When I get to demand and supply, I show students the unintended effects of rent control: a price ceiling below the equilibrium price results in shortages, as there are more people who want to buy at the controlled price than want to sell.
A new paper studying rent control in St. Paul shows that the policy doesn't even live up to intended purpose of transferring income from rich landlords to poor tenants:
- ...rent control caused property values to fall by 6-7%, for an aggregate loss of $1.6 billion.
- ... the tenants who gained the most from rent control had higher incomes and were more likely to be white, while the owners who lost the most had lower incomes and were more likely to be minorities.
- For properties with high-income owners and low-income tenants, the transfer of wealth was close to zero.
And the sad conclusion:
- ...to the extent that rent control is intended to transfer wealth from high-income to low-income households, the realized impact of the law was the opposite of its intention.
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