Liberal Heresy?

IT happened while I was eating lunch with two of Harvard's dedicated liberal activists. One of them asked the other for help organizing opposition to Prop 1-2-3, the upcoming ballot initiative that would allow some tenants to purchase their rent-controlled apartments.

"I don't have much time," she replied, "but rent control is such an important issue."

Both of these women are dedicated liberals. So am I. That's why I oppose rent control.

It isn't my intention here to defend Prop 1-2-3. Without being incredibly well-informed on the issue, my impression is that Prop 1-2-3 is an ill-conceived and somewhat sleazy move by the real estate industry that wouldn't appreciably improve Cambridge's housing problems.

My purpose is to convince my activist friends that, in principle, liberals ought to hate rent control.

Liberals should hate rent control because it violates every principle they purport to embrace. It contributes to the housing shortage and to homelessness. It benefits those who need it least and forces the expense on those who can least afford to pay.

Rent control is a phony liberal issue.

ANOTHER disclaimer is in order here. I don't believe that simply scrapping rent control would solve the housing crisis. Free-marketeers don't recognize that the people who get left out of the housing market face a fate worse than those who bid too low in the Ec 10 carrot market. They end up sleeping on grates.

But in at least one respect, the Reaganites are correct: the market distortions induced by rent control hurt almost everyone--especially the disadvantaged that liberals ought to be protecting.

The argument might be counterintuitive, but anyone who has survived week one of Ec 10 knows the essential logic behind it. When government intervenes in a market and establishes a ceiling price below the market price, there are some winners and some losers.

The winners are those who can find housing at the cheaper price. The losers are less noticeable. Suppliers of housing lose because they get less for their apartments, and thus have little incentive to provide more housing. (This means that the supply of housing is lower than it would have been without rent control.) As a result, there is another, more important group of losers--the consumers who cannot find housing at all because of insufficient supply.

Unfortunately, the people who cannot find housing are all frequently the poor, even though rent control supposedly equalizes the ability of rich and poor to compete for housing.

When the option of outbidding other customers is foreclosed, rich customers turn to "phantom markets" to get their hands on an apartment. This may take the form of legwork, finder's fees, inside knowledge of an available rentstabilized apartment, or even bribing the landlord.

The point is that there will always be fewer rent-controlled apartments than there are people who want them. The wealthy and well-placed have the ability and resources to find the rent-controlled apartments. The low-income renters who really need cheap housing don't.

Of course, not every rent-controlled apartment is occupied by a non-needy person. But the system definitely favors them, and several studies of New York tenants show that those who live in rent-controlled apartments have, on average, higher incomes than those who don't.

Moreover, when only part of the housing market is rent-controlled, the costs of the system are pushed onto tenants of unregulated apartments, who must pay all the more to compete in the market for an artificially scarce good.

Since people are not wont to let go of rent-controlled apartments once they get them, those who need to move frequently--that is, the working poor--are doubly screwed.

And the landlords who can't raise their rents have a strong incentive to let their apartments deteriorate in order to bolster profit margins and encourage their rent-controlled tenants to move.

This economic logic is almost universally accepted. Even Nobel prizewinning, liberal economist James Tobin agrees that rent controls are "very inefficient." He was quoted in The Washington Monthly as saying, "The only difference between liberal and conservative economists is that conservatives would like to do away with them without putting anything in their place. Liberal economists would like to come up with something more efficient."

And unlike some other vintage Ec 10 theories, the correlation between rent control and homelessness is borne out by the facts.

In a 1987 study of 50 American cities, William Tucker found that, of all factors commonly suggested to explain homelessness, the existence of rent control has the single strongest correlation. Rent control, he found, is typically associated with a 250 percent increase in homelessness.

THAT'S why I wish my activist friends would get the news. Rent control hurts the most vulnerable members of society for the benefit of a few people who get "a good deal" on their rents. It's the classic example of the "pull-up-the-ladder syndrome," as Washington Monthly editor Charles Peters calls psuedo-liberal programs that hurt the folks at the bottom.

A recent article in The Progressive branded opponents of rent control "the real-estate industry, right-wing think tanks and conservatives."

Well my liberal credentials are impeccable, and I still think rent control is stupid.

The article defended the rich who ride the rent control gravy train by saying that "[P]rograms that serve only the poor are demeaning...[and] undercut support for the program itself."

This argument is plausible when applied to welfare programs. At least the rich on Social Security do not take benefits away from the needy. Bribing the rich to support a system that screws the poor is surely a case of the tail wagging the dog.

A society as wealthy as ours has a responsibility to see that no one goes without affordable housing. In this sense, advocates of rent control are pursuing a noble goal. Unfortunately, they've chosen about the most inefficient means possible to get there.

Liberals ought to be fighting against rent control and in favor of a rational system of providing low-income housing, be it public housing construction, rent subsidies or housing vouchers.

I hope my activist friends get the message. And they know who they are.