This article is in response to Ben Margiott’s article on News 4’s website (https://mynews4.com/news/local/councilwoman-wants-anti-gouging-law-to-protect-reno-residents-against-huge-rent-spikes) as well as the video imbedded on the above page (https://mynews4.com/news/local/councilwoman-wants-anti-gouging-law-to-protect-reno-residents-against-huge-rent-spikes?video=33f1dd23c28a423a80bbb74606a21d25&jwsource=cl).
The opening paragraph summarizes the gist of the article nicely: “A Reno councilwoman is asking city staff to look into an anti-gouging law to protect residents from huge rent spikes, which she says have become all too common in recent years”. Unfortunately, “anti-gouging” policies and similar measures have always been common responses to market adjustments.
At every level, the government believes it has the solutions to society’s problems. Yet a closer look often reveals that it was government meddling which caused or exacerbated the problem to begin with. Government interventions via regulation and taxation have wide ranging effects. A few of these can be seen as positive or as having had the intended result—but often only for a portion of the people impacted by the policy. Politicians and bureaucrats seem to see all social challenges as simple 1+1=? math problems which can be isolated and solved by their interventions. Reality however, is far more complex.
Frederic Bastiat, the French economist, writer and (for a short time) politician who lived and died in the 19th century discussed this idea in his 1850 essay, “What Is Seen and What Is Not Seen”. In a parable of sorts, he described how real, everyday economics is more than just the readily visible results from the choices we make. He believed we must also take into account those results which are not easily seen - the foregone possibilities or hidden ramifications. This is the concept of opportunity cost; that which we give up or sacrifice in order to make a different choice.
What happens when the government gets in the way of our choices? When they interfere with our ability to govern our own lives as we feel best?
Of course there can be times when they achieve their intended results, or secure a positive outcome. But even if we agree the results are good in a particular instance - they are never without opportunity costs. When the government makes policy choices which apply to all of us (as if we are factory produced replicas) there are always both winners and losers. One size does not fit all - especially when the government tries to act in our stead.
To address the article specifically; why does Reno City Councilwoman Naomi Duerr believe that cookie-cutter policies will work for the hundreds of thousands of people those policies would affect? Not only the current residents of Reno, but also for all future residents?
Councilwoman Duerr has recently requested an anti- “rent gouging” city ordinance be implemented to prevent landlords from raising rent prices at a high rate year-over-year. It has been widely observed that Reno’s rental prices have risen dramatically over the past several years. Councilwoman Duerr claims to recognize that rent control is not a good solution - yet believes her anti-gouging ordinance will do the trick. I just hope she’s ready for the myriad of new problems which will pop up in response.
If she desires to help renters with rental prices and avoid the vast majority of issues caused by housing regulations in general, repealing previously instituted policies will help more than implementing additional burdensome “helps”. Reno’s NIMBY policies have made it difficult to build here - and builders are all to0 aware of the extent of the red tape and its proportional expenses. Regardless of what you’ve heard from any federal press secretary; it’s not unusual for firms to pass on their costs to consumers. In Reno many factors have contributed to an increase in housing costs and a decrease in housing availability. Welcome to the perfect storm Councilwoman Duerr is trying to shield against with her broken umbrella (i.e., her proposed city ordinance).
So what might happen if she gets her way? Perhaps some tenants will be protected from sudden price jumps. Soon enough though, all rentals in Reno may be in the position of needing to increase their rates by the maximum annual allowance. Homeowners who previously failed to increase their rental rates may find themselves desperate to catch up to the natural cost of housing demanded in the area.
Landlords who aren’t able to increase rental rates to keep pace with increased maintenance costs will find it’s not worth the trouble of keeping their rental homes up to their previous standards. Some of those will sell their properties to the landlords who do not care at all about quality property caretaking. In common parlance these folks are called slumlords. Since the number of available rental properties will still be low (as the proposed policy does nothing to address the causes of rising rents), what kind of bargaining position will tenants find themselves in?
