Picyune article about the proposal here.

Politicians will continue to point fingers at mysterious conspiracies, because, it draws attention away from their own poor policies and sometimes even counterproductive policies. Nagin himself had even considered imposing rent controls right after the hurricane (listen to this story on NPR from 2005).

And when politicians start raising the possibility of rent controls and moratoriums, potential investors, those who we rely on to OK rebuilding, will see those policies as being more likely to occur, and will be less likely to invest.

If rent controls are imposed, the city will never be rebuilt, because there will be no rental housing available for renters to move back to. What does it matter what the rent is if there are no units available at that low rate? And the city will remain less African American than it had been. And it will be the fault of some conspiracy–of the mayor, members of the city council, the People’s Hurricane Relief Fund—a conspiracy of dunces.

MC

This entry was posted on Monday, March 19th, 2007 at 1:57 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.