Rent Control: An Old, Bad Idea That Won't Go Away
governing.com
governing.com
It was good work and good pay, but spending 65% of it on rent? what incentive do i have to stay when the median home price is a million dollars or more? the thing this article does not take into account is the fact that without rent control or some form of affordable housing, that "amazing city" you live in grinds to a halt pretty fast.
Try living in a city where the bus system never sees regular maintenance because the motor pool is 2 hours away. broken down garbage trucks just sit in the road because wrecker crews cant afford to live anywhere near the metropolis. Ambulances and fire trucks might, or might not, make it to a destination because the fleet techs with diesel certification like myself dont live in your city.
pipefitters and machinists need a place in your city if you want clean healthy water and sewage service. And the next time a drunk backs over a telephone pole, you're going to need a lineman or three to fix it.
What it does is it takes rental units off the market because being faced with the maintenance risk of 5 or 20 year or however long the tenant stays fixed income vs. convert it to owner-occupied housing and take a large payout now, landlords often choose to ellis up the place.
And if they don't remove rental stock, then they're incentivized to provide shittier service -- delay repairs, delay upkeep, ignore tenant requests -- to encourage the rent-controlled tenant to move elsewhere so they can reset their price.
Most implementations of rent control make it difficult to redevelop those properties into higher density housing. After all, if you could remove people from those units to redevelop, rent control wouldn't be worth much. This reduces total housing available which drives up prices elsewhere. Rent control is always a massive wealth transfer to a couple of winners from a massive number of losers.
If you only ever rent control 100 units, then yeah, it should only affect the owners of those units. You might have some other problems with it, it incentivizes slumlording, but it shouldn't be a systematic disincentive to build housing.
But that also only helps 100 people. If you expand rent control onto more existing properties or mandate that new units be built under rent control (or even just have credible candidates talking about doing that), it's a disincentive to anyone looking at offering rental properties - especially cheap rental properties, which are much more likely to become a net loss as prices rise.
Therein lies the problem. Rent control is not the only way to make housing affordable to low-income people. It's not the most efficient or effective way, either.
But it persists, because politically it's an easy concept (even if it's an ineffective one), and it also creates a stable voting bloc that will protect it, even if they don't actually need the rent control[0].
[0] In most places, rent control isn't means-tested, so you can end up with incredibly wealthy people living in very valuable properties for next to nothing. Ed Koch, the former mayor of NYC with a net worth of about $10 million, died living in a multimillion dollar penthouse apartment that he rented for $300/month, because the apartment was subject to rent control.
New market-rate development that would keep pace with demand is consintently zoned and voted out by the electorate. It's an issue in every city in CA for sure.
It's really not at all, and I don't know where you get the idea that rent control appeals to homeowners (homeowners hate it!).
> New market-rate development that would keep pace with demand is consintently zoned and voted out by the electorate. It's an issue in every city in CA for sure.
There are plenty of other programs which are much more effective. In California, no, but that's not the only place to look for examples.
Now if you talk zoning and granting permits, that's where the hate really begins.
And yes, I'm referring to CA where the housing-as-investment vehicle has distorting things more than most other places.
Normally when prices go up, supplier (homebuilders) have an incentive to produce more housing, countering the increase in price. However, many cities (SF is a great example) make it very hard to build new housing. Restriction on supply with increasing demand -> price of homes go up.
Unfortunately they are not making any more land.
Also what does super nominal pricing mean?
And anyone can sign a lease for 9 years. But the vast majority of tenants do not want to make a commitment for that long.
And they could also sign a lease with an option to renew for up to a number of years similar to a commerical lease. But again no-tenant wants to pay the option cost.
Super nominal: greater than the rate of general inflation.
In other words, rent control has no effect if prices would have remained stable anyway. It's also pointless in that case.
Often planning laws restrict new housing...
> usually denser housing
...and denser housing
> Rent Control prevents the market signals from working.
Rent control is also unfair, if some people (selected how?) are entitled to it and other people not entitled.
I am against rent controls unless it is a right for all. By this I mean that anyone[1] living in a city can go to the local authority and say "I want a rent-controlled flat" and the local authority would be legally entitled to let them one, building new houses where necessary. This would mean the local authority would be required to act on market signals of people wanting rent-controlled housing.