Overall, it is reasonable to anticipate that this policy and others like it will not resolve any of the underlying conditions that create a tight rental market and lead to price hikes. However, we can expect that they will amount to something along the lines of lower quality rentals and poorer quality landlords in general.
In approaching this broader conversation, I think it important to review a few simple economic definitions which are often misused in common parlance (both Ben Margiott and Naomi Duerr used them incorrectly). I’d also like to explain how understanding these terms help us understand what is happening with Reno’s housing shortage issues.
The term price gouging has been used to denigrate normal economic actions taken by entrepreneurs and big box firms alike. Usually the term refers to someone selling a product for more than the normal price when a shortage of that product takes place. Most users of the term believe the price gougers are trying to create a windfall for themselves by taking advantage of the consumers’ crisis. This storytelling with regards to motives and morals is immaterial. The reality is that these sharp increases are a reality check - and they have specific effects in the market.
First, it helps to ration the good in question. This effect is easier to recognize with products other than housing, but the principle applies regardless. Remember the pandemic-related shortages of 2020? Keeping prices static means that the first person who gets to Costco walks home with all of the TP (leaving you to search for the softest, cheapest rags you have in the house). If prices rise sharply in response to changing circumstances, the first consumers on the scene may self-regulate and buy only what they really need. This leaves more available for more consumers. What does that look like in terms of housing? It might mean that renters choose a smaller place - passing on the pricier unit with the extra bedroom they don’t really need (and therefore leaving it available for someone with a bigger family). Or perhaps single people will move in with roommates rather than hold on to a larger apartment.
The second effect of “price gouging” is to encourage other producers (and potential producers) to produce more. This incentive applies to all players involved in the supply chain. As a product’s price increases, more producers enter the market to make the higher profit from the increased price, and existing producers seek to expand output. With housing this encompasses not just large-scale development, but also homeowners building out a mother-in-law suite, landlords converting one house into a duplex, and flippers moving quickly to renovate previously abandoned properties. As more product or inventory becomes available, the price then naturally decreases.
Landlords who raise prices are responding to the market shortage of housing. Regulators and lawmakers should seek to moderate rents by ameliorating the shortage. It is within their power to have an immediate impact by lessening or ending building restrictions & other regulations that deter housing providers. Will those actions lead rental prices to fall? Maybe. But maybe not - because there are still many people moving into Reno from further away. There are many contributing factors to the current circumstances - but approaching the problem from this angle at least addresses real and underlying factors. The dollar price of rent is merely a symptom - a signal that communicates information about the state of the market.
The next definition I would like to clarify is rent control. While the article attempts to draw a distinction between the proposed “anti-rent gouging ordinance” and rent control, this is a distinction without a difference. According to Merriam Webster, rent control is “government regulation of the amount charged as rent for housing and often also of eviction”. Councilwoman Duerr believes she is pitching an instead-solution, but to have the government regulating the amount charged year-over-year for Reno’s rented housing is a form of rent control on its face.
Faced with sticky social problems or the negative effects of blunt realities, government officials will rarely admit to being out of solutions - or out of politically attractive ones. Doing something always seems better than nothing… even when it’s not.
If Councilwoman Duerr needs to do something, I would suggest ending as much of our housing ordinances as she is able. This will bring the housing market closer to its natural price range. She should also work to disband the Tenant Advisory Board (which exists to discuss the experience of tenants and advise the city council - ie: to identify new areas for government intervention). Instead, tenants and landlords should be encouraged to build healthy working relationships. We in the public should engage in those conversations which are most likely to lead us towards real solutions, and bear in mind that the best solutions are consensual and voluntary on all sides.
Even applied to Reno’s housing market; central planning simply does not work. Central planners have for years used the Reno municipal government to create much of the problem we see today in housing - often as a byproduct of attempts to “solve” other problems. They cannot solve this one without recognizing this. Reversing the policies that continue to cause damage is the best way to assist those in the most need.