Mason Gaffney: How to
Revive a Dying City
Sharing the Surplus
urban rents are a social surplus, not a payment for
anyone's making or supplying land, parties other than the landowner
have a claim. A good deal of American politics deals with how to
assert that claim and share in the surplus.
Dividing a big pie seems a pleasant enough task, but Confucius
knew better: "It is easier to face a common enemy than to share a
surplus." The common ways of sharing surplus are clumsy, divisive,
and destructive; they bear some responsibility for dead cities. With
too much quarreling over spoils, there are no spoils to dispute.
Consider how spoils are shared, and how we might do better.
Rent control, which shares surplus with tenants, is a tempting
route that several cities follow. Renters feel abused and neglected
by tough managers and anonymous landlords. Supply is inelastic, at
least in the short run, so owners can't cut and run. Poetic justice
is served. But there are several spots on this policy:
- Limited number of beneficiaries. The original
tenants carve out an equity in the landlord's estate, but benefits
spread no wider. Tenants may sublet to others, becoming landlords
themselves. Rent control is at best a zero-sum game among the few,
not a social reform.
- Lower incentive to maintain supply. It becomes
unattractive to build new rental units, which are allowed higher
initial rents but are vulnerable to future caps. So rent control is
worse than a zero-sum game, it becomes negative-sum. Rent control
confiscates land income and building income alike; buildings do not
receive needed maintenance if there is no return. Too, land can be
reallocated to uncontrolled uses, such as condominium-ization. A new
wrinkle in Santa Monica is to buy a cheap rent-controlled apartment
building and convert it to a single-family residence for the new
- Wasted space. Tenants lose incentives to economize
on space that is underpriced to them. In the extreme, tenants move
away, but retain their apartments to use a few weeks of the year.
- New class society. Old renters become a privileged
class. A lower new supply, and wasted space, force uncontrolled rent
on new buildings above the market level.
- Owner-tenant clashes. An owner's main goal under
rent control is to evict and repossess. Nastiness and intimidation
have become routine, and the war stories legendary. In Tokyo,
outright extortion and violence are frequent.
- Aborted incentive to maintain and improve.
Landlords, and tenants retaining precarious tenures, lose all
economic motivation to maintain or improve property.
- Dogged obstructionism. Sitting tenants, who cannot
gain by site renewal, fight it every way they can. Obstructionists
have a vested interest in the status quo, however obsolescent,
however decayed, however inappropriate to the site.
- Undertaxation. Equity that tenants carve out of
landlords' estates has no market value, because it is inalienable (at
least legally). Assessed values and tax yields drop. The privileged
class pays low rent and avoids supporting public services. Higher tax
burdens are dumped on others, and worsened public services are
suffered by all. By way of analogy, I am a small farmer with canal
company shares that allow me to buy water below the market price, but
no right to sell my water. So I and my fellow shareholders waste
water and create a chronic, artificial southern California water
The rationale is that housing or water is too important to leave
to the market, and must be price-controlled. The result is regulation
much worse than anything a market could accomplish. Around 1973 there
were shortages of coffee, raisins, and even toilet paper. These were
too unimportant to regulate, so their prices rose, demand fell,
supply rose, and the crises quickly disappeared. Rent control ensures
that we will not overcome the housing crisis so simply, if at all.
... read the whole article