Rent Profit Control: Housing Incentives versus Price Gouging?

Five years ago I wrote “Property vs. Humanity?” to highlight American prioritizing of property rights over human rights. My wife and I had been evicted from my home of 31 years. The law protected the right of the new property owner to maximize profits above the human right to housing.

I was asked to revisit this issue with regard to rent control. There is no one perfect answer, but civilized countries have largely solved these problems in ways that the U.S. has not.

Homeowners received $243 billion in 2022 in tax subsidies. Why subsidize those who least need it? Perhaps renters should receive subsidies? And home ownership is not necessarily a good thing. It limits mobility in times of local economic downturn.

Supply and demand sets home prices. Reducing taxes just means the public gets less of that money. And Proposition 13 does something worse: it causes taxes to spike abruptly every time property is sold. This is catastrophic for renters living in those buildings.

The mis-named “Tenant Protection Act of 2019” limited how much rents could rise for existing tenants. So it incentivized evicting long-time tenants; new tenants could be charged much higher rents.

In 1977 I returned to MIT after a year away. I had reserved a room in an MIT-owned rooming house. After two days, I was awakened by pounding on my door. MIT was converting the building to a dorm and I had to leave immediately! No other housing was available. My friend Lisa transported my things to a closet where I worked on campus. Fortunately, my employer looked the other way as I lived in that closet or else I would have been on the street.

I was lucky to find a room in a private rooming house a month later. Cambridge had rent control. I paid low rent and I regularly had to sign off with the city that the place was being maintained. Rent control probably contributed to the housing crisis that almost made me homeless, but at that moment it was to my benefit.

Ultimately, affordability is about supply and demand. Government policies are critical. Jimmy Carter (then Reagan) deregulated transportation, stranding much of the midwest. This caused businesses and workers to move to coastal cities. A lose-lose: abandoned midwest cities and overcrowded coastal cities.

Ever since Reagan we have had a shortfall of about three million housing units. If this were the result of a natural disaster, the government would be working to get housing built.

The top housing priority has to be that no one ever becomes homeless. Becoming homeless destroys mental health and makes it harder to stay employed. I am very grateful for the rooming houses I have lived in. Even a small room with privacy is priceless.

Government can build and/or incentivize building rooming house-style housing to provide a housing guarantee.

UCSB built housing for faculty where resale prices are limited. This can be a model for government to duplicate. But then UCSB admitted more students than it built housing units to accommodate them. That cannot be allowed.

“Private equity” firms have taken “financialization” of housing to new levels. They gain exorbitant profits through monopoly ownership, buying up entire neighborhoods. Profiting from housing shortages rather than increasing supply. Government intervention is essential to stop this.

Nationally, we need to reinvest in the American heartland. Biden started this with massive investments in clean energy technology targeted in red states. But those states voted for Trump anyway and Trump killed that funding for them.

Everywhere, we need to build more housing that is denser and clustered along public transit corridors with plenty of shared open space. The opposite of suburban auto-oriented sprawl.

Prefabricated construction can also lower costs. Home energy costs can be reduced with massive public investment in sustainable energy. Geothermal heat pumps can provide cheap heating and cooling everywhere.

Extreme rent control in isolation creates housing shortages, locks people from moving, and can subsidize oversized units.

But government can build – or reward building – new housing and limit the profit level to a fair return. A fair return incentivizes housing. But price gouging demands fair rent controls.