One of the most-common beliefs many leftists in America hold is that the staggering increase in apartment rents is not a result of not building enough supply but rather a combination of greedy landlords, corporations buying out rental properties, and landlords intentionally keeping units vacant to drive up prices. Take for example this recent post by my former San Francisco supervisor, the socialist Dean Preston. He claims that San Francisco could become affordable within a year, and proposes a set of regulations to be imposed on the rental market.
How to you allocate housing?
But these regulations have one fatal flaw. San Francisco is a very attractive city. Even if the economy is worse than it used to be, the culture, geographical location and climate make it a place where thousands of people would love to live, and are currently blocked only by the high rental prices. If you artificially lower these prices (through legislation), you end up with way more demand that the supply can handle. Even if you think this is morally the right thing to do, you have to address the mismatch between the demand and supply you’re creating.
In other words: how will you allocate housing in the absence of the market mechanism?
When confronted with this question, American leftists usually do not have an answer, or provide some muddy explanation that still focuses on existing residents, as if their living situation was never changing: they never got married, divorced, their kids never grow up, they never leave for a reason other than being priced out etc., and as if there were no new potential residents who would like to move to San Francisco for whatever reason.
History provides a warning
In the absence of their answer, we can look at history. In the Eastern Bloc (where the state actually built housing – just never fast enough to house its growing populations), the price mechanism was also removed from the housing equation. How did those states allocate housing, then?
Let’s look at my home country, Poland. In the socialist Poland, the housing shortage was acute. But it was especially acute in the most-attractive big cities, similarly to how it is in America today. Warsaw in particular was the place where everyone wanted to live (socialist states are typically very centralized, with all the good jobs and services focused in the capital city), but there was never enough housing.
Since rents could not be raised to depress demand, the state had to resort to other tactics. They introduced meldunek, which can be translated as geographical registration. Every Pole was assigned to a specific address, and could not live anywhere else. There was just no such a thing as geographical mobility – unless you could secure meldunek in a different location, you could never move. Even if you had all the money in the world, or were a world-renowned scientist, or needed to escape your abusive family, you just could not move to a different part of the country.
Besides the personal implications to the lives of millions of Poles, this policy also had a disastrous economic impact. Warsaw did not reach its pre-war population levels until the 1970s (similarly destroyed Rotterdam managed to get back to its pre-war population by the early 1950s) because the state could not build enough housing and was artificially suppressing demand.
Some towns around Warsaw were more lenient and grew tremendously (in fact, many of the most densely populated towns in Poland are just outside Warsaw to this day), putting pressure on railway lines and forcing long commute times on people who could have lived in Warsaw proper if it wasn’t for the meldunek system. Officials in charge of the meldunek system would also get bribed by people who desperately wanted to live in the capital.
Those who couldn’t afford bribes and could not secure meldunek in satellite towns of Warsaw had to live elsewhere – often in small, provincial towns, where their talents were wasted, they grew angry (often at those who managed to get to Warsaw), and now their children (who moved to Warsaw and other big cities since Poland is a capitalist economy now) dealing with parents left behind while they struggle to organize childcare.
There is no denying that market forces are not always pleasant, and that sometimes the misalignment between supply and demand puts pressure on people. But the opposite is arguably even worse, trapping people in places they don’t want to live, destroying economic growth, and driving resentment.