Our Economy and the Big Picture
Housing is a necessity of life, with food and water. It is different from normal things we buy for that reason. Housing has an “inelastic demand” and an “inelastic supply”, meaning that new housing construction is very slow to react to increased demand, and we don’t really have a choice as to whether we will have a place to live. In the 4 decades that landlords have fought rent control on the theory that it will discourage new construction, hardly any new construction has occurred, anyway, and most notably in cities where new construction is expressly exempted from rent controls. It is a lie, proven over time.
We regulate how much utilities can be charged because it is worth a lot more than we pay to have them, and our money should not be diverted away from other purchases by overcharging for them. No one questions that. Even the pure free market thinkers do not question whether the Securities and Exchange Commission should regulate the stock market, because it benefits them. Why not housing?
We have an entire economy to think of, not just tenants and landlords. Landlords are about 2% of the population, while tenants are 66%. The tenants’ money greatly affects the entire economy. Tenants want to buy clothes, food, entertainment, equipment, vacations, and gifts. The tenant dollar goes only so far. When the landlord raises the rent, the tenants have less money to spend elsewhere, which hurts all of the other businesses, as well as the tenants. The reduction in those sales has a “multiplier effect” which causes the total money in circulation to be reduced by 5 times that amount, in a chain reaction: A has less money to spend with B, who lacks that money to spend at C, and so forth. The entire economy suffers so that the richest 2% can get even richer.
Meanwhile, the employers of those tenants face not only the reduced sales, but are forced to pay higher wages to keep the tenants because their rents were increased. Indeed, when the minimum wage is increased, the benefit is immediately removed because the landlord takes it all. The employer still has to pay more, and either cuts profits or has to lay off the workers. In addition, the landlord of the employer’s business raises the employer’s rent, too, so higher rents and higher wages for the employer make survival difficult. Many businesses fail for that reason, and homeowners who were against rent control lose their business and then their home in foreclosure and become tenants, themselves, before becoming homeless. Add to this the mass relocation which has already started from rising ocean levels caused by global warming, and the housing crisis kicks into overdrive Meanwhile, American businesses who can survive by raising their prices to the consumer have gradually lost their competitive edge in the face of products overseas, leading to massive bankruptcies, layoffs and a severe depression from which we may never recover.
The growing homeless population itself is the natural result of laissez faire economics. In the economic terms of supply and demand, the market price is what sellers and buyers both agree on. If the price is too high, the buyer doesn’t buy, and the seller has to lower the price to sell. If the price of housing is too high, you become homeless, but the landlord does not have to lower rents because other people who can afford the higher price will fill the vacancy. Homeless people can get a free room and food by committing crimes and having the tax payers pay for their jail time and associated police and court expense. Why not? They have nothing to lose and at least room and board to gain? It is part of that free market, is it not? Wandering bands of homeless families trying to survive in this free market system are given few choices, and cannot be controlled. The free market says they should survive any way they can. Why interfere with the landlord’s profits with government regulation when we can have a society like that?
With the economy weakened by these factors, the gross national product plummets, and with it the tax base for our government to provide military defense, health care, schools, and infrastructure also collapses. We lose the middle class, and have in the end a feudal society, with the very few ultra rich and the helpless poor masses. Granted that is several years off, something only our children will have to face, not us.
