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Comment by ThrustVectoring | Hacker News Reader

Another second-order effect of rent control is increased traffic. Suppose you have two residents with significantly below-market-rate housing at the same quality level, one in downtown SF and another in Mountain View. The former starts a new job at Google in Mountain View, the latter starts a new job at a trendy start-up in downtown SF. Since they're paying significantly below market rate, they're unable to trade apartments with each other without paying a significant amount of money.

So, because you cannot trade apartments without spending significantly more money, there's a couple of hour-long commutes instead. This is part of a general pattern - messing with prices doesn't help, since the market still has to clear. You just start paying in things other than money. Paying for things with money is great in general, since then someone else has the money. Paying for things with a longer commute is terrible, since there's no beneficiary.

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The term for this is called "labor mobility".

Instead of increasing commute times, more typically it involves simply not taking jobs that are further away.

Restricting labor mobility is really bad for obvious reasons: people not being able to move where the jobs are means jobs not being filled even as unemployment increases. There is overwhelming evidence that labor mobility has gotten drastically worse in recent decades, and local NIMBYism is one of the major causes: http://neighborhoodeffects.mercatus.org/2017/01/26/why-the-l...

Compare this to China, which has had tens of millions of people flock to brand new megacities for the new job opportunities there.

China is a bad example with its hukou system in place. Sure you can migrate to the city for a better job but you have to leave your kids behind (no public school without hukou). Labor mobility but at great costs.

China is a bad example of a place getting policy right to favour labour mobility.

It is an extreme example of a place where labour mobility is so valuable it happens in spite of restraints. In fact it is so extreme that it is hard to draw lessons for modern western countries (although it has obvious resemblances to urbanisation in Europe a few centuries ago).

Seems comparable to immigration controls between countries.

It’s more comparable to the movement controls of apartheid.

Arguably, immigration controls are also similar to the movement controls of Apartheid. They're just more socially acceptable because pretty much every country does it.

Sure. But discriminating on your own citizens based on where they were born (or where their parents were born in china’s case) is extra douchey.

I believe you can change Hukou after a few years so it's not strictly where they were born.

Many American state universities discriminate against students based on where their parents live (e.g. charging in-state vs out-of-state tuition).

A. Yes but it’s very hard. You have to marry in it or be a grad from a good university in a good major.

B. Yes, but you easily get residence by living there for less than a year. Also,public K12 schools can’t discriminate like they do in china.

ah but in china not every one is allowed to move to the cities so you get an underclass who work in eh black/grey economy and are paid less because their employer can have them deported

Couple the labour immobility with capital extreme mobility and you get the capitalist's wet dream: lower labour costs.

Are we seeing low labor costs in San Francisco area?

I was just talking about the macro level Washington Consensus capital/labour trade mobility.

i.e. I'm comparing the lower labour cost of the west in general vs the west before the 70s. https://www.epi.org/productivity-pay-gap/

If you want to deep dive into a present county per county labour cost specifically, then I'd argue yes as well http://projects.sfchronicle.com/2016/teacher-pay/

Anaheim teachers make ~50% more than SF teachers and spend 4 times less proportion of their income on rent.

Beijing has just announced a population cap

I believe this is exactly my current dilemma:

I live in San Jose, I commute to SF 3 days a week (super thankful for the chance to work remote 2x a week). My current apartment (a 1BR I live in by myself) costs a bit less than 1k a month and is rent-controlled. The equivalent in SJ is probably worth 2-2.5x as much per month, and in SF (or somewhere in-between) it can be worth anywhere from 2.5-4x as much.

I've been hunting for an apartment more on the peninsula since I don't necessarily need or want to live right in the city, just closer (especially in case I switch jobs eventually), but I definitely want to halve the commute time at least (Caltrain plus door to door is nearly 1.75hrs each way).

But why would I want to leave my rent-controlled steal and be spending over half my monthly income for the equivalent? It's ridiculous.

