My home state of Kentucky is known primarily for bourbon, horse races and ranking at or near the bottom of things like education, women’s health and poverty. But none of this is surprising considering Kentucky lawmakers’ unending commitment to patently backward policies.
Take the city of Louisville’s new rental registry. Coming on the heels of a Metro Council ordinance passed in December 2022, the city requires owners of rental properties to register their properties, pay a registration fee and agree to have them regularly inspected. Properties will also be randomly inspected — though government-owned properties are conveniently exempt.
In announcing the registry, Louisville Mayor Craig Greenberg stated that the registry would help identify problem properties early and provide a way for tenants to report problems without worrying about negative reactions from their landlords.
While this all sounds good, a cursory understanding of economics (or a small amount of common sense) should give anyone pause. If this policy is intended to help renters, policymakers and those seeking housing in Louisville in the coming months and years are likely in for some unpleasant surprises.
First, renters will find there is less housing. To understand why, consider first the landlord’s perspective. More than 40 percent of all rental properties in the U.S. are owned by individuals or “mom-and-pop” landlords. These small-scale landlords manage a whopping 77 percent of two-to-four-unit properties. They are not remarkably wealthy. The average income for a landlord in Kentucky is just over $50,000 a year. Nationally, the average is just over $69,000.
Faced with registration fees, having their names, addresses, telephone numbers, and email addresses listed online and random searches — for which landlords are responsible for notifying tenants — many mom-and-pop landlords will simply choose not to rent their properties.
Moreover, considering that much of Louisville’s rental housing was built between 1940 and 1960, many of these properties won’t be compliant with modern building codes. This means they’ll face numerous potential citations. All of this makes the prospect of renting out one’s property even less appealing.
How about real estate developers and larger-scale landlords? Faced with similar prospects but on a larger scale, high vacancy rates, crime rates and an otherwise unattractive market, they will take their business elsewhere.
Second, those that do find rentals are likely to see higher rents. There are several reasons why. As the number of rental units falls, competition among would-be tenants naturally pushes prices higher.
But there is another reason: elasticity. Elasticity is how economists describe how sensitive or insensitive a group is to a price change.
When consumers have a lot of alternatives, we categorize them as “elastic,” or price-sensitive. If the price of a good or service rises, they can avoid those higher prices by choosing an alternative. If, on the other hand, they have few options, or it’s difficult to change their behavior in response to a price change, we categorize them as “inelastic,” or price-insensitive.
Economics teaches us that when a tax or similar policy is imposed in a market, the inelastic group incurs the greater cost of the policy — the side with fewer options is on the hook.
Care to guess who has fewer options in the market for rental housing? That’s right, renters, and especially poor renters. In Louisville, the new policy is aimed at areas with the highest rental rates and the most poverty. Higher rents and fewer units will place an even heavier burden on the city’s worst-off residents.
That is to say nothing about how this new policy strips (mostly) low-income residents of their right to privacy, because of their neighborhoods and their status as renters. That may even be unconstitutional. It also fails to consider how unexpected or unwanted visits by city officials could be dangerous for them and for tenants.
No one wants renters to be in dangerous or unsafe housing. But this policy is misguided on many counts. It will harm the very people it is intended to protect. It will increase rents, reduce housing and violate privacy.
If policymakers were serious about improving housing in Louisville and elsewhere, they’d remove the barriers that prevent the creation of housing, not introduce additional impediments.
Abigail R. Hall is a senior fellow at the Independent Institute in Oakland, Calif., and an associate professor in economics at the University of Tampa.