ROOFS OR CEILINGS?

Milton Friedman and George Stigler use historical accounts from San Fransciso and New York City to compare the effects of using price to ration housing with what happens when the government imposes rent controls. (FEE, 1946). They classify what happens when the government imposes rent controls as using chance and favoritism to ration housing.

Here are some money quotes.

1. "In both 1906 and 1946, San Francisco was faced with the problem that now confronts the entire nation: how can a relatively fixed amount of housing be divided {that is, rationed) among people who wish much more until new construction can fill the gap? In 1906 the rationing was done by higher rents. In 1946, the use of higher rents to ration housing has been made illegal by the imposition of rent ceilings, and the rationing is by chance and favoritism. A third possibility would be for OPA to undertake the rationing."
2. "Advertisements in the San Francisco Chronicle again document the effect of rent ceilings. In 1906, after the earthquake, when rents were free to rise, there was 1 'wanted to rent' for every 10 'houses or apartments for rent'; in 1946, there were 375 'wanted for rent' for every 10 'for rent.'”
3. "Rent ceilings, therefore, cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction and indefinite continuance of rent ceilings, or subsidization of new construction and a future depression in residential building. Formal rationing by public authority would probably make matters still worse."