Price controls are currently being discussed on Capitol Hill, Washington DC, as a solution to the current cost of living crisis.
Are price controls and rent controls the path of least resistance in the current crisis?
As Darren Winters points out, those favoring more government intervention believe interest rates should be kept low to help finance state capitalism and Universal Basic Income UBI. Interventionists are not worried about expanding public debt providing interest on the debt is manageable in a low-interest-rate climate.
Interventionists believe households can afford higher prices for discretionary items because UBI counteracts inflated costs. Moreover, price controls and rent controls force inflation down for non-discretionary items.
But there is a flaw in interventionist reasoning; keeping interest rates low to finance free money for all and outlawing inflation through price controls leads to shortages, higher prices, and a currency crisis.
Increasing the supply of goods and services reduces prices, and increasing the money supply increases prices.
Price controls could be implemented over the coming decade
White House prepares new tenant protections, alarming housing industry, according to Politico.
The industry is bracing for “some pretty intense regulation,” said Jerry Howard, CEO of the National Association of Home Builders, whose members include landlords. “They need to be very cautious about what they’re doing,” said Howard, who was one of a handful of industry representatives at a November White House meeting on tenant protections. “There’s a real chance of creating a problem that doesn’t exist.”
Democrats want the administration to enact new restrictions on rent hikes and punish landlords they accuse of price-gouging.
The White House is preparing to roll out new measures as soon as this month to protect tenants in the wake of post-pandemic price spikes, according to housing advocates and industry lobbyists who have met with administration officials.
The actions — which will come even as rents have started to fall around the country — could include promoting grace periods for late rents and the right to counsel for tenants facing eviction, among other steps, advocates say.
Price controls on the amount tenants can be charged rent in the era of high interest rates is a war on buy-to-let landlords
Again we see how policy in State Capitalism central planners become the invisible hands of the market, thereby influencing prices and capital flows.
But price controls are likely to pull speculative capital out of the real estate as landlords no longer see the risk-reward stacked in their favor. The cost of maintaining the property, and taxes keep going higher and with laws favoring the tenant all this is likely to reduce the supply of rental properties
The invisible hand of the market is already doing the work of price controls
Waning demand due to a cost of living crisis is forcing landlords to lower rent to attract tenants.
“Complicating this process isn’t good at any time in the market cycle,” said Greg Brown, senior vice president of government affairs at the National Apartment Association. “But we’re in the fourth straight month of rent declines. I think things are adjusting again, so it does raise the question, are they responding to a situation of three to four months ago, not what is currently happening or will be happening in the near future?”
Moreover, due to the time lag of constructors responding to higher prices, a year ago, the supply of housing is about to increase as prices come tumbling down in 2023.
“A lot of rental supply is going to be completed in 2023 — we’re going to see more completions than we have in 40-plus years,” said Jay Parsons, chief economist at RealPage, a property management software provider. “The balance of power has shifted toward renters — they’re going to have more options, more competitive pricing, and better deals.”
Price controls are recycled policies that failed in previous decades
As Darren Winters points out, rent controls of the 1970s were not successful
What do price controls, and rent controls mean for investors?
An investment safe as houses will no longer be true in a climate of price controls.
Why would investors risk capital investment in real estate when they have to deal with spiralling maintenance costs, rising taxes, insurance costs, and higher debt servicing costs and are prevented from raising rent to cover costs?
In a market, where price information is democratic, greedy price-gouging landlords that offer substandard properties go out of business.
More affordable public housing with the option of tenants being able to buy could be a solution to the housing crisis.
Price controls in real estate encourage people to rent or own nothing, and as remaining landlords under-invest in property maintenance that leads to poorly maintained properties, slum streets, and slum cities.
People instinctively care for and look after their property. The person washing his or her car on a Sunday owns it and you can bet your bottom dollar on that.
Price controls and rent controls are sexy sound bites in a cost-of-living crisis, but they have been a long-term failure
Last year, 2021 Berlin’s rent cap was overturned by Germany’s top court
“Ideology solves no problems, not in the housing market either. In the long-term, only a sufficient supply of housing can secure affordable rents,” Kai Wegner, a spokesman for the CDU federal parliamentary group.
So let the uncorrupted invisible hand of the market do its job and provide means-tested subsidies, not price controls, for those falling on hard times for whatever reason.