1: with maybe a few qualifications like residence in that city for a year, citizenship, etc.
So it is a right for all... just live in a building that qualifies. Most older buildings already do, so rent control is already applied to the cheapest units (again, in SF)
And how do you get to live in a unit that qualifies? That isn't something everyone has the right to do.
> just live in a building that qualifies
"Being rich is easy, just be born to rich parents."
... until eventually it doesn't matter, because all accommodation in the city is owned by investors who don't actually live there
If your community prices out certain essential services then those providing the service will leave, raising the price of that service, thereby ensuring that those that stay (or come back after the price changes) can make a living, can have a wage that allows them to pay for housing in the city.
Rent control distorts this type of adjustment, indirectly providing a subsidy that benefits those that could afford to pay market rate for a service by allowing those that provide the service to live below market rate and thus charge less.
Or, more likely, the people providing those services will not actually be paid enough to live in the community, but instead forced endure grueling commutes and other practices that lower their quality of life if they want to remain employed.
https://www.sfgate.com/traffic/article/Bay-Area-commute-San-...
https://www.curbed.com/2018/3/8/17097154/affordable-housing-...
Unfortunately, if as a society we insist on continuing to concentrate, we have to build denser housing. SF is very behind the building needs, as are most West Coast cities.
Rent control has made the situation a lot worse in Santa Monica because you have a lot of old single story multifamily housing that cannot be redeveloped because it’s too expensive to buy out the existing tenants and the tenants have zero incentive to agree to a buyout. This locks out most development.
In Santa Monica, we could literally triple the density within existing laws, but this will not happen because of rent control laws.
Rent control is just a scapegoat against that.
In Boston, for example, I would love cheaper places to live in the city, but there's no way I'd want to see the historic brownstone neighborhoods demolished. If they were, my desire to live in Boston would quickly drop. Much of that architecture is what makes the city what it is. The people there who lived through the West End's transformation realized they didn't want that to continue, and their attitudes toward development quickly shifted. Everyone knows what Manhattan is like and not everyone wants to live in such an environment.
In the end, someone will live there. Someone will work there. Someone will open businesses to serve the residents. Someone will need to employ blue collar workers, and blue collar workers will need the means to get to their job from a reasonable distance.
Some residents don't want to turn their neighborhoods into high rises and traffic nightmares. I don't blame them any more than I blame workers for wanting to be able to live near work and not spend 60% of their income on rent.
And frankly these discussions on HN always dance around the special protected class of persion - people who use urban real estate as an investment vehicle slash secondary home. Tax them harder, make vacant buildings less attractive to own and harder to profit on. Clamp down on unlicensed vacation rentals. Force them to release the property or adjust rents so that people can afford to live there. More units will open up, prices will drop, and no one has to see their street turned into a nightmare of ubers in the shadow of a generic high-rise.
I think a lot of these discussions are inspired by California (SF in particular) where the average homeowner is this person and votes in their financial interests -- to preserve (at all costs) neighborhoods that rarely have the historical cache of Boston brownstones.
1. you are forced to move out and services become unavailable in the high priced area
2. your rates increase and you can stay
If option 1 happens it won't be an expensive area where people want to live anymore so problem solved either way.
What about the new blue collars who enter this city later than you? Rent control doesn't help lower rent for them, but arguably increases it by depressing supply.
Although I am not an economist, I believe that the point of the article (and of the economic consensus from both right-leaning and left-leaning economists) is that the affordability issues you cite are actually worse now than if there had not been rent control.
Expanding on that ... rational landlords are going to:
"front-load rent hikes, select tenants likely to stay for short periods, or provide poor service during tenancies if underlying market rents are rising rapidly. At worst, tenancy rent controls would increase overall market rents by raising risks to landlords and reducing investment in new stock, particularly if the controls are perceived as a precursor of more-onerous regulation."
I think part of the confusion is that, other than the misaligned incentives and general bad behavior of landlords, someone who actually receives a rent-controlled unit is definitely better off than those who do not. If you win that little mini-lottery, you've got a definite gain. However, the overall market for rental housing - and any new entrants to the rental market - are made worse off.