So now it's a matter of figuring out the cost analysis of moving into a better area that's closer to work, and therefore an increased quality of life, or stay where I'm at where I can save much more money and have a rather crappy quality of life (I don't care for where I live now strictly other than the cheap price of the rent).

Sure, but in the counterfactual non-rent-control world, staying in SJ at $1000 isn’t even an option. Maybe efficiencies bring down prevailing rents a little bit, but enough to matter?

The more interesting question is, why are the 50 miles between SF and SJ reserved for sparsely packed single family homes and one story strip malls?

That’s changing. They’re building higher up in Redwood City, South SF, and the surrounding areas. It’s costly to replace the older model of American development from the 50’s. They waited until the last minute to start working on the issue.

Redwood City has been interesting to watch. I hope they get more diverse retail with the added increased density. Right now it is a lot of restaurants and bars, which while nice to have, means that it misses out on a lot of the foot traffic and such that other Peninsula cities like neighboring San Carlos, or Mountain View, etc. have.

Redwood City is also nicely positioned as a mid-point between SF and South Bay.

Beyond that, it seems the entire El Camino corridor is being heavily developed with retail and high-density condos and apartments.

Interesting. I looked at some of these complexes - similar rents to new construction in downtown SF (and similar unit sizes). Why? Schools, maybe?

Many complexes along El Camino on the peninsula seem to be increasing rent wherever possible. They "renovate" (add stainless appliances basically) and it lets them increase rent for a unit by a few hundred dollars at least. They also charge 200-300 more for a parking spot (I've spoken with complexes before where one unit without parking was 200-300 less than another with one spot, or a unit with an extra/second spot).

Some of these areas (Redwood City in this case) are next to major Caltrain stations with Baby Bullet stops. But they're also convenient (technically speaking) for going on 101S/N to work, etc.

Right, but why are people willing to pay as much/more for these complexes relative to a shiny high-rise in downtown SF?

They may have more square footage, pools, warmer climate during summer, more parks for children/pets, better schools in some areas as mentioned.

That's part of why I'd prefer living on the peninsula than in downtown SF. Weather is consistently better in the summer months. More space/less people (except for rush hour traffic). More parks for recreation. Pools aren't necessarily a deal breaker for me, but it's a nice extra.

A shiny high-rise is nice but unless you can afford a penthouse or similar you're probably looking at a small unit. Less space, fewer parks, more people everywhere (tourists, homeless, etc.)

The schools in RWC are not great (although hopefully that will change with the influx of reset Prop 13 tax dollars from new residents.

The downtown has a solid layout though and lots of room for growth. The RWC downtown has the potential for offering a lot more than some neighboring downtowns that are less dense and could be a nice hybrid between SF and more "suburban" Peninsula cities.

Real question, why not look for a different job closer to San Jose?

And here we see nerfhammer@ point being made. Your question is good. And that shows that the laws discourage people from seeking work far from where they currently live.

I'm relatively fresh out of school (just over a year full-time at my current job) so I don't know that it'd be as easy to just switch now without looking like I hop job to job.

Moving jobs after a year is very common in tech. If you have any co-workers who left, asking them for referral (if they like the new gig) is a great way to go about it. Lots of companies pay referral bonuses so your old co-worker will be happy about it too. I'm on my third job after graduating and have more than doubled my income in 3.5 years.

A year in is a perfect time to hop IMHO.

maybe you could swing 3 remote days a week at some point?

Possibly; my manager basically already does that, but then he's a manager so he has the rank to do it.

You should use the long commute as leverage, i.e. you need to either work one more day a week from home or start looking for something closer to SJ. You won't come off as looking disloyal to the company because everyone understands how brutal that commute is.

You're asking: what's the advantage of being willing to look farther afield to find your perfect job? That's what people in this thread are talking about when they say "labor mobility".

In case you want me to answer, there are myriad advantages: the chance to work with your most preferred tools, on a product that's more interesting you, with maximally compatible coworkers, etc. All the normal reasons people go somewhere besides where they were born for a job.

Are you willing to live with housemates?

That's the only way you're going to come anywhere near your current rent. As a bonus you'll get more space generally and some community.

