CORRESPONDENCE - WS-1 OPPOSITION

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• A 6% decrease in housing supply led to a 7% Increase in rental prices, causing an aggregate welfare loss to renters of $5 billion dollars. The Increased rents are the result of a decreased supply of housing. • Landlords are found to respond to rent control by converting their properties to condos, TICS or by redeveloping their buildings in such a way that it becomes exempt from rent control restrictions. In doing so, supply was decreased by an additional 15%. • Since 1994, tenants of rent controlled buildings received over $7.1 billion in benefits, mostly the results of being bought out or paid to leave. The losses to renters are in excess of $5 billion as the result of rent control's impact on decreased housing supply, failure to build and the subsequent increase in market rental rates. These results highlight that forcing landlords to provide social insurance against rent increases leads to large losses to tenants over time. • If society desires to provide social insurance against rent Increases, it would be more desirable to offer this subsidy in the form of a government subsidy or tax credit. This would remove the landlords' incentives to decrease housing supply and provide each household with the Insurance they desire. Yup, Rent Control Does More Harm Than Good —January 2018; Noah Smith, Assistant Professor at Stony Brook University and Columnist at Bloomberg (A Summary of the Stanford Study) ■ Assar Lindbeck, a Swedish economist who chaired the Nobel prize committee for many years, once reportedly declared that rent control is "the best way to destroy a city, other than bombing." How Rent Control Drives Out Affordable Housing — May 1997; William Tucker of the CATO Institute • Standard supply and demand theory predicts that any price controls, Including rent control, will produce an excess of demand over supply — resulting in an economic "shortage". These is virtually no disagreement on this premise. • In a survey, 75 leading economists, JR Kearl and his colleagues found that "a ceiling on rents will reduce the quality and quantity of housing". • Rent or price controls rarely work in a straightforward fashion as it is virtually impossible for a government to control and regulate the entire supply of a commodity. Once a shortage appears, alternative markets and black markets will arise. The government can react and criminalize or prosecute these markets, though extreme enforcement will result in an additional decrease in the availability of suitable, rentable housing stock. • Prices get pushed too low in the regulated sector; they Increase in the unregulated sector and as a result, they are forced higher and tend to end up about as a high as their otherwise free- market levels. • Rent controlled apartments are "hoarded" and creates the perception of a housing crisis in rent - controlled cities. Page 3 of 4