If you successfully converted the entire rental market to rent-controlled units, the market would respond:
"That's because landlords confronted with the regulation are incentivized to convert properties to other, higher-return uses. Developers, meanwhile, find new rentable accommodations less profitable to build, compounding the scarcity-of-supply problem that often drives high rental prices in the first place."
Rental subsidies increase incentives to build new buildings and rentable stock.
But of course once you talk about transferring income to the less fortunate why ear mark it for rent? Why not let them choose to spend it how they want?
If the same tenant gets to stay, it doesn't increase housing availability. And in fact, house prices up because the market is propped up higher by subsidies.
If the same tenant is priced out, it doesn't protect the renter.
well yes this is the idea, and then more people want to be land lords to get the sweet sweet rent subsidy money, which ideally would then cause more homes to be built because of all the money coming in as rent, and which would then cause rents to fall.
Compare to absolute rent control (i.e. there is a global cap on rents), now landlords get less money, they don't have any incentive to invest in their property because they can't get any money out of it, nobody wants to get into the landlord business because its hard to make any money in it so there isn't any incentive to build new apartments.
Or compare this to the rent control where you aren't allowed to raise rents on specific tenants. If you have an apartment now, congrats you have a deal, as long as you never have to move in which case you are screwed. Also woe to anyone new to the market because you're rent is going to be higher in order to subsidize the people that the people that have been there forever.
The situation you're describing requires several facets.
- Enough demand to warrant rent control having an effect.
- Not enough demand to make new units profitable.
- There is room for new development and the only roadblock is profitability.
In California at least, a subsidy would just be a payout to land lords without addressing the major issue of zoning.
On the other hand, to provide _new_ affordable housing the only long term solution is an increase in the stock of buildings available for rent.
I'm generally against rent control, but I still acknowledge that housing is more than a technical business contract.
It IS exactly just that to some people, but if you refuse to acknowledge the people on the other end, the only people you're going to bring to your side are your buddies at the country club.
If you are concerned about the ability of lower-income people to afford housing, then give them a rent subsidy! As a mechanism, this is superior in just about every way. It doesn't suppress housing supply, and it can be means-tested so that high income people aren't occupying rent-controlled apartments (which happens all the time now). It also gives low income people the freedom to move without losing their rent controlled status.
This is similar to the way that student loans have resulted in higher tuition/housing that once again just gets sucked up by the institutions. The recent appeal for "free college" funded by the taxpayer will almost certainly result in increased tuition.
If only we had a simple mechanism that balanced supply and demand. I think there are areas where government regulation is necessary and appropriate (safety, fraud avoidance, pollution, health, etc.) but regulating prices is almost always a failure that leads to an ever expanding Rube Goldberg collection of incentives, subsidies, rules, tax loopholes, and so on that are much worse than just letting prices float naturally.
The point of the article was that it simply shifts the distribution of economic rents from property developers to renters.
I would love to see a well argued opposing position, which is why I read your link, but I don't think it really engages with the point about the systemic effect of rent control.
The transaction costs are a red herring.
The argument is that rent-control can spur the creation of new housing, as landlords are unable to make the same amount of money from their existing units. Of course, this is predicated on the fact that developers/landlords have the option of creating those new units (which they usually don't). That's why I'm not against rent control per se, but I'm usually not in favor since it tends to be suggested in areas with severe restrictions on building new housing.
This article is also full of other strange arguments. Consider:
"The fact that real estate developers have funded an anti-Proposition 10 campaign to the tune of $45 million suggests that they are eager to defend their market power. If California were a truly competitive housing market where home builders operated with slim margins, they’d load up their cranes and build in some other state. But it’s clear these developers benefit from the status quo and are fighting hard to keep it."
Selling retail gasoline is a low margin business. But you can bet that if there was legislation to impose a price cap, gas stations and oil companies would be opposed. In other words, everyone everywhere is always going to be opposed to legislation that reduces how much they can charge for their product. You don't need to posit other factors such as the existence of market power or lack of competitiveness to explain the opposition.