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Comment by AnthonyMouse | Hacker News Reader

> a shortage of new construction, a lack of tenant protection

"Tenant protection" -- especially rent control -- is a nontrivial cause of the shortage of new construction. High rents are a signal to developers that there is money to be made constructing new housing. If it's not possible to make the money, they won't do the construction, which is what rent control causes.

You get a population of existing residents with rent controlled apartments, who then have no incentive to fix the housing shortage or eliminate rent control, but insufficient construction going on and consequently even higher prices for people who didn't get a rent controlled apartment in 1975.

(Restrictive zoning is another, independent cause of the same problem, and the two compound each other.)

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This is not how rent control works in any city in the US that I know of. Everywhere I know of rent control only applies to significantly older buildings. Which means that new buildings can charge much higher prices, which means that rent control actually encourages new buildings.

The only time some type of rent control applies for new buildings is when they are specifically built as "affordable housing". This usually happens when a developer is required to build affordable housing to pay back for some favor he/she received from the city.

> Everywhere I know of rent control only applies to significantly older buildings. Which means that new buildings can charge much higher prices, which means that rent control actually encourages new buildings.

New buildings are what become older buildings. If that causes them to become less valuable, they become less valuable immediately because the future loss gets priced in, making them less valuable to construct.

And older buildings also become newer buildings. In most places with a housing shortage there is already a structure on any given piece of appropriately zoned land. To get more housing, you have to knock something down and replace it with something bigger, or subdivide an existing building with fewer, larger apartments into one with more, smaller ones etc. That can't happen if the building is full of existing rent controlled tenants who can't be removed (and have strong incentives to never leave).

In all the major cities I know of (and this includes san francisco and los angeles), if there is rent control it is set for buildings older than a fixed date (usually somewhere about 1979). So no, newer buildings will not become covered by rent control unless the laws are drastically changed.

Furthermore, in California the Ellis act allows landlords to mass evict rent controlled tenants in order to demolish a building for new construction, so your second point is not valid either.

> Furthermore, in California the Ellis act allows landlords to mass evict rent controlled tenants in order to demolish a building for new construction, so your second point is not valid either.

That would still apparently prevent the building from being subdivided into smaller units or otherwise reconfigured/improved for higher density.

And your point seems to be not that rent control isn't a problem but rather that some places are already phasing it out -- which is good, but presents no aid to the people who continue to propose expanding it or retaining it in the areas it isn't already on its way out.

How do you replace old buildings with new buildings in this process?

>You get a population of existing residents with rent controlled apartments, who then have no incentive to fix the housing shortage or eliminate rent control, but insufficient construction going on and consequently even higher prices for people who didn't get a rent controlled apartment in 1975.

You may not be in that population but you have to solve for them as well. Removing rent control is only going to price them out.

> You may not be in that population but you have to solve for them as well. Removing rent control is only going to price them out.

There is a suitable way to phase this out. First, never create another new rent controlled apartment -- they only exist as preexisting, can't be transferred to anyone but a spouse, and can't be transferred more than once. Second, allow the landlord the option to provide a comparable replacement apartment in a different building at the same rent, so that buildings with existing rent controlled apartments can be replaced with higher density ones.

Then in general adopt long-term policies to keep market-rate housing prices under control, so that they don't rise faster than inflation and future generations have no need for a ridiculous price control because the market price becomes and remains affordable.

> You may not be in that population but you have to solve for them as well. Removing rent control is only going to price them out.

A recipient of rent control has had enormous subsidies and economic appreciation, and even then it is not enough, you need to give them more.

There are multiple ways to bust this open. The first one is allowing rent controllees to sublet. If you want to maintain their status, at least let them profit by housing more people, making themselves richer and lowering rents for the whole market.

> "Tenant protection" -- especially rent control -- is a nontrivial cause of the shortage of new construction.

Sure, tenant protection is, but “especially rent control” is wrong: that's just a tenant protection that conservatives/libertarians tend to think is vulnerable to argument. Minimum habitability standards do more to create a lack of affordable housing, but winkingt the argument that that isn't a necessary cost is perceived to be harder, even by the folks who'd really prefer the complete absence of regulation.

> Sure, tenant protection is, but “especially rent control” is wrong

It depends how you're measuring. If you mean by "amount of net cost / lost income to property owners" then sure, it's not especially anything because it's exactly anything to the degree that it does that.

But if you measure in terms of value for money, rent control sucks. Requiring landlords to have functioning clean water costs them money, but it also makes them money -- tenants are willing to pay more for an apartment that isn't falling apart. Some things may cost more than they benefit the landlord in making the apartment more valuable, but at least they may come closer to break-even, and the cost in incentive is only the difference between the two. Rent control is pure dead weight loss.

