The Economist has an article discussing the predictable failure of Berlin’s new rent control law:
And indeed a recent study by the German Institute for Economic Research found that rents in the newly regulated market of flats built before 2014 have declined by 11% compared with the still-unregulated market for newer buildings.
But the problem, entirely foreseeable and foreseen, is that the caps have made the city’s housing shortage much worse: the number of classified ads for rentals has fallen by more than half. Tenants, naturally enough, stick to their rent-capped apartments like glue. Landlords use flats for themselves, sell them or simply keep them empty in the hope that the court will nix the new regulation. Meanwhile, rents and sale prices in the still-unregulated part of the market, and in cities close to Berlin, such as Potsdam, have risen far faster than in other big German cities.
In addition, rent control also discourages landlords from properly maintaining their buildings. In the long run, the quality of rent-controlled buildings will tend to approximate their price. And this can cause discord between tenants and landlords:
The rent cap has managed to make Berlin’s housing shortage even worse—and poisoned relations between tenants and their landlords.
Socialism is sometimes defined as statism plus egalitarianism. But these are actually quite different policies, and in my view statism is far worse. Regulations such as rent controls, minimum wage laws and immigration restrictions tend to pit one person against another, reducing cooperation and making society more cruel in the process. Egalitarian policies such as progressive taxes can also have negative effects in areas such as work incentives, but they don’t tend to undermine civic virtue in quite as pronounced fashion as statist policies. I’d rather live in a free market country with progressive taxes than a statist economy with flat taxes.
READER COMMENTS
Mira
Mar 29 2021 at 7:45pm
I’m curious why controls & regulations indicate statism while taxation, more flexible redistribution = egalitarianism – both need a state to enforce them, no?
Egalitarianism has always seemed like an ambiguous phrase to me. Seems that there is an egalitarian perspective that views everyone as having equal moral worth (utilitarianism) and an egalitarian perspective that would cut off the nose to spite the face (equal holdings even if it leaves even the worst off worse off). Rent control a la Berlin doesn’t seem defensible from the first perspective.
Scott Sumner
Mar 30 2021 at 12:43pm
I agree that there are bad forms of egalitarianism, which is why I favor the utilitarian variety.
Market Fiscalist
Mar 29 2021 at 10:02pm
An egalitarian regime that used progressives taxes to attempt to equalize the incomes of everyone in society would not only have ‘negative effects in areas such as work incentives’ but would also ‘undermine civic virtue in quite [a] pronounced fashion’.
I do agree though that that an economy that uses appropriate means to achieve its desired ends (for example: subsidies rather than price controls to increase low wages or reduce rents) is going to be more successful and probably a better place to live.
Philo
Mar 30 2021 at 1:13pm
“I’d rather live in a free market country with progressive taxes than a statist economy with flat taxes.” This is not clear-cut, since both taxation and statist regulation are matters of degree: a little bit of the latter would be more bearable than a lot of the former.
Floccina
Mar 31 2021 at 9:26am
Price control are generally very bad policy.
Floccina
Mar 31 2021 at 9:38am
I sometimes try to sell charityism as an alternative to socialism because USA voters seem have decided that much charity should be done via Government and tax to ensure that the burden is distributed toward higher earners via progressive taxation. I think if we are going to try to do such we should do it explicitly rather than trying to hide it. Therefore to try to be reasonably efficient to transfer some reasonable amount of consumption from the top 20% to the bottom 25%. So no rent control, no trade barriers, reduce school subsidization but try a UBI/NIT. Address healthcare with charity for the bottom 20% and the 20% sickest in mind etc. Most other things should be purely free market.
bill
Apr 3 2021 at 9:02am
==”I’d rather live in a free market country with progressive taxes than a statist economy with flat taxes.”
Me too.
I fondly recall the 80s and 90s when both parties were moving in free market directions (broadly. There are always exceptions for each). Now, they are both moving away from free markets.
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