Not particularly. I've had that experience before and much prefer being on my own now. I find my community elsewhere. I prefer to think of my apartment as my own space, whereas a house (or shared multi-room apartment) would require having a communal kitchen/living room.

I have a friend in Oakland paying $1200 for his own place (rent controlled). Might be near impossible to find, but it’s out there!

How exactly do you get a rent controlled steal in San Jose? Those 8% annual increases add up (multiply up) very quickly.

Found a small, privately-owned 8 or so unit apartment building that a coworker of mine was living at back when I was in school. She recommended me to the apartment manager/owner, who then gave me a good deal on a unit that needed things re-done (carpet, paint, etc.) by not renovating it as planned. Since it's rent-controlled they've only increased my rent by a small amount twice in my 5 years living there.

if they only increased it twice, then that's not due to rent control, which allowed for 8% each year (recently changed to 5%)

No. You misunderstand what I said.

My unit is rent-controlled. However, the owner of the building has only increased rent twice, both being the max they could under the rent control limit. They just haven't continually increased it on an annual basis because apparently they haven't needed to.

so you're saying they "banked" the increase

still, an annualized 8% is quite a bit (over 5 years it would be 46%)

Yeah. I'm honestly very fortunate in my situation. Many low income families pay more and don't necessarily have rent control like I do.

Another second order effect is the reduced supply of family sized units. Many 3+ bedroom units are occupied by older couples and single people who raised their kids there and no longer need the space but would find it much more expensive to downsize. This drives families out of the city (among other things). Prop. 13 solves this by allowing people older than 55 to transfer their property tax break to a smaller house.

Prop. 13 also creates problems with housing supply for people who haven't yet been able to transition to home ownership. It's difficult to strike a good balance here.

There is a lot of stickiness and inelasticity when it comes to housing, especially when other factors such as kids and schools and spouse's commute and all come up.

Can a free-marketeer address this? I thought stuff like this were obvious rebuttals but look at the top posts in this comment section.

It's starting to feel like articles and posts like this aren't driven by discussion or curiosity but just political fights.

The major issue is that the market is NOT free. This market can't ever be free. There are building codes, zoning, planning, approvals, etc. All of that red tape related to building the level and quality of housing that an area needs already distorts the market.

Thus the underlying issue is that there has not been proper correction and guidance from the governance structures established by the people in the area; mostly because the rising home prices and status-quo of neighborhoods generally benefit those people.

It's going to take state or federal level correction to fix this issue and the "best" way of doing that would be to sour the use of housing as an investment.

Address what? A vague reference to "stickiness and inelasticity when it comes to housing?" I suspect you're misunderstanding what the "swap houses" example means. It's not actually about two people who might want to swap their houses. It's just a "bottom up" way of showing how housing restrictions create inefficiencies by limiting choice.

It might help to think of it in a "top down" fashion. Imagine laying out housing for everyone in a metro area as an optimization problem, where you're trying to maximize a value function over things like amount of space, proximate to peoples' workplaces, quality of schools, affordability, etc.

Housing restrictions add additional constraints that make the solutions worse for everyone. E.g. say some group of people with kids are willing to live in a duplex on 1/8 of an acre rather than a detached home on 1/4 of an acre in order to reduce their commutes and see their kids more often. But they're not willing to live in a city apartment with their kids and pets. Housing restrictions basically eliminate that part of the solution space by making it illegal to construct such housing. That group of people get punted to their less-preferred alternatives, and the resulting solutions are worse for everyone.

There's nothing to dispute here–the are obviously factors other than costs that make (some) people prefer to stay put: local family, friends, or even plain old laziness.

That doesn't exclude the cost scenario outline further up, and the relative strength of these effects vary from person to person.

And no argument will "win" such debates for either side. These are complex issues, and even if everyone can agree on the mechanisms at work, you'll get widely different results based on differing importance for the conflicting goals you're trying to optimise for.

Rent control, as shown above, might legitimately add to traffic. But it's also cruel to force elderly people to leave their remaining friends, and their familiar neighbourhood, just because they can no longer afford rent.