Of course, this is also the argument for why most of the other regulations aren't needed, because anything above break-even would get done anyway -- you don't need a law requiring someone to improve their building in a way that results in a net profit. The apartments that become unmaintained slums are the rent controlled ones, because the rent is sufficiently below market that the tenants would suffer the flaws rather than moving out.

I’m not saying you’re wrong, but saying there’s no benefit to building new housing because there’s not a fortune to be made, well that just seems like capitalist-apologizing.

We’ve built a system where humans are expected to somehow accrue interest at the whim of the capitalist overlord. The soul of rent control is pretty important, so maybe rent control needs to evolve?

I’m hard pressed to defend it completely because it seems like dancing around the fundamental problem of capitalism not being in alignment with the best interests of society.

> I’m not saying you’re wrong, but saying there’s no benefit to building new housing because there’s not a fortune to be made, well that just seems like capitalist-apologizing.

It's just math. The land costs a million dollars, the construction costs $500K, therefore the net present value of the future rents (less property taxes, insurance, etc.) has to be $1.5M, or the construction does not occur. Rent control puts the marginal construction project below the break-even point.

> We’ve built a system where humans are expected to somehow accrue interest at the whim of the capitalist overlord. The soul of rent control is pretty important, so maybe rent control needs to evolve?

The soul of rent control is bad math. If you want lower rents, adopt policies that encourage housing construction until rents are suitably low. At which point, who needs rent control?

I think you're wrong. In Prague, they started removing rent controls several years ago, and we have seen highest increase in property values in maybe three decades.

Also, if I owned some property, I am not sure I would want to invest in building new one and have to decrease rent rather than enjoy the fact that the rent is high.

All in all, I suspect that rent control might be quite insignificant factor in housing scarcity. More important is probably lack of actual housing construction financed by government.

Rent control being bad for the housing market is one of the few generally agreed upon conclusions across the political spectrum of economists

https://www.econlib.org/library/Enc/RentControl.html

> Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.”

Your gut instinct, like most on this issue, is incorrect. When removing rent control, it is going to take time for things to finally settle to the real prices as well as actual development to get started, but its certainly good for the long run to do away with it.

The reason this subject is tough is because quantity and quality do not necessarily lead to affordability for the same population as rent control. Laissez Faire economics always works for the faceless theoretical self interested actor but how are rising prices and new builds going to help to someone from being priced out? It can't. If it did, the control would be benign anyway.

> quantity and quality do not necessarily lead to affordability for the same population as re t control.

Rent control is not need-based. People across the wealth spectrum enjoy the personal benefits of rent control (in SF there is no shortage of housholds bringing home several hundred thousand dollars a year who pay way below market rents on their rent-controlled apartments).

The problem with getting rid of it is that the benefits of more housing supply relative to demand would probably take decades to come to fruition. But the pain of suddenly losing rent control (for the percentage of people who actually do need it) is felt immediately. Who cares if your city will have lots of cheap housing in a decade if you can't pay rent next month?

This is all conjecture from your gut. We are watching what rent control does to a city like SF in real time -- it is a disaster. The only way out of it is to ramp up supply. To whatever degree Tokyo has priced anyone out, it is significantly less than the likes of most US cities because it does not purposefully retard investment with zoning and rent control.

"People across the wealth spectrum" do NOT enjoy rent control. It gets gamed and abused. The bulk of SF is rent controlled, resulting in more and more people cramming into places that don't get maintained and they're not able to move out of when situations like their job changes. This is a disaster, nobody can move to be closer to work. Only a tiny amount of market rate housing is available for new residents which is disproportionately high because the rest of the market is severely under-priced.

You will never stop everyone from getting priced out. That is just the nature of things, but you can save a lot more people that pain than we do now due to foolish policies like rent control and awful zoning.

> In Prague, they started removing rent controls several years ago, and we have seen highest increase in property values in maybe three decades.

Property values are not the same as rents or general housing costs. As soon as you make construction more profitable, it makes the land worth more -- property values go up. But then the construction happens and housing costs, i.e. price per unit, go down as a result of more units.

Before you had two housing units on $500K in land going for $1000/month. After the land is worth $2M but it has 20 housing units going for $750 -- and the landlord is making more revenue, because 20x$750 is more than 2x$1000, enough to offset the higher property cost.

> Also, if I owned some property, I am not sure I would want to invest in building new one and have to decrease rent rather than enjoy the fact that the rent is high.

Rent doesn't materially decrease as a result of one person building one building, it's a result of many new buildings across the city. So your choice isn't between the existing two units at $1000 and twenty new ones at $750 (though even that itself is still profitable), because if you do nothing the existing units will still fall to $750 each as a result of what other people do once they're allowed to do it.

