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- [Tyler] Secondary consequences -- simple two words.
- [Alex] Rent controls are popular with renters all over the world
because they appear to offer lower prices
with few adverse consequences.
In the long run, however,
extensive rent controls can cause entire cities to crumble.
You can see that today in Mumbai, India.
All of the predicted consequences of rent control
can be seen in Mumbai.
There is a shortage of rental housing,
very, very little new rental housing is being constructed,
and the stock of old rental housing is crumbling and falling apart.
There's a remarkable sign from the owners.
Take a look.
"...portions of the said building are in ruinous condition,
likely to fall,
and dangerous to any person occupying or passing by the same."
It's falling apart. It's beginning to crumble.
Now, in part, that's a threat to try and get the tenants to leave,
but it's an all too believable threat.
- [TV announcer] Another deadly building collapse in India.
A five-story apartment building fell in Mumbai early Friday morning
while people were fast asleep.
It's unknown exactly how many people are still underneath the rubble.
Rescuers have been digging for survivors all day long.
- [woman] There's really no incentives for them
to maintain the existing stock,
and you see really bad deterioration
of the buildings that are under rent control.
- [Tyler] So a classic economic example is rent control.
You cap the price, the quality tends to go down.
I won't go through the whole analysis,
but I think it's one of the key core economic ideas --
that you need to look not just at the first stage
of what happens, but at later stages.
It also ties into this idea --
don't always be so sure of what you're doing,
that you can't always calculate the secondary, tertiary,
and later consequences.
Again, very important economic idea.
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