Rent Control Needs Retirement, Not a Comeback
bloomberg.com
bloomberg.com
I'm particularly excited about some of the new legislation that's just been passed that allows for by right construction if a city isn't meeting its housing needs, because it just may streamline the process of getting things built here.
http://conference.nber.org/confer/2017/PEf17/Diamond_McQuade...
Ask a property developer why rents are so high and they'll complain that ridiculous zoning and building restrictions are preventing them from building enough new supply (...and coincidentally reducing the amount of profit they will be making).
Ask a landlord why rents are so high and they'll complain that rent control is keeping the market from building enough housing (...and coincidentally reducing the amount of profit they will be making).
If you ask me, it's untaxed land - the costs of holding on to those tiny one story + garage houses were made artificially low - among other things, by prop 13. They impose a cost on others for monopolizing that land, but they aren't paying that cost, so the market signals that would fix the problem (getting them to sell up to somebody who would build denser housing to avoid a large tax bill) are severely restrained.
I liked Cambridge, MA’s model... the first 250k of your property value is removed from property taxes. Doesn’t make a dent in big expensive houses, but makes property ownership more affordable on the lower end.
I'm all for older people being given hand outs so that they can afford a comfortable retirement.
In general I'd prefer hand outs to be allocated via need rather than a real estate driven lottery, but I can understand how winners of that real estate lottery could feel like it was a fair and just system.
You should be careful with "the same people" arguments. They're almost always fallacious.
> Ramp up the taxes and the incentive they have to fight the denser housing will dissolve.
Ramp up the taxes and the incentive they have to fight the taxes will increase proportionally. Why wouldn't they capture that just like they captured zoning?
The real problem behind zoning is jurisdictional. As long as it is done on a city-by-city level, cities only have to be held accountable to the residents, not the people that they displace across their arbitrary borders. A regional jurisdiction would force zoning decisions to take into account everyone in the region, containing all the suburban residents with terrible commutes that are made worse by NIMBY protections.
Of course. The rich will fight tooth and nail to keep their entitlements. Always have done, always will.
>Why wouldn't they capture that just like they captured zoning?
They would. However, zoning is an easier process to derail because it's more localized and easier to come up with plausible sounding bullshit reasons why something shouldn't happen. In politics you shouldn't attack the shield, you should go for the jugular.
Also you could "fix zoning" and it would still be palliative at best if valuable land is ultimately still being hoarded.
Property developer profits would be higher though.
A while back there was a proposal to build a large apartment building in my neighborhood, which at the time did not have any tall buildings. Locals tried to stop it, literally putting "No Towers" signs in their windows and on their doors.
Thankfully they were not successful, so the neighborhood will soon be able to support hundreds of more people.
https://goo.gl/maps/hvkzDG4u9Tp
with this random "small" street in SF
https://goo.gl/maps/dJzn86V9ers
It's even more stark when you compare larger streets. Berlin:
https://goo.gl/maps/hBg7aMA2Feu
SF:
https://goo.gl/maps/YFcVLSWHPzS2
I guess you can see why I thought the density in SF to be pretty ridiculous.
Low density wouldn't be so much of a problem, imho, if the zoning would be better. Why does a large fraction of the population have to commute downtown to the skyscrapers? Couldn't the offices be spread out a bit more? Why are supermarkets to far apart? I did a lot of walking while in SF and in many parts of the city I had the feeling that sidewalks were more decorative than meant for transportation, because there were no shops or small businesses for a kilometer or more around.
https://www.google.de/maps/@52.5351488,13.4089075,266a,35y,2...
This sort of layout in Berlin is something common in Europe that I kinda of wish existed in US cities. (Barcelona is similar too?)
You can also move to another city. Get another job. If your concern is your view or lack thereof, you are probably well off enough to do such a thing - which is a freaking luxury. Lots of folks are too poor to afford housing, let along going to another city. Can't get a proper bank account without an address. No drivers license in some states, nor proper ID instead. I'm not even sure if you can register a car if you are homeless. These things make you more mobile.
So, the real question is how much home density are you are adding. Further, density can get vastly higher as people would be adding 20 story buildings not just smaller apartments which means most homes would not be converted.