> More important is probably lack of actual housing construction financed by government.

Actual construction subsidies might help when you have a massive shortage and you want it correct it quickly, but in general it isn't necessary -- when rents are high and construction is permitted, it happens.

> In Prague, they started removing rent controls several years ago, and we have seen highest increase in property values in maybe three decades.

Cant speak for prague, but if you remove rent-controls, rent is going to go up, simlpy because suppressed rent values will go up.

If volume remained the same, you would expect to see a decrease in some properties and a high increase in the de-regulated ones.

Bear in mind that there is also elasticity: if more properties go on the market and prices go down, you could see a higher volume of people coming in. That's a much better metric of success than price.

"Rent control" is the idea that people already living in a city have more rights to live there than people who are not.

While it may sound socially just it is also one of most un-progressive (conservative) things you can imagine. It literally conserves the population of a given district.

And market rents are the idea that people with more money then you have the right to live in your apartment then you do.

Neither is fair, but both are unfair in different ways. Your preference for market distribution, as opposed to lottery distribution (which is what rent control essentially is) is largely an ideological one.

The notable difference is that the market distribution causes greater incentives for construction in high demand areas, so it doesn't just affect who gets the apartments, it affects how many apartments there are to get.

And only one of them makes it possible for both you and the person with more money than you to have an apartment.

Yes, it is an ideological preference. Rent control is conservative, market distribution is liberal. I just point that people really really want to be called progressive without being one.

You can't be progressive and conservative at the same time! You can barely be progressive if you hold conservative view on one of the most important issues. You can only be centrist that way.

The phrase “your apartment” strikes me as the heart of the issue. If you’re renting then it’s not really yours. It’s the landlord’s, and they just let you use it temporarily.

And yet that is the phrase we use, because people do feel a sense of ownership about their living space even when legally they have no ownership. A lot of these policies come down to how much we want to back that feeling up with legal rights.

> Your preference for market distribution, as opposed to lottery distribution (which is what rent control essentially is) is largely an ideological one.

Can't speak for him, but if you believe a free market has the same housing results are as a centrally planned market, well, damn.

>While it may sound socially just it is also one of most un-progressive (conservative) things you can imagine. It literally conserves the population of a given district.

Well, who said conservative is bad?

It's about the interests of this or that group (e.g. given population vs people coming from outside). Arguments can be made for either, but if a given population is not protected, then those coming from outside wont be protected (from people coming from outside later on) either.

People build cities to be protected and prosper long time in them, not to give opportunities to third parties to come and displace them from the places they've built and helped grow.

> It's about the interests of this or that group (e.g. given population vs people coming from outside). Arguments can be made for either, but if a given population is not protected, then those coming from outside wont be protected (from people coming from outside later on) either.

> People build cities to be protected and prosper long time in them, not to give opportunities to third parties to come and displace them from the places they've built and helped grow.

Well you're basically repeating Donald Trump's words when he explains why he wants to build a wall, and last time I have checked nobody calls him progressive.

Just do s/cities/countries/ and you're all set.

Why aren't there developers that are willing to make 17% margins instead of 20% margins? You know what I'm saying. Related Group has always been happy to and does to this day build luxury units that get scooped up by elite Venezuelans and Russians. Who will build non-luxury units? The owners will claim they're luxury for the next 40 years, so there's no real trickle down effect.

> Why aren't there developers that are willing to make 17% margins instead of 20% margins?

Because the margins in a different city are 19%, or some entirely different class of investment now has better risk-adjusted returns so the funding falls through.

Don't developers usually only operate in specific regions where they have experience and contacts and have established relations with suppliers and contractors?

Can they easily enough move between cities that they could leave a 17% city to chase 19% margins?

Developers do, not investors. But the development still gets scrapped when the investors leave.

There are lots of developers who are happy to build at low margins. In fact a lot of developers make their money by charging a flat fee for managing the project and don't take any upside at all. Plus there are plenty of non-profit developers out there.

The problem is that there are fixed costs associated with building a unit of housing - city approval fees, construction costs, land - which are more or less independent of what kind of housing you're building and how 'luxury' it is. So there is a floor on the cost of housing in any given location. Then you have to factor in lenders and their requirements - how much interest they'll charge and what % of the project cost they'll lend you. Since lenders almost never will lend 100% of the project cost you need equity investors too, and they generally have expected project returns. Of course you can find non-profit entities at all these layers who will help you refuce costs it's hard to out together a project in a major city that is anything less than expensive these days.

there is a factor of risk as well

you could have different margins and wildly different risk factors, and investment groups will go with the lower risk choice

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