The Permanancy of Temporary Actions
by Richard
Do you remember last year, when the excise tax finally was removed from your phone bill?
It was first enacted in 1898 to help finance the Spanish-American war.
We have another such relic left over from World War II:
Rent Control
The last surviving intervention from what had been a full menu of wage and price controls enacted under wartime pressures.
It turns out that tenants like rent control more than landlords. And there are more tenants than landlords.
And so we are plagued to this day with residential rent control, most notoriously in New York City, but also in major metropolitan areas of California. It is a noxious weed, almost impossible to extinguish.
The last best chance to wipe it off the books was in the mid-seventies, but the Supreme Court even then upheld rent control, beyond all understanding and logic.
The costs of ownership, including taxes, insurance, utilities, and maintenance were not controlled. Just the income side of the ledger.
This was the first shoe to drop. The second was the passage of the Tax Reform Act of 1986, eliminating the generous provisions allowing property depreciation to shelter other earned income.
The day the music died.
Residential income property was just no fun after that.
In effect, rent control socializes the rental housing stock where the ordinance takes hold.
In San Francisco, rent control thrives, forcing owners to be ultra creative in their efforts to avoid being gang pressed into compliance.
Desperate owners sought to convert their rental units to condominiums but the law was soon amended to close off this escape hatch.
And here you thought that the thirteenth amendment abolished involuntary servitude.
There is still one wormhole left.
Rather than going condo, the owner converts to a TIC structure (tenants-in-common) which did not violate the rent control ordinance.
But now lenders look askance at any form of financing other than plain vanilla. Residential TIC loans are now considered too exotic to fund in a market where lenders can be choosy, and buyers must conform to the norm. See the WSJ’s “Residential-TIC Tack Hits Snags” by Ben Worthen (11/12/08, page C15).
One hapless owner is offering a free Toyota Prius for those who survive the financing gauntlet….but not one of his five units in his TIC building have sold.
Ironically, economists call such special , interest driven, economic (mis)treatment:
“Rent-seeking” behavior
You’ll learn much more about this concept…as every injured player in our economy lines up for relief, tin cup in hand. First the banks. Then the Auto manufacturers. Soon the municipalities…and credit card and student loan issuers.
The result will be a massive miss-allocation of capital, from productive venues to those with political clout.
And what then of our vaunted economic freedom and political liberty?
Well…it was nice while it lasted.
