The U.S. will need its own Javier Milei if progressives have their way.
The U.S. will need its own Javier Milei if progressives have their way.
R ent-regulation schemes proposed by the Biden-Harris administration and the Harris campaign have already been tried by progressives in Argentina. The predictable result was high rents and less choice for tenants.
One of the Biden-Harris proposals would “cap rent increases on existing units at 5%.” Another is passing the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act (PAFRHCA). The law would prohibit landlords from obtaining property-management advice from providers who consider information from multiple properties.
In 2020, Argentina implemented its Ley de Alquileres (Rental Law), which set a minimum three-year duration for rental contracts and prohibited rent increases during the life of the contract, except for annual adjustments based on a government formula. Rents went up, and the number of available properties fell. When the requirements were rolled back last year by the government run by the newly elected Javier Milei, rents fell and the number of available properties surged. All of this is the opposite of what rent-control advocates promised.
Landlords reacted to the Argentine regulation by beginning their leases at higher rents, which help mitigate losses taken later in the contract. In this way, rent-inflation restrictions require tenants to not only find an available apartment but also bring their own financing to afford the high early-contract payments. Expect American landlords to react in the same way.
One reason that households choose to rent rather than opt for home ownership (beyond straight unaffordability) is that they can leave the financing concerns to a landlord. Built-in financing is particularly attractive to young and low-income households who have not yet established good credit. Under a Harris plan, those households should expect to continue living with relatives or in government housing, or even to be unhoused (homeless).
A diligent landlord will consider conditions in the market beyond his or her own properties. Analysis of market trends and competitor offerings allows the landlord to fill niches that competitors might be missing, such as catering to a specific age group, pet owners, exercise buffs, car owners, and more. From the tenant perspective, that means more housing options and thereby a greater chance to select a low rent.
PAFRHCA would require landlords to obtain property-management information on their own rather than retaining the services of “algorithmic” businesses that specialize in obtaining and processing market data. In the Argentine spirit, the law would increase rents by reducing the housing options available to tenants by making landlords less aware of market opportunities. As Nobel Laureate Oliver Williamson would have predicted, PAFRHCA would also increase rents by giving an advantage to large landlords who can justify having their own staffs to analyze market information.
In accusing algorithmic property-management systems of being a tool of landlord cartels, Kamala Harris betrays her ignorance of how real-world cartels succeed and fail. As Mancur Olson proved in his critique of Marxism, cartels have a free-rider problem. Cartels fail to elevate prices when their members act unilaterally by undercutting competitors. The algorithmic systems are pro-competitive for the same reason: Subscribers are not obligated to either follow the algorithm’s recommendations withhold properties from the market.
A successful cartel, as the Organization of the Petroleum Exporting Countries (OPEC) has been on occasion, requires members to withhold quantities from the market in order to help the cartels squeeze buyers. Property-management information systems have no provisions to prevent subscribers from putting their properties on the market. Without properties withheld, cartel-inflated rents are just a dark fiction.
Look at the residential rental-property vacancy rate tracked by the U.S. Census Bureau since the 1950s. Vacancy rates today remain lower, and occupancy rates higher, than they were before the pandemic, and compared with any of the 30 years before that. Artificially inflated rents would have had the opposite effect.
Even from a tenant-advocacy perspective, a fundamental problem with rent regulations is that they do not prevent tenant competition in any way other than offering higher rent. The result is tenant-provided financing, reduced maintenance, more discrimination, and an overall degradation of the quality of apartments. As the Swedish economist Assar Lindbeck put it, “Rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”