As I understand it, that's how they do it in Japan. Zoning is done at the national level.
The rent is 2.5k * 12 = 30k a year. If someone makes $15/h * 2000 hours a year = 30k. 100% of income on a 1BR. Is your fucking view worth the costs you impose on others?
Enjoy your artificial restrictions on supply, as everyone with even one grain of common sense moves to Texas or Washington.
P.S. Rich software morons can afford it, but just because they can doesn't mean they want to get ripped off by (30k rent) + (20k state taxes) a year. Location is sticky, but once they get the equivalent job literally ANYWHERE else, they will take it, or an internal transfer.
Fast forward 20yrs later and rent had stayed the same but taxes and municipal fees had increased to the point where they dwarfed the legally allowable income. Add to this new mandates which stipulated how electricity and water could be billed to tenants requiring installation of new equipment in the buildings every few years. Then throw in rising insurance rates coupled with rising maintenance expenses.
So, we took at look at the figures and decided the best course of action was to either bulldoze a set of perfectly livable buildings, let the lots sit for the required minimum time, then rebuild a non-rent controlled property --OR-- sell to someone who could afford to do the same. There was no legal way to earn a profit otherwise. Turning into slum lords was not something we wanted to do. Welcome to being a landlord with rent controlled property.
SF allows rent increases, CPI adjusted, usually 1.5-2.5% a year. SF county use taxes have been ~8% for a couple of decades. Prop 13 has been in effect since the 70s.
4 out of 6 units in my building have flipped in 5 years, allowing rent increases. Resulting in at least $70-80K additional income for the landlord (at Prop 13 tax rates). This is more the norm than an outlier - many of the new techies aren't mad at grandma stealing their freedom fries, they're mad at techies who beat them here in 2012.
I'm all for giving up rent control when landlords give up Prop 13.
If a city thinks that certain people should be protected in that way, it should buy the proprieties and give them to those favored people. Trying to unbundle ownership and tenancy to mix and match them, at a city level with only acquiescence as opposed to enthusiastic collaboration from state and federal governments, as well as quasi-governmental institutions, is not going to work well.
The real solution is building more housing. (I think)
Besides, this does hinge on there being enough housing - including a few empty places. It is better to generally have empty units available just like you want a little unemployment to have a pool of employees to choose from.
That's pretty weird, since if HUD assists you with rent, they pay the landlord directly.
At the lower levels, some of our problem is funding by school district instead of distributing state-wide or country-wide. School are still segregated in many ways and the system has created wide disparities between schools because of funding. Sure, you need to adapt a little to the local level, but that's mostly for things like more special education students, more students not speaking english, and/or higher rates of poverty, which affects learning. The last case is some of what has made some of our schools bad, and the rest of us act like we don't care because it isn't our kids.
There is a little merit for the last one, so long as it is reasonable. You want some empty units on the market in most price ranges at all times, just like it is good to have some unemployment so folks can replace workers and have a pool to choose from. You don't really want rental units to sit empty for 6 to 12 months, though, and is probably a sign that there are many short-term rentals or the landlord is charging too much. Even this only works if the landlord can prove he's being prudent with pricing - a simple mortgage + average upkeep + fair set profit percentage would do, so long as it isn't obviously in the landlords favor.
Presumably you'd need some window of exemption for normal transfers and typical moving times.
I'd probably implement as ~2x property tax on dwellings unoccupied for more than 3 months in the past calendar year. As you pointed out, this would have a downward pressure on rents, as landlords would be less able to leave an apartment empty while they wait for someone willing to pay the highest rate. Also, people who own multiple houses would be penalized for keeping some of those houses empty without renting them out.
Every policy helps some people at the expense of others. Concentrated benefits, diffuse costs. You need to weigh both sides, not just the benefits. (edited)
What downstream effects that might have, who knows, but rent control isn't the only solution.
I have lived in various parts of Central London in mixed social housing, always as a market rate tenant (I am fortunate enough to afford it as a software engineer) and sympathize with the laments of poorer tenants who are occasionally booted out of their homes due to some housing development or other, complaining about the breakups of their communities and their families. But what about people who HAVE to leave their communities and families in order to make the most of opportunities when they arise? Is there an easy answer?
