04/18/2017

A Twisted Tale Of Rent Control In The Maximum City

Alex Tabarrok, Marginal Revolution

Walking around Mumbai it’s common to see some lovely, older buildings (circa 1920s perhaps) that are in a great state of disrepair. A well maintained building can last for hundreds of years so why are these buildings falling apart? The answer is rent control. Bombay passed a rent control act in 1947 that froze rents at 1940 levels.

rentcontrol1

 

More than fifty years later, rents remained frozen at 1940 levels. It wasn’t until 1999 that the Act was modified slightly to lift controls on some new construction and to allow rent increases of 4% per year. After a fifty two year freeze, however, a 4% increase was a pittance. Thus, even today there are thousands of flats where tenants are paying rents of 400-500 rupees a month (that’s $6 to $8 a month!)–far, far below market rates.

The rent control law meant that there was virtually no construction of rental housing (WP) for decades and a slowly dilapidating housing stock. (Ironically, the only free market in rental housing is in the slums.)

The nominal landlords have neither the incentive nor the funds to maintain the buildings so every year during monsoon season some of the buildings collapse and people die. As the World Bank put it, the monsoons are Natural Hazards but the collapses are Unnatural Disasters:

Rent controls in Mumbai may have initially benefited tenants at the expense of landlords, but over time everyone suffers. Rent controls cause landlords to forgo maintenance and neglect their properties, and tenants not only live in dilapidated buildings but die when they collapse in heavy rains. Even if tenants are willing to either pay higher rents or to maintain the building, each tries to not pay his share of the expense (free riding), especially if appropriate retrofitting involves structural changes to the entire residential structure and not to individual apartments. Tenants also may lack the legal authority to make changes to their building’s structure.

Consider the photo at top, it’s an elegant building on a nice plot in a highly desirable part of town but take a closer look and you can see that it is falling apart (second photo). Several businesses and flats operate in the building. Now read the sign on the wall.

rentcontrol3I don’t doubt that the sign is largely accurate but it also illustrates another aspect of rent control. Rent control transforms a mutually profitable exchange into a zero-sum war of misery. As I discovered in my investigations, a remarkable and sometimes hilarious example is illustrated by this very building.

Read full article



You May Also Like:

Senate Reaches Agreement To End Shutdown Without DACA Fix Haley Byrd, Weekly Standard

Get Rid Of U.S. Government Shutdowns Forever Ramesh Ponnuru, Bloomberg.com

Free Market Central Interview: This Noted Statistics Expert Says Inflation In 2018 Is Way Higher Than They're Telling Us—And It's Going To Get Worse [LISTEN] Free Market Central

Single-Payer Health Care Isn’t Worth Waiting For Sally C. Pipes, The Wall Street Journal

Who's Lying?: FBI Says 5 Months Of Texts "Lost," Yet IG Horowitz Says His Office Received Them In August Tyler Durden, ZeroHedge

Not Only Did Loretta Lynch Know In Advance Of Comey’s Findings On Hillary The DOJ Helped Comey Write His Memo Streiff, RedState

Adam Schiff Doesn’t Want FISA Memo Released Because He Thinks Americans Are TOO STUPID To Understand It [Watch] Joshua Caplan, Gateway Pundit

American History Shows That Expanding The Economy Benefits Everyone Amity Shlaes, City Journal

Will Supreme Court Now Act Against Judges' Campaign To Foil Trump Presidency? Seth Lipsky, New York Sun

Disability Rolls Tumble As Economy Gains Steam Investor’s Business Daily

Expansion Of ‘Free’ British Childcare Has Led To Rationing Through The Backdoor Kristian Niemietz, Institute of Economic Affairs

The Case For This Licensing Scheme Is Ridiculous -- But The Eighth Circuit Just Swallowed It George Leef, Forbes.com

State Democrats Fight To Protect Abused Wealthy Taxpayers From Their Own Misguided Tax Policies Tyler Tate, Americans for Tax Reform

Communist Propaganda Has Infiltrated More Than 100 US Colleges, Posing As Chinese Language Institute Brendan Pringle, Washington Examiner

Public School Was The Worst — Luckily I Had Options Clara M. Brashear, Foundation for Economic Education

Paging Doctor Marx? Theodore Dalrymple, Library of Law and Liberty

Do You Live In One Of These States That People Are Fleeing? Joe Jarvis, Daily Bell

Apple Just An Early Sign Of Tax Reform’s Long-Term Economic Boost Bret Swanson, American Enterprise Institute

For More go to the Home Page >>>

Join Our Email List



section

Bookshelf

FreeMarket Central

Some titles recent, all recommended -

Special Video Feature

FreeMarket Central

Voices From The 2017 International Students For Liberty Conference

section

In Search Of History

The Reagan Tax Cuts Worked

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

-- Daniel J. Mitchell,

Shadow Stats Snapshot


FreeMarket Central

ShadowStats alternate economic indicators are based on the methodology of noted economist John Williams, specialist in government economic reporting.

  • Unemployment:
    FreeMarket Central BLS: 4.07%
    FreeMarket Central Shadow Stats: 21.7%
  • Inflation:
    FreeMarket Central December Year-to-Year: 2.20% (CPI-U*)
    FreeMarket Central Shadow Stats: 9.9%

*[cpi-u is the Bureau of Labor Statistics inflation rate for all urban consumers]

section