Dr. John Lott has a new op-ed on the move by the California Attorney General to bring price gouging charges against companies in California.
With prices of hotels and short-term rentals soaring in Southern California due to the recent devastating wildfires, “price-gouging” has once again become a buzzword. With inflation already one of Americans’ greatest concerns, it is a message many people will be primed to hear.
Now, California Attorney General Rob Bonta is threateningto prosecute businesses that raise prices “by more than 10 percent above the price before an emergency declaration.”
California Gov. Gavin Newsom also declared a state of emergency that triggered various provisions of California’s anti-price-gouging law.
In the coming weeks, as people in the disaster area require food and services such as tree removals, the outcry against higher prices will only intensify. But Southern Californians will suffer in the long run if prices are prevented from rising.
“Los Angeles price gouging is ‘inhumane,’” a NewsNation headline claimed last week. And the New York Post declared that “Los Angeles landlords jack up rent by as much as 124% – flouting price gouging laws during deadly wildfires.”
Perhaps our memories of the 1970s price controls have faded. Price controls didn’t stop the cost of gasoline from rising. They just changed how we paid for them. Instead of prices rising until the amount sellers were asking equaled the amount available, chronic shortages of gasoline had Americans waiting in lines for hours. Yet, the supposedly permanent shortages disappeared instantly once price controls were removed.
Stamping out “price-gouging” by hotels and online rental services means that more of the people fleeing the fires will be homeless. No one wants people to pay more for a hotel, but we also want people to have a place to stay. As the price of temporary accommodation rises, homeowners will become more likely to rent out spare rooms on Airbnb or other platforms.
Higher prices may mean that people will share a place with others. Instead of a family getting one room for the kids and another for the parents, some will make do with having everyone in the same room. At high enough prices, friends or neighbors may also stay with each other. Some people might move to other places.
The government is responsible for the already high prices for homes and rentals. Building new homes takes too long, and not enough construction is permitted. Gov. Newsom acknowledged these restrictions when he waived burdensome California Environmental Quality Act (CEQA) reviews and Coastal Act requirements for properties damaged and destroyed by the fires. But the governor could have gone much further by also reducing building regulations in the parts of Los Angeles that weren’t destroyed by fire.
Part of the problem with California’s rental supply has been rent controls that make it unprofitable to build new apartments.
There is another downside to price regulations. Companies across the country are thinking of heading to California in trucks loaded with food, water, generators, and other supplies. The higher the prices, the faster these “greedy” companies and individuals will get their products to desperate customers or build new places for people to live. This greed means less suffering, and prices would eventually fall as more products get delivered. Unfortunately, price regulations or the threat of them prevent this scenario from becoming a reality.
But whatever the cause of higher prices, what about the poor? They will benefit more from housing vouchers than from rent or price controls. Making the companies pay for others’ altruism creates the wrong incentives and harms others.
Bashing landlords and companies may be profitable short-term political behavior, but the discomfort will be over far sooner and less severe if markets are left to their own devices.
