Rent Control Rhetoric

Amity Shlaes reminds us of a classic little 1946 essay by Milton Friedman and George Stigler on rent control, “Roofs or Ceilings: The Current Housing Problem.” Rent control was pervasive at the time, and it’s nice to remember how much people thought it was necessary, and how revolutionary Friedman and Stigler were. We make progress. Slowly.

Reading it again, I notice a clever point of rhetoric. They do not start with the dysfunctions of the rental housing market under rent controls. Instead, they start with a lovely little story of the free market adapting.

The San Francisco earthquake of April 18, 1906 was followed by great fires which in 3 days utterly destroyed 3,400 acres of buildings in the heart of the city.

Maj. Gen. Greely, commander of the Federal troops in the area described the situation in these terms:

“Not a hotel of note of importance was left standing. The great apartment houses had fancied. ..Two hundred and twenty-five thousand people were…homeless.”

In addition, the earthquake damaged or destroyed many other homes.

Thus a city of about 400,000 lost more than half of its housing facilities in three days.

… after the disaster it was necessary for many months for perhaps one-fifth of the city’s former population to be absorbed into the remaining half the housing facilities. In other words, each remaining house on the average had to shelter 40 percent more people.

Yet, when one turns to the San Francisco Chronicle of May 24, 1906—the first available issue after the earthquake—there is not a single mention of a housing shortage. The classified advertisements listed 64 offers (some for more than one dwelling) of plates and houses for rent, and 19 houses for sale, against 5 adverstisements of flats or houses wanted. Then and thereafter a considerable number of all types of accommodation except hotel rooms were offered for rent.

Only then do they contrast the situation, again cleverly, with that of 1946:

Forty hears later another outing shortage descended on San Francisco..the city was asked to shelter 10 percent more people in each dwelling unit than before the war. One might say that the shortage in 1946 was one-quarter as acute as in 1906…

In 1946, however, the housing shortage did not pass unnoticed…the Governor listed the housing shortage as “the most critical problem facing California.”

That feels pretty current.

During the first five days of the year there we are altogether only 4 advertisements offering houses or apartments for rent, as compared with 64 in one day in May 1906…But in 1946 there were 30 advertisements per day by persons wanting to rent houses or apartments, against only 5 in 1906 after the great disaster. …In 1906, … there was 1 “wanted to rent” for every 10 “houses or apartments for rent”; in 1946, there were 375 “wanted for rent” for every 10 “for rent.”

Rents were capped. Prices for sale were not:

During this same period in 1946, there were about 60 advertisements per day of houses for sale, as against 19 in 1906. …In 1906, when both rents and selling prices were free to rise, the San Francisco Chronicle listed about 3 “houses for sale” to every 10 “houses or apartments for rent.” In 1946, under rent controls, about 730 “houses for sale” were listed for every 10 “houses or apartments to rent.

The article nicely answers all the usual objections — only the rich will get apartments, apartments should be rationed, and so forth. It has lovely stories of how furniture fees take up the slack, how the worst hit people are those who are less desirable tenants, how capping the price not only reduces the incentive to build but increases the incentive to sell rather than rent, and in detail how it impedes mobility. But mostly I salute their cleverness in starting with a real example of how markets work, thus not even having to raise and answer the standard objection, “this is all theory, but hasn’t been tried.” Yes it has, even in an emergency.

They also talk about “doubling up,” and people making do with smaller apartments than they wanted at previous prices. Arithmetically, that must have been a large part of the 1906 response, how “each remaining house on the average had to shelter 40 percent more people.” They also have a lovely ode to the social advantages of a market transaction:

Doubling up would be by those who had space to spare and wanted extra income…Those who rented space from others would be engaging in a strictly business transaction, and would not feel they were intruding, accumulating personal obligations, or imposing unfair or unwelcome burdens on benefactors.

As I look out over the Bay Area today, in the midst of a severe lack of housing, I wonder “how many empty bedrooms are there?” I would guess at least 1/3 of the bedrooms are empty every night. Now most people don’t want to rent out spare rooms, but quite a few would. If it were legal. AirBnb helped a lot, but now lots of places are cracking down on it. And most places have laws against rooming house arrangements.

Now, what will happen after the 2026 earthquake? Do you think the city of San Francisco will allow rents to float, people to take in roomers, prices to allocate the inevitable small supply and encourage people to use only the housing they really need, especially in the most valuable areas? And, of course, encouragement for swift rebuilding? Or do you guess there will be “anti-gouging” laws, rent controls, eviction moratoriums, preferential treatments for specific groups, and as a result that rental housing will be nearly impossible to find? And, the usual permitting and planning delays to rebuilding? Given the price controls of toilet paper in the pandemic, I know where to place my bets.