Anyone claiming "it's so easy: just..." is invariably wrong. California's legislators aren't stupid. The main contributor to housing problems happens to be the unparalleled economic success of the state, plus a few geographic quirks.

Simplifying to the tired old "free market" vs "regulation" debate is only exchanging one set of problems for another. The US happens to have other locales that dabbled in an ideology-driven "free market" approach. The result are the suburban hell-holes that are Atlanta, or parts of Houston: Low-density clone cities totally reliant on cars, with much longer commutes and huge environmental footprints, almost devoid of street life.

What's usually needed is neither more nor less regulation, but smarter: encourage high-density mixed zoning, create public transport that can compete with cars, encourage companies to adopt telecommuting, flexible hours, distributed workplaces instead of central campus etc...

that dabbled in an ideology-driven "free market" approach. The result are the suburban hell-holes that are Atlanta, or parts of Houston: Low-density clone cities totally reliant on cars, with much longer commutes and huge environmental footprints, almost devoid of street life.

I assume because that's what people want?

HNers seem to think a downtown core existence is the best and apparently aren't aware there is a big group of people who don't want that.

> I assume because that's what people want?

Yes and no: Given the choice, people will prefer a single-family home with a large garden, to the same home without a garden, or a smaller apartment.

But rephrase it and the answer changes: People prefer to life in (nice) apartments if others do so as well, and the resulting increase in density cuts a 60min car commute into 15min on a bike, or even 30 in public transportation.

In any case, I would consider mixed zoning more important than density. It's not just metropolitan city centres that provide higher quality of life than the suburbs. Another winning model is that of the classic "Small Town USA".

It's perfectly possible to have suburban-style homes with gardens clustered around a city centre providing everything you need in a typical week, plus schools/medical care/sports/you kids' friends all within a radius of about 3 miles, making it easily accessible by bike, and even on foot.

If that’s what people want, then why do we need laws to ban the alternatives almost everywhere?

https://www.strongtowns.org/journal/2013/1/14/its-so-much-mo...

> suburban hell-holes that are Atlanta, or parts of Houston

And yet in those places there are no housing shortages and normal people can actually buy a house without waiting for the equity fairy.

Right, but everyone knows that if you have a spouse or kids you probably shouldn't be living in the bay area anyway unless you a rich. /s

Is this a well known problem? It has never occured to me that this could happen but it makes a lot of intuitive sense. Do you know if anyone has measures this effect? Very curious how much this contributes to the Bay Area traffic problems.

Second-order effects are difficult to study in general. My comment was driven entirely by fundamental economic modeling: price controls generate harms by forbidding beneficial trades, and people move to reduce their commute. There are other reasons why people move, and I expect to find these situations as well. For instance, people tend to downsize their housing after their children move out, but who would downsize when the smaller apartment is more expensive?

That's a really great insight. The fact that such good intentions often lead to bigger problems is what concerns me about UBI - it will surely have huge second-order effects. I'm not sure what they will be, but rent control in a city is tiny compared to the effect a universal change like UBI would introduce.

In an ideal world you'd run the experiment and see how it goes. In the real world you'll probably be stuck with it regardless of the outcome, because there will be a concentrated group who will be strongly against ending it, whereas the negative consequences will be diffuse.

That rent control is bad is not exactly a new finding. This has been known to economists across the political spectrum for decades.

One second-order effect of true UBI would be to inflate the cost of goods to the level of UBI, thus rendering UBI pointless.

The price of basic necessities is limited by the cost of production, not some fundamental scarcity. We could produce as much food, clothing etc. as anyone could want without increasing the cost. (In fact, the cost should decrease slightly due to economies of scale.)

If UBI truly is basic income that is livable then labor costs will go up, and thus production costs go up.

It's not that simple though. On the one hand, UBI will make people less willing to accept work, but on the other hand it will also make them able to have a higher quality of life with a lower wage.

