ND Oil Boom = Housing Boom = Rent Control?
The oil boom in North Dakota is fueling a housing boom, which is putting upward pressure on rents in the oil-rich Western parts of the state. The Minot Daily News is reporting that monthly rents on the apartments at one local complex recently more than doubled from $422 to $900 for a 1-bedroom unit, from $485 to $1,100 for a 2-bedroom unit and from $541 to $1,300 for a 3-bedroom unit.
The steep rental increases are causing some Minot residents and local politicians to voice claims of "criminal" price gouging, with some even advocating rent control laws to prevent or limit rent increases. Based on 200 years of economic theory and empirical evidence from around the world over the last several hundred years, rent control laws in the Bakken area of North Dakota would worsen the housing problems there, lead to chronic housing shortages and a deterioration in the quality of housing, and would create huge disincentives to build the new apartments that are so desperately needed. Not a good idea.
The only choices for North Dakota rental units are: a) market prices that accurately reflect the underlying market forces of supply, and transmit accurate and truthful information about the relative scarcity of rental housing, or b) artificially low rental prices enforced by government edict that do not reflect real market conditions and transmit inaccurate and untruthful information about the relative scarcity of rental housing.
With truthful but high market prices for rental housing, all of the appropriate and desirable behaviors are encouraged, e.g. a) reduced demand and conservation of rental housing space by tenants, and b) increased supply of rental housing by developers and builders, and a market-clearing equilibrium outcome where demand and supply for rental housing are balanced. With low, but untruthful and artificial rent-controlled prices, we would expect exactly the opposite - inappropriate and undesirable behaviors in the form of: a) increased demand and little conservation of rental housing space by renters, and b) decreased supply of future rental housing by producers, and a resulting guaranteed housing shortage characterized by excess demand.