Price Controls: The Greatest Hits IV
Economists thought price controls had been vanquished, but we live in a world where people are warming up to them. In this series, based on an article originally published at The Independent Institute, I'll revisit some of the craziest consequences of price controls.
Price controls lower the costs of discrimination, either by buyers or sellers. As we just saw, a binding price ceiling creates a queue. More people seek to buy the good than there are units of the good available. This allows sellers to pick and choose, sort and discriminate, between the buyers, selling only to those they prefer for some reason.
Usually, these dynamics are explored in the context of racial discrimination. But discrimination need not only manifest on the margin of race. In fact, any group that might generate higher costs for landlords are obvious targets of discrimination. Couples with children is one possibility.
As Edgar Olsen and Michael Walker write in Rent Control: Myths and Realities:
To the extent that they are unable to discriminate amongst tenants on the basis of price, landlords find it expedient to do so on the basis of race or other characteristics. Groups particularly vulnerable are those tenants that may cause higher costs for the landlord, such as large families or families with children (more “wear and tear” on housing unit) and people whose jobs require higher than average mobility (less stable tenancy).
Single people are, as a rule, lower maintenance risks than married couples for the simple reason that couples have children and children are messy. Faced with a choice between housing a single and a couple, landlords will more often choose single folks. Yet, landlords often don’t face that choice in a free market where prices adjust to clear the market of any shortage.
In the same book, Sven Rydenfelt likewise comments about the Swedish housing market:
Unmarried adults have increasingly been given the opportunity to invade the housing market and occupy a gradually increasing share of homes. At the same time, tens of thousands of families with children have been unable to find homes of their own.
Heavily squeezed between the demands of tenants for repairs on the one hand and reduced rental income due to rent control on the other, it is understandable that landlords in many cases showed a preference for single persons. Wear and tear, and thus repair costs, will usually be lower with single tenants than with families.
None of this is meant to suggest that each of these colorful and catastrophic consequences emerges in every instance of price control.
People aren’t prisoners of their environments. We can’t know for certain, ahead of time, which work-arounds will prevail in any instance. Human creativity is a constraint on the margins of adjustment. While it’s true that the particular circumstances of time and place will generate unique opportunities and constraints, one thing is certain.
After four millennia of observing price controls in action, we know to expect the unexpected as buyers and sellers devise clever, often unintended, solutions to their newfound circumstances.