The author doesn't specifically mention low-income people - she just says that 'incomes rise':
But then incomes rise, and rents don’t. People with higher incomes have more resources to pursue access to artificially cheap real estate: friends who work for management companies, “key fees” or simply incomes that promise landlords they won’t have to worry about collecting the rent.
Your observation that poor people's incomes are stagnant actually strengthens the authors point above, because a growing income gap gives rich people 'more resources to pursue access to artificially cheap real estate'.
> The rest of the article is fallacious because of this.
There are some points in the article that are not dependant on rising incomes. For example,
Meanwhile, price ceilings reduce the supply because they decrease the incentive to build, and can make it downright imperative to remove rental housing from the market and turn it to some other use -- condos, warehouses, anything that won’t trigger the rent controls.
One perspective that is almost universally true going back as far as we have data, is that incomes rise over the lifetime of the individual. Because the bottom 20% today are a completely different set of people as the bottom 20% of tomorrow. And because people strongly to earn more as they get older, the premises of the article hold up.
> The "Falacy falacy" strictly applies to logical falacy.
Are you claiming that the parent comment is not logical or not making a logical argument? What type of other acceptable argument is there?
Maybe you have some large scale data you'd like to share?
[1] https://www.census.gov/data/tables/time-series/demo/income-p...
Edit:
Actually looking at this a little more, take the year 2000 (all inflation adjusted numbers.)
The lowest fifth of workers have seen wages fall 8.6%. The second fifth of workers have seen wages fall 2.42% in that time, the third fifth has seen wages only rise 0.45%. This is not what I would call a strong time period for workers.
Picking less than half the country population, ignoring the high end, treating small growth as insignificant, then complaining that the result is not the growth you wish it were, is terrible analysis.
Instead of picking 2 dates out of 50, look at all dates. 2016 was the highest avg for the lowest quintile for all years back though 1967 except 1999,2000,2001. So out of 50, its #46, at 96% of all time high, has been increasing since the recession, and is headed to record highs. The same trend is true of each quintile.
shows the bifurcation of outcomes, you can't just ignore that for half the people incomes haven't been rising
>ignoring the high end
This is literally how your previous comment begins: "Lowest incomes, even inflation adjusted, certainly have been rising"
All I'm doing is demonstrating that no, they haven't really.
>treating small growth as insignificant
I'm literally giving examples of negative growth...
>2016 was the highest avg for the lowest quintile for all years back though 1967 except 1999,2000,2001.
Are we looking at the same graph? I see 2016 as being 12,943 for the lowest quintile. These years all beat that:
2008 $12,994
2007 $13,371
2006 $13,513
2005 $13,095
2004 $13,016
2003 $13,044
2002 $13,333
2001 $13,740
2000 $14,161
1999 $14,293
1998 $13,578
1997 $13,189
1996 $13,103
1995 $13,061
1989 $13,075
>has been increasing since the recession
Now who's picking advantageous dates? Wages have been growing since the biggest downturn since the depression? Duh, but they've never caught up to where they were before.
>at 96% of all time high
It's at 99% of what it was way back in 1989, we can even move past the boom years in 2000/2001, in 2003 and 2004 wages were higher than they are now for this quintile. That's not really endearing to the idea of wage growth.
EDIT: I realize that no, we're not looking at the same data, you're looking at the maximum on the range that is included in the lowest quintile whereas I'm looking at the mean of the lowest quintile. Table H-3. I believe mean is obviously going to be a better measure than upper limit of the range.
Yes, that's how averages work. You similarly cannot ignore that for more than half, wages rose, which is why the numbers have increased. And usually bifurcation means bimodal, which in this case is not likely.
>Now who's picking advantageous dates?
I listed multiple times now what happens when you use all data. The example that there has been recent growth counters your claim of picking two dates from 50 and making claims about the whole.
In fact, I suspect that since the last few years have seen median overall wages rising (2015 or so was the highest growth ever recorded for median wage), that once the numbers for the past two years are tallied, new records will be set.
