I would estimate that over half of all politicians fall into the naïve club that make claims based on assuming nothing will change in response to a new tax, a new regulation or new incentive. For example, they might take the value of all commercial real estate in a metro, state or province and assume that if commercial property were fully taxed and not subject to artificial limits, we would collect billions or so more in property taxes.

But such proposals always ignore the reaction to new taxes and market regulations. The property tax rule in California has resulted in many market distortions, such as less inventory on the market, and the possibility that one neighbour with an identical home as another pays 1/10th the amount of property taxes for the same services.

Regional economies are like inflated balloons; press one place and you expand the air into other areas – action and reaction. If you show me some market segment benefitting from government action, I will show you another area of the market that is losing and vice versa. Sometimes the reactions of the market are such that the negatives more than outweigh the positives or negate the intended benefits. This is what we call Perverse Economics. Here are a few golden oldie examples:

Rent control: The challenges of providing affordable housing are most pronounced in large coastal cities, where healthy economies have pushed housing from the demand side. Proponents of rent control argue that tenants can be exploited if building owners are allowed to raise rents to market levels, risking homelessness. Rent controls vary by market, but in most markets, rents can be increased only when a tenant moves out, while in others only new or rehabilitated units can have rent increases. New York City is a classic case of such rent controls and a great laboratory to show what happens with long term rent controls; housing affordability does not improve.