Page 72 - AAGLA-APR 2022

Property Management
A History of Price Controls
A rational and reasonable person considering inflation and its obvious impacts on people with less money might conclude that the government should simply set or control prices, limiting the amount that sellers could ask. This idea has been around as long as people have. Hammurabi’s Code (c. 1792 — c. 1750 BCE), one of the earliest known legal documents, literally written in stone, had very specific price controls (law 272,“If any one hire a cart alone, he shall pay forty ka of corn per day). About 2,000 years later, the Roman Emperor issued an “Edict on Maximum Prices” which set very specific prices (best quality olive oil 30 cents) for goods and services to stop the “avarice that swells and grows with fierce flame” among merchants. What was the penalty for violating the edict? Death! But it was universally violated.
As recently as the 1970s the United
States attempted a series of price
and wage controls to tame rising
prices. Like all the efforts before,
the controls failed, creating
widespread shortages of basic items
and food. So why do politicians
keep proposing orders and laws to
halt prices by fiat? It’s good politics
and it seems to provide the fastest
and most compassionate solution.
However, the evidence from the
last 4,000 years shows us that
efforts to control prices have the
opposite effect: they discourage
production, cause hoarding, and
result in rationing of goods. Most
importantly, price controls don’t
stop rising prices since scarce
items still command high prices
in uncontrolled black markets,
and when those items do become
available at the set price, their limited supply means that few people will ever get the item at lower cost.
The History of Rent Control
An older but still very useful history of rent control by John W. Willis, Short History of Rent Control Laws, shows that rent control is as old as other price controls or at least as old as the Roman Empire. Willis makes the case that throughout history war and disaster played a role in housing inflation that led to governments attempting to control housing prices. Often this was due to loss of income by tenants resulting in an inability to pay, but in every case looked at by Willis across Europe and Asia, it was scarcity of housing and the inelasticity of housing that drives the disequilibrium between supply and demand.
Rent is an inflexible charge. If it goes up, the tenant has little choice but to pay more or to move to a less expensive lodging, and in times of housing shortages the latter alternative is an
illusory one.
And for landlords facing rent control the complaint then was familiar as the one we hear today.
About all he can do is refuse to build new housing. Some invasion of the rights of the landlord is of course implicit in the idea of rent control. Willis also points out that, “If the history of rent control teaches any lesson, it is that once such controls have been imposed, they are difficult to remove.” Willis mentions Austria’s imposition of rent controls before World War II which through republican, authoritarian, and Nazi periods, that only ended when the national government “permanently assumed the responsibility for providing housing.
In the United States, rent control has always been controversial. As far back as the onset of World War II, when the federal government considered rent control, the National Defense Advisory Commission saw the relationship between low supply and high prices and recommended that controls only “be resorted to only when new construction is not sufficiently rapid and extensive to meet the need and where local communities can find no other means to check a disastrous rise in rents.”
Willis ends his history with an outline of arguments leveled at rent control up to the post war period, some valid in his view, and others “claptrap” and “spurious.” Those arguments are very similar to the ones we hear today.
• Rent control stifles new construction. Controls create uncertainty about whether the costs of new construction will create enough return to recoup the costs of construction and operations.
• Rent control drives existing housing off the rental market. Controls do this for the same reasons they stifle production. When revenues are low, and costs to operate rentals get too high, owners covert units into a use other than rental housing.
• Rent control leads to large public housing programs. This warrants further discussion, but even in 1950 there was a sense that once rents are controlled, private business leaves the housing economy, and a situation like post-war Austria will arise: state ownership and management of all housing.
• Rent control causes hoarding. “Tenants therefore
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72 APRIL 2022 • WWW.AAGLA.ORG