>Are we looking at the same graph?
No. I quoted exactly what graph the Census data was in with my first post. You keep picking other ones.
>I believe mean is obviously going to be a better measure than upper limit of the range
Not likely since we're already taking the lower quintile of the range of all income. Mean loses a info due to skew, which is why most discussions about wages should focus on the median. Since we don't have the median (well, you can possibly find the decile cutoffs to get it), looking at cutoffs tells you that more income has flowed into the bottom than before, since the cutoff is higher.
The lowest income bracket contains a lot of retirees, who have no income, but have wealth. It also includes students, that have little income, but likely will have wealth in the future. These zeros and low values will pull the mean down, likely much lower than the median. So they count in this case as poor, but they are not. Since the boomers are retiring, this pulls the mean down, but is not representative of what those at the 20% mark of income earn, which is a better measure, since you're not seeing averaged effects. You see the exact measure at a fixed position in the queue.
Similarly, at the high end, taking the mean is nor representative because a few high income earners can skew the mean higher than the median. This is why the ends of the distribution are better served by median (which we don't have), or cutoffs (which is basically a median, but at 20% instead of 50%).
To demonstrate this quite conclusively, here's [1] BLS data on expenditures by quintile for 2016. The bottom quintile has a mean of $11k as in your numbers, but has mean annual expenditures of $25k, well over twice the mean income. Note the other 4 quntiles have mean expenditures more in line with the income.
This is why mean, especially at then ends, is pretty screwy. These people have low incomes, but are not poor.
2001: 24,361
2016: 24,002
1979: 21,594
2014: 21,728
Instead of cherry-picking dates to suit a narrative, looking at all data, the 2016 income was higher than any year back to 1966 except the 3 years 1999,2000,2001. So of the 50ish years in the data, 2016 ranks in the top 4, and is 96% of the all time high. The trend since the recession is increasing, and if not for the recession, would probably be at all time highs. I would not be surprised if once 2017 or 2018 numbers were in all time values will be reached.
So yes, wages are increasing.
One reason low end stays mostly flat is it includes all people just starting careers, who have no skills, so it's not unreasonable that the inflation adjusted value they provide is not tremendously increased. Looking at values over this time frame also needs demographics figured in for this reason, and as the workforce becomes younger, wages are expected to become lower, while each individual person at point X in a career still has higher wages. Census reports cover this.
Remember avg wages are static snapshots of a moving cohort.
Basically take 22,000 * a function of unemployment rate and the data is flat over time.
PS: Looking at the highest income for a quintile also says very little about it as everyonone is making less than that. You really want the median of the quintile or the average of everyone within that range.
As such, the quintile, which is also a median (of the bottom 40%), is a good measure. Plus I presented data for it - if you want another metric show the data.
Another quite relevant factor, as I showed above, is as boomers retire, the bottom gets pulled down by people that are not poor. Given that this demographic has swelled the ranks of the bottom quintile over the recent decades, that the pay has slightly increased means for the truly poor the pay has increased even more than listed in this number.
The evidence from the BLS I gave above shows that the mean income in the bottom quintile is ~$11K, but the mean expenditures are ~$25k. This is because of retirees, as can be found in Census and BLS reports with some digging.
Factor that in :)
The concept of 'housing stock' is generally a foreign one to the bay area. Residents mostly care about their own home value, rather than how having ample supply regionally benefits everyone.
https://theoutline.com/post/2303/megan-mcardle-has-a-lot-of-...
http://exiledonline.com/megan-mcardles-hypocrisy-exposed-por...
https://twitter.com/asymmetricinfo/status/960546413582192641
https://www.splicetoday.com/politics-and-media/megan-mcardle...
https://www.bloomberg.com/amp/view/articles/2018-01-30/megan...
https://www.bloomberg.com/view/articles/2017-10-23/we-libert...
https://www.bloomberg.com/view/articles/2017-06-16/beware-of...
https://www.bloomberg.com/amp/view/articles/2017-09-18/we-di...
http://www.oregonlive.com/opinion/index.ssf/2017/06/why_not_...
https://twitter.com/asymmetricinfo/status/859101074501890048
http://web.archive.org/web/20120314140221/http://www.janegal...
https://www.theatlantic.com/business/archive/2007/10/defendi...
http://prospect.org/article/atlantics-mcardle-problem
http://firemeganmcardle.blogspot.com/2008/03/everybody-has-t...
http://nymag.com/daily/intelligencer/2012/12/newsweek-wins-w...
