After a severe thunderstorm pelted The Village, Oklahoma with “golf ball- to grapefruit-size hail,” leaving almost all of the 5000 or so homes in the town in need of roof and other repairs, the city council voted to increase the cost of a building permit from $110 to $150.
A couple of folks quoted in a NewsOK story suggest the fee increase may be price gouging. One contractor said, “If I come in and raise the price on emergency repairs, it’s price gouging.” An insurance industry official said, “If a roofing contractor, hotel or motel, restaurant, or other services increased their costs, they would be suspected of price gouging. So why would not a municipality, without just cause, be subject to the same rules?”
Is the fee increase an example of price gouging?
The term “price gouging” is frequently tossed about anytime a consumer doesn’t like a price, but a prototypical case of price gouging involves three elements: a price increase judged as unfair, an emergency or desperate situation, and a good or service of particular use or value in mitigating the consequences of the emergency. In the case of The Village’s building permit price increase, all three elements are present:
- Contractors, and the homeowners employing them, see the price increase as unfair.
- The hailstorm caused an emergency and roof damage puts homeowners in a desperate situation since, with a roof un-repaired, they risk suffering additional damage to their home and property.
- A building permit is a good of particular use or value in mitigating the emergency: without a building permit homeowners will be unable to secure legal, professional repair service.
When post-emergency price increases are caused by an increase in the costs of supply, consumers are less likely to deem a price increase as unfair (see Kahneman, Knetsch, and Thaler, “Fairness as a constraint on on profit seeking,” AER, 1986, for background). Perhaps not surprisingly, the city manager defended the price increase by citing the additional expenses the city faced in handling the sudden increase in paperwork and possible increases in insurance premiums for city employees.
Even if the fee increase is price gouging as the term is normally used, it may or may not be illegal. In the case of Oklahoma, the state has a law against price gouging: the “Emergency Price Stabilization Act” (15 OK St. §§ 777.1 thru 777.5). I’m not a lawyer, but I’m pretty sure that the actions of the city council of The Village are not subject to the provisions of the Emergency Price Stabilization Act due to some other law elsewhere in the state code that “protects” the city government from these kinds of laws. But it may be an interesting exercise to speculate whether or not the city’s price increase appears to violate the the anti-price gouging law.
Here is the relevant piece of legal text, from section 15-777.4.A:
No person for the duration of a declaration of emergency by the Governor of this state or by the President of the United States and for thirty (30) days thereafter shall sell, rent, or lease, or offer to sell, rent, or lease, for delivery in the emergency area, any goods, services, dwelling units, or storage space in the emergency area at a rate or price which is more than ten percent (10%) above the rate or price charged by the person for the same or similar goods, services, dwelling units, or storage spaces immediately prior to the declaration of emergency unless the increase in the rate or price is attributable only to factors unrelated to the emergency and does not include any increase in profit to the seller or owner.
The Governor declared an emergency on May 11, 2010, so the city’s action is within the relevant period. The price the city charged for a permit increased by more than ten percent above the rate or price charged immediately prior to the declaration of emergency. The increase is attributable to factors related to the emergency – the city manager specifically defended the price increase as due to the increased amount of paperwork the city had to process.
You may object that a building permit is not included in the phrase, “any goods, services, dwelling units, or storage space” (feel free to insert a joke about government permitting requirements being no good and of no service). Doesn’t matter, the law specifically defines goods to include any services incidental to provision of a good (and defines services to include any goods incidental to provision of the service). If roofing repair is a good or a service and the building permit is incidental to provision of roofing repair, then it should be covered by the law.
Now, as I said before, city council actions are likely exempt from Oklahoma’s price gouging law, and I happen to think that price gouging laws cause more problems than they solve so I’d be in favor of repealing the law altogether.
Nonetheless, looks like price gouging to me.