Rent control is back. And that’s bad

https://www.washingtonpost.com/opinions/rent-control-is-back-and-thats-bad/2019/09/21/31abb05c-dbdb-11e9-a688-303693fb4b0b_story.html

by patothon • 7 years ago

19 35 7 years ago

washingtonpost.com

wahern4• 7 years ago

Rent control is inevitable. The cited paper (https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth...) synthesized a cost of a 5.1% increase in rental prices for San Francisco, but that's for the period 1995 to 2012. 5.1% for that period is miniscule, dwarfed by demand and non-rental control supply pressures. The political cost of an army of voters worried about housing insecurity is incomparably higher.

The researchers suggest transfer payments instead of rent control, minimizing negative effects on supply. But Americans, and I'd bet most people around the world, dislike transfer payments. Nobody wants to be "on the dole", and in any event signing up for those payments comes with its own form of social cost and insecurity. Rent control is a silent tax that is relatively optimal from a political-economic perspective (not just an economic one).

The same dynamics are at play with free trade. Academics said dislocation costs of free trade could be ameliorated with transfer payments. But those payments never came, and voters would never accept them as a substitute for lost jobs. And for similar reasons--people don't want to feel forced to move, they want to feel like their pursuing better opportunities. But when a factory shuts down or a landlord effectively evicts you, it's not a choice. And even if it only happens to a small fraction of people, many more feel insecure even if they have no rational reason to feel insecure.

The question isn't whether rent control is good or bad, it's whether and to what extent it's possible to extract in exchange zoning and development concessions that promote supply increases. Unfortunately, the outlook doesn't seem so good. The only other alternative is Federal pressure, which doesn't seem too likely, either, unless it comes in the form of a Supreme Court decision that constrains zoning practices.

trevyn• 7 years ago

“Inevitable”? “Only other alternative”? You have not supported these claims.

wahern4• 7 years ago

I supported those claims with an analogy to free trade and the political backlash caused by structural dislocation. Here's another parallel--price gouging. Rent control laws are a form of anti-price gouging measure. Show me a jurisdiction where the electorate would vote down an anti-price gouging law (or one that doesn't already have one, for that matter).

In the most popular cities, where housing insecurity sentiments are acute, rent control has the same logic and appeal to voters as anti-price gouging. And just like with anti-price gouging laws, arguments that such measures negatively moderate price signaling (which might induce greater supply) are insufficient to persuade voters to oppose them. (The more persuasive argument concerns opposing government and advocating for property rights, but in cities with large renting populations that argument is a difficult sell, especially if single-family homes are excluded, which is very often the case.)

Housing security is a fundamental, high priority need (see Maslow's hierarchy of needs). When it's threatened, promises of future supply and price improvements are simply insufficient to resolve the felt problem. There's a time asymmetry dilemma to such structural problems, and there's no easy way to solve it. I argue that some rent control laws (at least in certain geographic areas) are as inevitable as some tariffs, at least in the short term, so long as there's a strong democratic process. Remove or weaken the democratic process and you can more easily resolve that particular dilemma (while creating other ones). I might cite as a supplemental source Platos' The Republic.

Economists systematically underestimate the value of security (defense, shelter, food, etc, and pricing stability thereof). Perhaps because it's difficult to accurately measure. We can "price" the value of a human life in the aggregate or in special situations, and we do for various purposes, like various forms of insurance, or civil restitution. But good luck convincing people to make criminal penalties against murder contingent on inability to pay restitution. (That is, legal if you can afford it.) Even with a trillion dollar premium (above and beyond existing restitution formulas--earnings, pain & suffering, etc), few people would vote for that, which means that in some sense the value is infinite.

geofft2• 7 years ago

The political cost of an army of voters worried about housing insecurity is incomparably higher.

Can't you make them stop worrying by building enough housing that they believe the free market will give them affordable rents even without rent control?

This is different from a factory shutdown because there's much less of a natural cap on housing supply than on job supply. You can build four-story apartment buildings basically everywhere, modulo government interference (zoning, permits, etc.), and they'll work, so you can just build enough to pull down the supply/demand intersection to where people want it, that is, in a free market you can just build residential buildings and expect them to turn into housing. You can't just build a physical factory and expect it to turn into jobs.

wahern4• 7 years ago

There's a time asymmetry at play. I think it's inevitable specifically in those cities where costs are rising quickly and feelings of housing insecurity are acute--the same cities we normally discuss in the context of rent control. In that case you couldn't possibly build quickly enough to address the issue. And let's not ignore one of the primary reasons communities often find themselves in that situation--zoning and regulatory hurdles that limit supply, demanded by the very same electorate suffering from lack of supply, yet which isn't nearly as keen, if at all, at removing those hurdles.