If someone is currently on $25k and gets a $10k basic income, their employer can lower their salary to $20k and they'll still be getting $5k more than they were before. (This won't happen immediately because people will be reluctant to take pay cuts, but I think it will in the longer term.)

Exactly how much of this difference the employee and employer capture in the longer term is a concern, but I think giving people the option to quit without starving will go a long way towards empowering them to insist on fair pay. I also think a result would be an increase job quality, because I think a lot of people would take a pay cut to work somewhere less awful if they could afford it.

Of course that money comes from taxes, so there's still a cost somewhere, but I'm not as convinced progressive taxes on the wealthy will have quite as big an impact on the costs to produce basic goods.

The price of basic necessities is based on what people will pay for it (or what merchants can charge for it). If everyone has $10 today to buy groceries and all of a sudden, tomorrow everyone has $100 to buy groceries, what do you think is going to happen to the price of groceries?

Nothing much in the long run, competition between supermarkets is pretty cutthroat and it should level out not too far from where it is now.

If UBI is paid for with inflation than prices will go up to capture an equivalent in value. If UBI is paid for by increased taxes then all businesses will need to raise prices.

price = f(cost) is incorrect cost = f(price) is correct

This is basic economics. (Seriously, this is in the easy stuff like Hazlitt.)

For an example, see joe's response.

Just to check that I'm understanding you correctly, you're saying that the cost of producing a product is a function of its sell price?

Yes. Costs are determined by the sale price, not the other way around. For example, if the sale price of a product increases, the demand for its components raises, which raises their cost.

If a would-be producer cannot source materials that would cost him less than the sale price, he just won't build the product.

[1] has more details on the subject.

[1] https://mises.org/library/whats-cost-got-do-it-0

> UBI - it will surely have huge second-order effects

I absolutely agree, and I think these justifiable and yet ill-defined concerns are shared by a lot of UBI opponents.

I just hope anyone trying to come to an informed decision remembers to include unrestrained capitalism's second-order effects on the pro/con list.

>>unrestrained capitalism

It sounds scary when put like that but it just means people free to interact, while secure from other social actors in their person and property. By the nature of voluntary configuration, interactions have a tendency toward being mutually beneficial, and there are corrective feedback loops that naturally exist in a voluntary society to reduce those that aren't (e.g. scammy operators increasingly excluded by increasing consumer vigilance and growing reputation markets).

And you can still have governments provisioning economic resources that qualify as public goods, like basic research, public information resources, policing and national defense, in such a setting, so there is no fundamental deficiency in unrestrained capitalism, aka an absolute free market.

> so there is no fundamental deficiency in unrestrained capitalism

Except a tendency toward consolidation and monopolies. And, inherent in the word "unrestrained", a tendency to use corporate money to unduly influence politics to benefit the corporation at the expense of the public interest.

> it just means people free to interact, while secure from other social actors in their person and property

It's kind of irrelevant anyway, all I really meant was UBI should be evaluated in comparison to "the status quo", whatever you choose to label it.

>>Except a tendency toward consolidation and monopolies.

That assumes no government provisioning of public goods that can counteract capture of natural monopolies, but there's nothing inherent to a free market to prevent such government intervention.

>>And, inherent in the word "unrestrained", a tendency to use corporate money to unduly influence politics to benefit the corporation at the expense of the public interest.

The term here is "unrestrained capitalism", meaning people in possession of their right to contract and secure in their person/property, not "unrestrained society". An absolute free market doesn't mean anarchy. It doesn't preclude checks within the electoral and political process itself to prevent corruption. It doesn't prevent laws from being passed to place restrictions on those in public office, like, to give an extreme example, a lifetime ban on receiving any compensation from the private sector.

>>It's kind of irrelevant anyway, all I really meant was UBI should be evaluated in comparison to "the status quo"

Fair enough. I just take issue with the connotations of "unrestrained capitalism", where it implies malevolent behavior is legalized. A less biased term would be "free market".

Mountain View only adopted rent control very recently, and only for apartments that existed before 1995.

