Rethinking Rent Control

I confess, I'm a little surprised to see someone defending rent control in this day and age.  There is almost no economist consensus so complete--left to right--as that rent control is "the best way to destroy a city's housing stock short of aerial bombardment". 

But commenter Muzzybelly takes the contrarian position:

Rent control is only bad policy if you look at it from a narrow angle.

Rent control saved New York. The city could have completely emptied in the 60s and 70s like many other American cities, but it did not. Rent control and stabilization gave too many people an incentive to stay. The stage was set for New York to re-emerge in the 1990s, in a way that no other hollowed out American city possibly could.

Yes, rent control has its problems. Also, it has been implemented somewhat unintelligently at times. Parts of the Bronx were devastated when money-losing buildings were torched for the insurance money by cash-strapped owners.

But for those of you who know New York, think back to the East Village and Alphabet City of the 1980s. It was a disaster. Practically the whole area was junkie town, crime was so high, shops went out of business. And to the north was Stuy Town, a huge hulking mass of middle-class workers who didn't get pushed out of the city they way they did in Pittsburgh, Cleveland, Detroit, St. Louis etc. Those middle-class workers kept the East 20s and 30s in business, and allowed the East Village to be able to recover.

I like me some contrarian economics, but I think this theory has a bunch of problems:

  1. Rent control was not implemented differently in the Bronx and Manhattan, so why did it result in buildings being torched only in the Bronx?  This points to exogenous demand as the important factor, not rent control.1
  2. Why did rent control only "save" Manhattan south of 96th Street and a tiny sliver of Brooklyn?  Arguably, because those were the only places where people had apartments below market prices in the 1960s . . . but this doesn't explain why the market price didn't fall, as it did in many parts of town, rendering rent control regulations moot.
  3. Stuyvesant Town was not the only rent controlled/stabilized building in the general area.  It was, however, the one next to the subway stop.
  4. New York's geography tends to tell a pretty compelling story; there is a fairly hard limit on how many people can enter Manhattan in the morning, set by the carrying capacity of its bridges and tunnels.  New York also had a much more built out suburban surrounds by the 1950s than most cities, thanks to its extensive rail network, which made "white flight" more costly to the flyers.  This shows up in the fact that New York's cheap exurban housing is now often found in places like the Poconos, three hours away.

Having grown up in New York, when I look at Stuyvesant Town, I don't see some extraordinary island of prosperity that helped "save the city" through its rent control.  I see a very large apartment building complex on the edge of affluent neighborhoods like Grammercy Park, convenient to the subway and other amenities.  The neighborhood I grew up in looked very similar without benefit of huge rent-controlled complexes--we were the transitional edge between the affluent West Side, and Harlem.  But most of the buildings in my neighborhood had been taken out of rent control and gone co-op.  I could as easily credit New York's salvation to the end of stabilization as hundreds of thousands of units went co-op or condo.  But I doubt that's the correct explanation, either.

1For the purposes of this post, I am treating rent control and rent stabilization as the same

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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