History, Venezuela and Boston

History is replete with examples of various countries, including the US, implementing price controls and its debilitating effects. The end result is always the same. Shortages. This only makes sense. If you limit what producers can charge and/or profit from a particular product, good or service, less of it will be produced or provided. Governments often resort to this to placate citizens reeling from the effects of inflation caused by governments in the first place. http://www.econlib.org/library/Enc/PriceControls.html

 

Fortunately there has been numerous books and studies done by prominent economists over the centuries documenting the disastrous results of price controls. https://mises.org/library/forty-centuries-wage-and-price-controls-how-not-fight-inflation But we need not look back in history to see the examples of debilitating price controls. Simply look south to Venezuela. The economic crisis in Venezuela is from years of price controls, government subsidies and socialist policies that have distorted market forces for years. Venezuela is the perfect example of the consequences of anti-market, governmental policies. http://www.heritage.org/index/country/venezuela

 

So why then is Boston via the Boston City Council on the verge of voting for and implementing price controls on rental properties throughout the city? Boston has rebounded more robustly than most cities across the country from the great recession of 2008-2009. This has resulted in an influx of people relocating here and driving the real estate market up substantially. Prices as well as rents have skyrocketed.

 

The Boston City Council is reacting as governments have historically by buckling to the ill-fated proposals of tenant advocacy groups like City Life/Vida Urbana whose stated goals are wealth equality, right to housing, working class power and imposing even tougher regulations on landlords, imposing a 5% rent increase limit and making it even more difficult to operate and maintain rental units in the city.

 

The end result will be the same as all policies that governments try to use to thwart economic, market driven forces. Policy failure and shortages, hurting the very people they are trying to protect. Renovations will halt, maintenance will be less affordable, properties will deteriorate and neighborhoods will decline. Small landlords will simply sell to owner occupants in the white hot Boston market reducing the amount of rental units available, tightening the supply into strong demand which will simply drive rents even higher.

 

Venezuelans now pay two and three times as much for a loaf of bread and other staples, when they can get them. The Boston City Council should take note and vote accordingly.

 

Doug Obey has over 30 years experience helping people as a financial planner and investment advisor and is the author of Money and the Human Condition. His book offers insight and solutions to some of today’s economic challenges. Obey is also a self-made, successful entrepreneur who has acted as CFO and advisor to many other business owners. Learn more about Obey at http://www.dougobey.com/

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