Not sure if anyone pointed this out, but this problem of labor mobility exists for all of those who own their home as well.

> So, because you cannot trade apartments without spending significantly more money, there's a couple of hour-long commutes instead.

Here is where the analysis should happen. All of the "significantly more money" aspect boils down to transactional costs. Transactional costs in rentals will always, always be higher than transactional costs of ownership. Ownership's transactional costs get offset, (to only a small extent in the Bay area, but it is not nothing), by the equity the owner has accumulated.

Renters never accumulate equity to offset their transactional cost of "trading". The paper (and all of the anti rent control camp) constantly misconstrues lower-than-market rent as "savings". It is not savings; it's merely delaying the inevitable transactional cost of "trading".

Interesting. But it would be good to have some data showing whether this effect on traffic is real and, if yes, what magnitude it has. However, even if the data supports the idea, the conclusion that rent control in general is bad is not really supported because rent control could be implemented in different ways that do not hinder mobility. Germany recently introduced a new rent control law the goal of which is precisely that.

Home ownership causes the same problem.

So does:

* good quality schools, rather commute long distances than change schools;

* a really good city with a nice downtown;

* a spouse's job location;

* friends' location;

* ... point is there are many reasons for someone to not want move closer to the current job.

Are there that many people in rent-controlled apartments for this to be a serious enough issue or cause of traffic?

A third of rentable dwellings in San Francisco are rent-controlled, so yes.

They're going in different directions though, so traffic is actually halved.

How so? If they swapped apartments they'd just walk to work and not have any contribution to traffic.

That’s a real stretch.

End of the day, short term leases make rents float at the cost of making renters second class citizens who cannot stay in any one place or area.

Rent control is a way to deal with that. It exists because voters care deeply about it.

But rent control only benefits the renters already in place. It hurts new renters to the area, by driving up costs.

You've got to address a moral judgement you've implicitly made: What makes the current renters of a city more deserving than the future renters who might move to the city?

They are already making the city a valuable place to live. I've heard it called the 'schoolteacher paradox'. A brilliant schoolteacher moves to a new area and begins working at a school. Her effect on grades drives the school up through the rankings. This attracts interest in moving into the area, which drives demand for housing and voila, she just drove up her own rent. Her landlord gets to extract more wealth from her.

The high value of property in San Francisco is a lot to do with its proximity to amenities and services provided for by the very people suffering because of continually rising property prices. This is a highly parasitic dynamic.

If moral judgements are really your primary concern why are you advocating for eliminating a policy that allows a tiny bit of clawback from the pre-existing titanic wealth transfer that goes from renter to landlord?

Moreover, it's a policy that by and large keeps people who do necessary work.

There's a fair, economically efficient solution to all of this, of course: the 100% land value tax.

Rent control is merely a hack that offsets some of the gargantuan harm done by leeches extracting value from the communities surrounding them via untaxed land. I'd be fine with seeing it go... after implementing a 100% land value tax.

To be fair, GP did address that point: the current renters of a city have votes [in local government], and the future renters do not.

I feel this response is confusing right with might. Just because some group has the political might to make laws that benefit them does not make those laws right, does it?

Right and wrong are almost entirely subjective on issues like this. What is the right level of political boundaries for people to have a vote in these decisions? Should residents of San Diego be able to influence housing policy in San Francisco? How about residents of Chicago, or Madrid, or Karachi?

I don't like the idea of residents of far-away cities having a say in housing policy in my city. But I'd also support a federal-level ban on rent control policies, based on the idea that it's a net-good if we encourage people to move to more efficiently allocate housing.

But I totally see how this is kind of hypocritical. I just want things my way, everywhere. :-] idk!

I suppose that the next-best thing is to have local control with freedom of movement. The United States and cities are kind of like this--- it allows for states and cities to try out different policies, and compete based on policy.

It doesn't, I was being ironic.

Let's apply that same logic to refugees (red-lining, migrant workers, or really any topic of im/e/migration). Current citizens have votes and decide that refugees aren't welcome, refugees don't have votes and so cannot be welcomed.

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