New York's two largest building booms took place during times of very strict rent controls - the 1920s and between 1947 and 1965.
>rent control looks like a victory for the poor over the landlord class. But the stifling of price signals leads to problems.
Except when it actually happened the price signals sent by the strictest rent controls still weren't enough to end the city's biggest housing booms.
Seriously, Megan McArdle telling you that price controls are "just going to hurt the poor" is a bit like Trump telling you that demolishing Mar a Lago will only hurt the immigrants.
Rent control is a dirty hack, for sure, but it's a dirty hack that shouldn't be removed until a proper fix is put in place - i.e. a land value tax.
I won't hold my breath for Megan McArdle to advocate for that.
Bloomberg should have her fired. She does absolutely no credit to their publication.
I'm afraid you're right and Miss McArdle is really nothing much more than a libertarian hack.
Case in point: Her book review fo Piketty's "Capital in the Twenty-First Century". While opinions may certainly differ about the tome this is a bit rich for a book review:
I apologize in advance, because I am going to talk about a book that I have not yet read. To be clear, I intend to read Thomas Piketty’s “Capital in the Twenty-First Century.” It is sitting on my (virtual) bedside with a big stack of other (digital) books that I intend to read. But it’s far down in the queue, and I’m afraid that I can’t wait to weigh in—not on the book itself, but on its topic.
I actually agree: Bloomberg really should have her fired.
I link to the Baffler article[1] since the original review is apparently only available to subscribers.
[1] https://thebaffler.com/latest/what-pikettys-conservative-cri...
https://www.theguardian.com/books/2008/jan/06/fiction.societ...
Signaling that you haven't read it gives one a defensible position! You can't criticize my mischaracterization of the arguments of the book, I haven't read it! Her opinions can be her alternative facts known to none except her.
There is accidental fallacious logic, and then there is manufacturing bullshit.
https://inversesquare.wordpress.com/tag/mcardle/
The lesson is, glibertarians always fail up.
The entire US economy was booming after the war. So numbers from that period don't tell you much about what things would have been like in peace time.
I don't think calling for everyone you disagree with to be fired is the right way forward.
I don't think conflating a specific person with everyone is a fair reading of the OP's statement.
I gave two data points that strongly indicated that the effect rent control has on construction is either absent or very, very weak. You wouldn't exactly get the highest rate of construction coinciding with the strictest rent controls otherwise now would you?
But even if what you assert actually is true, it hardly is a rebuttal to the article. Her unsourced assertions actually do line up with a century of research and hundreds of empirical studies on the effect of rent control specifically, not to mention the much larger body of research on price controls in general. It isn't necessary for someone who is backed by scientific consensus to laboriously review an enormous body of research that supports their premise before making a policy recommendation. Only those who are speaking against the consensus benefit from an empirical review.
I'm actually in agreement with you on land value taxes. It's something that is long overdue. But even with land value taxes, land is only valued at the highest best use that is zoned and permitted to be built. And that's the true underlying problem.
So Megan's response is just not to pursue economic justice at all? It doesn't make any sense, of course the powerful will try to erode justice for the powerless, that's just society, that doesn't mean we stop pursuing justice. It means we become even more vigilant about it.
I think the argument here is more "not pursue short-term economic justice at the expense of long-term economic justice"
If a means doesn't serve an end, then continuing to pursue it despite the perverse consequences doesn't prove your commitment to the to the desired result.
One side is hammering on the noble purpose, saying that if price controls don’t work, we must take housing entirely out of the hands of the market. The other is hammering on the practicality and implementation detail of particular regulatory regimes, and we talk past each other for years.
Plain and simple: The way to have economic justice is to build enough housing to satisfy demand.