Rent control is even on the table in cities like Chicago, which relatively speaking has been pro development. But for a state law prohibiting it, Chicago would now have rent control; and it seems likely that exceptions to that prohibition will pass the legislature. That goes to show that time asymmetry is problematic even without the scourge of single-family home NIMBYs.

Regarding the free trade analogy, the alternative I had in mind wasn't building factories, but moving to new locales and finding new jobs. Which is the de facto existing alternative for housing supply-constrained cities, which have been free all along to promote greater densification, but simply incapable of doing so to the extent necessary.

peterburkimsher• 7 years ago

"But Americans ... dislike transfer payments."

Isn't the American healthcare system a convoluted set of transfer payments?

There's enough articles here on HN that tell me the high prices and subsidies for a privileged few aren't really a solution to healthcare. I hope that kind of industry stays out of accommodation.

CryptoPunk9• 7 years ago

There's much ballyhoo made about the ignorance of the conservative base and the misconceptions they hold due to the fake news and conspiracy theories that circulates within their social circles.

But I see the ignorance of the left-wing base as just as dangerous. The idea that there's a capitalist conspiracy to trick the populace into believing that free markets are better for public welfare, and that price controls like minimum wage and rent control harm the public, is extremely widely accepted.

Left-wing misconceptions about economics are even more consequential than right-wing populist ideas about vaccines. They have the critical mass of support needed to turn into policy in the most economically important housing markets in the US.

wahern4• 7 years ago

There's is a conspiracy, just like there's a conspiracy regarding global warming. In both cases academics use science and math to advocate for, in an unfortunately obtuse manner, policies that are politically infeasible if taken at face value. And academics being academics, they won't get behind watered-down, compromise measures as that would seem like capitulation on the truth of the matter. While none of this is secret, these groups definitely do plot, both formally and informally.

Also, the anti-vaccine movement seems more leftish than rightish as it seems to correlate with higher incomes and education (paradoxically), and over the past several decades higher income and college educated brackets have strongly shifted Democratic.

lotsofpulp• 7 years ago

education

Obviously not good education. I see anti vaccine nonsense from both sides, with the common theme being contrarian and not trusting big government or corporations, and thinking highly of themselves because they think they have some insider scoop on what is going on.

eesmith7• 7 years ago

You are strawmanning.

1) Does Piketty's "Capital in the Twenty-First Century" advocate a conspiracy? Quoting it Wikipedia entry:

"The book's central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability."

That is, there's no need for a conspiracy to get the results we see, and leftists like me don't need to appeal to conspiracy theories.

2) You mention "believing that free markets are better for public". But what's pushed isn't a "free market" - what's pushed is a lack of constraints on those who control capital. Few who push for a free market also push for loosening constraints on labor.

Taft-Hartley should be seen as offensive to a real free market. So-called "free market" advocates protest minimum wage laws, but omit mentioning that labor power, when not hobbled by restrictive US laws, would be the free market solution.

As an example, the Nordic countries don't have minimum wage laws. Instead, minimum wages for a field are set by collective bargaining, which is possible because of stronger labor unions in those countries.

As you can see, I don't believe that "price controls like minimum wage" are the right solution to that problem.

CryptoPunk9• 7 years ago

1. Ironically, you just strawmanned me. I never said all left-wing economic theories are "conspiracy theories" or fallacies, or that all left-leaning people are susceptible to such theories.

But to your strawman, Piketty's observation turns out to be entirely explainable by real estate:

https://medium.com/the-ferenstein-wire/a-26-year-old-mit-gra...

2. I wasn't contradicting your assertion at all. I was just claiming that it's a very common belief within left-leaning circles that economists' claims of the social benefits of free markets are propaganda formulated by and pushed for the benefit of a capitalist elite.

This conspiratorial view of the economic science is similar to anti-vaxxer theories about Big Pharma and Big Gov being behind the scientific opions on the efficacy of vaccines.

>As you can see, I don't believe that "price controls like minimum wage" are the right solution to that problem.

Going back to 1, I wasn't generalizing all left-leaning people. Just as all right-leaning people don't believe in anti-vaxxer theories, not all left-leaning people believe in price controls like rent control and minimum wage.

mishkinf• 7 years ago

It’s only bad if you’re privileged enough to own property. Otherwise it’s great!

Smaug123• 7 years ago

The usual argument is that by imposing an artificial ceiling on price, you cause the quality of the good/service to drop (in this case, you make rental properties worse) and you prevent people from selling it (in this case, you prevent owners from offering up rental properties, causing rental property to become scarce).

