Oaktree Capital Management co-chairman Howard Marks revised the government interventions in Wednesday’s memo titled “Shall We Repeal the Laws of Economics?”
The billionaire investor, known for his outstanding investments in distressed debt, argued that economic systems operate on fundamental laws, such as supply and demand and incentives, and while these laws aren’t perfect, trying to bypass them often creates greater harm than good.
Effects of Rent Control
“Governments are choosing winners and losers, rather than letting market forces do so.”
Marks considers rent control as a typical example of a well-intended policy clashing with an economic reality. When demand for apartments exceeds supply, rising rents are inevitable. Politicians often step in to cap these increases to protect existing tenants, ensuring constituents aren’t displaced and neighborhoods remain intact. This action pleases voters, helping the officials solidify their position. But this “solution” only makes a subset of people happy.
“Landlords are unhappy about not being able to charge the full rent they could charge in a free market,” Marks explains, leading them to stop investing in properties or remove them from the market entirely.
Developers turn away from building new housing in these areas, fearing insufficient returns. Meanwhile, those who can afford market rents often struggle to find vacant units due to rent-controlled occupants.
The inability to monetize the benefit of cheap rent means tenants stay put, reducing mobility. Rent control suppresses both the upkeep and creation of new housing, leading to deterioration in the housing stock and limiting economic productivity.
“Governments …