Research for someone else to do

Whenever rent control laws have been enforced in Australia, there have been long queues for those seeking housing. As the government artificially creates low rents below market equilibrium, this induces increased demand. Yet supply does not expand to meet the rising demand because of the low government mandated rents. The result is a shortage of housing. As Thomas Sowell observes in his book Basic Economics, “Nine years after the end of World War II, not a single new building had been built in Melbourne…because of rent control laws there which made buildings unprofitable” (p. 26).

Given that most economists — whatever their ideological disposition — agree that price controls are a bad thing, I was surprised to learn that rent control still exists in Victoria under the Landlord and Tenant Act 1958. To find out how extensive the rent control program is, someone will need to go through the regulations passed under the Act, a time-consuming and tedious process. Research for someone else to do!

8 thoughts on “Research for someone else to do

  1. I wasn’t aware that it still existed. When I was in my teens I remember horror stories of tenants who were protected under some of these laws to the point that they were still paying the same rents that had been agreed on 20 years before, and were protected from any increase.

    There was no way they could be removed.

  2. There’s something similar in NSW too. From memory it mostly catches boarding houses.

    I would have thought an impecunious law undergraduate would have plenty of time to investigate something like this.

  3. Given that most economists — whatever their ideological disposition — agree that price controls are a bad thing

    I wouldn’t agree with you there when it comes to price controls of labour rates. THe same argument can be made – the minimum wage is artificially raised such that labour supply increases beyond employers’ need for labour at that rate – hence unemployment.

  4. Sowell’s book is very good for laypeople like me. Every economist should also read it.

    I wouldn’t agree with you there when it comes to price controls of labour rates.

    Doesn’t every economist agree with the theory in principle? If you asked an economist if a minimum wage of $1000 an hour would cost jobs given current economic conditions and they said no, wouldn’t he/she be laughed off the stage?

  5. Sukrit,

    I’m not sure – there seems to be plenty of economists who support minimum wage legislation.

  6. Quiggin said the Work Choices Senate inquiry, that he wasn’t speaking as an economist.

    So yes even social democrats like him acknowledge the facts. They just have strong preferences and think the tradeoff is worth it. They are wrong.

  7. That’s what I thought too, Mark. The basic theory is undeniable. No economist will disagree with the contention that beyond a point raising the minimum wage will cost jobs. They will just claim that point hasn’t been reached yet, and that they know better than the market because they’re smart and can make models that support their view. Clearly they haven’t properly understood Hayek’s essay on the uses of knowledge.

    John Quiggin is a bad example to use though, as I don’t think he’s in the mainstream. I read a paper where he denied that the microeconomic reform of 1980s yielded much benefit – hardly worth it in his opinion. His work has been thoroughly debunked by the Productivity Commission, among others. If you asked other ‘lefties’ like Paul Krugman or Andrew Leigh though, you’d get the same answer as Milton Friedman. Which shows that economists do agree on the basics of the price system.

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