Distortion

If wishes were fishes …

Rent control in many cities was established because folks were getting priced out of neighborhoods in which they’d lived for years. The desired result was to let people stay in their homes, which is an admirable, even positive thing.

The unexpected result of rent control was a reduction on apartment maintenance (what’s the incentive to keep people from moving?), a reduction in new apartment construction (what’s the incentive to not be able to charge what the market will bear?), and essentially imprisoning people in homes they couldn’t afford to leave (because prices had gone up elsewhere, faster, because of the inability to raise prices on all apartments).

Wage and price controls are usually well-intentioned but almost always have unexpected side effects.

A parallel effort to rent control in many communities has been to try and preserve or encourage construction of low cost housing. Many cities have put in requirements that developers, if they are going to build new houses, must build a certain number that cost much less, so that lower income people can affort do live there. That’s admirable, laudable, and desirable.

The result, though, could almost have been predicted.

Southern California cities that require developers to set aside part of their projects as affordable housing — as Los Angeles is considering — have experienced higher housing prices and decreased construction of low-income housing, a Libertarian think tank reported Thursday.
The Los Angeles-based Reason Foundation concluded that so-called inclusionary zoning ordinances have backfired in 13 Southern California cities where the laws were enacted to force developers to build more below-market housing.
Each of the 13 cities saw housing construction decrease after adopting the zoning laws, the foundation reported. And the cost of new homes jumped $33,000 to $66,000 to compensate for discounts on the mandated below-market housing.

If you reduce the opportunity for profit, people will invest less. Or they’ll find some other way to make up for the profit.

Critics of the report (in particular LA City Councilfolk who are pushing for “inclusionary zoning”) claim the report is looking at the policy in a vacuum, and that, as part of a broader set of policies to enlarge affordable properties, it still makes sense.

Maybe. Rarely is there ever a silver bullet to major social issues. But it would be nice to know how the expected ill effects of market distortions will be addressed by those other factors in the overall plan, I’d think.