The Problem with Governments Intervening in the Market

You may have heard that the New York State Assembly recently passed a law that re-invigorates rent control in New York. If you're not a conservative, you probably think that's a good thing, since rents in New York and other big cities have been soaring.

But rent control does not help everyone equally:

Manhattan renters get a steep discount from market rents in the same neighborhood: about $1,000 a month per apartment, up to nearly $2,000 a month in Manhattan’s Upper West Side. In many less affluent working-class neighborhoods, regulated rents are no different than, or only slightly below, market rate rents in the same locale.

….In all of Manhattan, median regulated rents were 53% below median market rates in the borough. In Queens, 8.6% were below market rates; in the Bronx, it was 13.5%; and in Brooklyn it was 16.7%, the analysis found.

….More affluent renters also received a bigger discount from market rent. A typical renter with an income in the top quarter of all New York households paid about $1,650 in rent, compared with $2,700 in rent for a similar renter paying market rents, a discount of 39%. For a renter in the bottom quarter of income the difference was 15%.

White renters in rent-protected apartments benefited more than any other race group, the analysis found, with a discount of 36% from market rates, compared with 16% for black renters and 17% for Hispanic renters.

This is because landlords are entitled to a rent that will cover the expense of maintaining the building, the mortgage payments, and the like, and in a working class neighborhood their margin above that is just not very large. Renting to poor people is a rough business. So there is only so much the government can do to hold down rents.

That doesn't mean that rent control does no good for ordinary folks; a 10% discount may still be important for people on a strict budget. Rent control also keeps rents from rising rapidly should a neighborhood gentrify.

But the overwhelming share of the benefits flows to upper middle class folks in Manhattan, and even to millionaires.

You could easily end this problem by setting an income limit on benefiting from rent control. This hasn't been done 1) because it would just incentivize landlords to seek out rich tenants, and 2) because the upper middle class people who benefit from rent control scream bloody murder every time it is suggested.

Not that rents in New York are the crucial thing we should worry about, and who wins this struggle between rich landlords and rich tenants is of no great consequence for the republic. But it points to an important problem with regulation. In any democracy the people who are engaged wield disproportionate power, and in general it is the well-educated and well-to-do who are engaged. Poor people don't vote or organize or protest nearly as effectively, so it often happens that measures taken under the guise of helping them often help someone with more power at least as much.

This is why I think we should support programs like Social Security that help everyone; they help the poor more than they help anyone else, but because the middle and upper middle classes who control our politics also benefit, they have powerful defenders. Special interest provisions that (for example) only help New Yorkers lucky enough to have rent-controlled apartments do not impress me as particularly useful, or worth fighting for.