The subtitle for this post could be why we need to resist the “temptation” to meddle with housing markets in North Dakota. There are times and places for interventions, but you need clear standards for action, clear goals, and clear exit strategies.

There has been a suggestion that we should adopt a rent control policy in western North Dakota. This is an idea unlikely to lead to the desired outcomes. Price increases in North Dakota, particularly the West, are both large and variable. They are a frequent and convenient target for both complaint and the interventionist tendencies of policymakers. The problem with this comes from the fact that most of these price increases are due to supply and demand working.

What is happening in places like Williston is phenomenal. We have seen such an increase in population and labor force that it is no surprise that prices are rising. Demand has increased at a phenomenal pace for most goods, outstripping any increases in supply. The result, equilibrium prices rise. This is what has happened with housing too. Demand increased faster than supply, and to make sure markets clear, prices rise.

Now nobody would suggest that there are not problems from this. Rapid increases in population can create similar changes in price levels. However, housing price changes are often not rapid. If you sign a lease and lock in the price for a period of time there is no opportunity to increase prices until that contract expires. This can contribute to the appearance that housing prices increase by more than others. If you are a rationale landlord, and expect prices to continue to rise after the tenant signs the lease, you might increase rent beyond the current levels.

Enter the idea of rent control. Rent control is meddling with the market, pure and simple. Rent control is a form of price-ceiling, a legal limit on how high the price can go. The intentions are good. Making housing affordable is a worthy goal for policy. However it is not going to work.

Let’s remember that we are already dealing with a situation of demand increases far outstripping demand increases. Prices rise to prevent a shortage, the quantity demanded exceeding the quantity supplied. Well, when you impose rent control, you end up creating a shortage. I am assuming the rent control is effective, that is, the price limit is below the existing equilibrium price.

Now the law is the law, but the impacts are directly interfering with the way the local housing market works and forces us to resort to non-price mechanisms. As a landlord, if I cannot rent an apartment for the going market rate I am less likely to worry about maintaining the apartment or upgrading it. As a tenant, I am less likely to leave even after my income increased because the other rents I would pay would be so much higher. It is simply not efficient as a way of achieving desired outcomes.

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