To claim that something is great, you should at least address the standard arguments that it's bad!

spyckie22• 7 years ago

A lot of people argue for the ideal rather than the proposed solution, and conflate the two.

In this case, the ideal is stable, affordable rent prices. The proposed solution is rent control.

Rent control, from a policy standpoint, does not create affordable rent prices by itself. It needs to be paired with a lot of other policies - supply control, great city planning, landlord incentive adjustments via taxes, fines / punishments, enforcement of it, etc.

So, people espousing rent control as the solution are inaccurate semantically. Rent control is part of the solution, but what's more important is how rent control is paired with other policies.

Rent control is not an independent solution, but (as most policies are) its complementary and needs to fit with the rest of the policy package. For instance, if you had a policy to force housing to double every year (and somehow it actually happened), rent control is not needed because supply would reduce pricing naturally. And in a supply blocked economy, the issue is that demand is high - rent control would do nothing to reduce demand.

If you're going to create a policy that creates stable, affordable rent prices, you'll need to look holistically at the each sub-part of the issue. Saying that we need stable, affordable rent prices is natural - it's a human need, a moralistic ideal, and also great for many people. But it doesn't add much to the conversation, and it makes it difficult to have dialogue with actual proposed solutions over the loud, muddled public debate.

geofft2• 7 years ago

I mostly agree with you, except that rent control can reduce demand by disincentivizing people from moving to your city. I suspect this is one of the reasons SF's rent control is popular.

But then, yeah, the real goal is "keep housing prices low, and keep newcomers out," not "rent control."

spyckie22• 7 years ago

"Rent control, no other changes" doesn't just disincentivize people from moving to your city, it disincentivizes movement altogether.

I see rent control as a fix for a symptom. Answering the question about the ideal living condition for a city and how to grow successful, long lasting sustainable, healthy cities is the real issue. Rent control is a bandage, and the collection of rent adjustment policies is not as elegant as just a strong set of policies to promote healthy cities.

Admittedly this is really, really idealistic, it ignores the fact that we have a lot of cities that need help right now, and it assumes that there is a standardized way to build great cities.

tom_mellior• 7 years ago

What's the proposed mechanism that would disincentivize people from moving somewhere where rents are more affordable?

mamon2• 7 years ago

Rent control is not a solution, it is a part of the problem. To have affordable rent prices there has to be abdundance of rental apartments available, and if rents are artificially capped then those apartments will never be built in the first place, because it isn't profitable to build them, especially when riddiculous zoning requirements are also present.

adventureartist• 7 years ago

The true solution is Zoning Reform. Property owners would build many more units themselves, with their own capital, if allowed to build enough units to make it worthwhile. This doesn't happen because many current property owners (skewing older and wealthier) enjoy the current density and property values based on the current scarcity of units. Rent control is a weak solution to affordability, and has almost no or negative impact on gentrification, and no or negative impact on housing stock growth. Rent control seems like it's for the renter, but it's actually just the only political solution allowed by owner-occupied current property owners. Zoning Reform is the free market solution, allowing an owner of a property to build what they want on their own land. (Solve the homeless problem too...). Time will tell if the democratic scales tip from the NIMBY homeowners to those currently priced out of unit ownership.

CryptoPunk9• 7 years ago

Rent control is for the renter, but the currently occupying renter, and not those who would like to move to the neighbourhood in the future. It is also a short-term solution, that provides the currently occupying renter with a current advantage, but at the cost of making rent region-wide more expensive for new lease agreements, which greatly constrains their options in the future should they decide they want to move, or should the unit they are occupying need to be vacated due to a need for reconstruction or repairs.

8bitsrule• 7 years ago

Too bad that housing-as-an-investment was allowed to spiral out of control. It converted a moderated tradition into a gambling-den.

A prospective landlord might have been required to live in their building for a minimum of a year first. That dampener would slowed down the fission reaction. But oh no, regulation is bad. Trickle-down is good.

We've already experienced the result ... tens of thousands of homeless. Who -should- pay?

mamon2• 7 years ago

„Rent control is the most effective way to destroy a city, other than bombing”.

Rent control disincentivizes renovation of existing apartments and building new ones. It also encourages people to stay in apartments that are too big for them, because rent control typically locks price for existing, long term tenants on lower level than paid by new tenants. All this makes housing crisis worse.

WheelsAtLarge• 7 years ago

I am not a fan of rent control but when housing construction solutions can't be implemented due to home owner's needs to preserve home values and other economic factors that vote down any solution then rent control is a solution at least a short term one. Additionally there also needs to be added policies that increase housing.

Rent control is back. And that’s bad

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