Europe embraces rent controls, a policy that never works
economist.com
economist.com
Just like picking what clothes to wear, you can pick your apartment, pick how much and what quality of medical care to receive, and this is enough to ensure a reasonably well functioning and competitive market without special rules. These markets aren't that special or different.
Unlike Fruit of the Loom underwear, you can't get 12-pack of NYC or Paris next day.
A land value tax is does not cause economic inefficiency, and it tends to reduce inequality.
https://www.economist.com/free-exchange/2015/04/01/why-henry...
Space and time are the constraints that drive housing prices. Building denser housing is expensive and hard, much more difficult than sourcing and importing clothing in today's world.
Localized markets can require localized policies, because applying the same rules evenly to all markets wouldn't make sense, abstaining from creating local rules can make things worse, but creating them can also create new problems.
I think rent control can be healthy as a small buffer. I think fundamentally these are 'microscopic' policy bandaids to larger macrosopic problems. Unfortunately, it takes a very powerful organization with the right incentives to solve the macroscopic problems.
Locking in pre-existing claims to land - through renters being allowed to stay in units as long as they wish at cheap prices, and enacting restrictive/NIMBY zoning laws - serves to constrict the housing supply. Because land is already a finite resource, any restriction on how many housing units per parcel of land end up being built is an even more harmful policy.
Last time I was in an ambulance I was a bit too unconscious to really do my due diligence in checking that the hospital it was taking me to was in-network and didn't balance bill.
Supporting free trade is literally one of the founding reasons for this publication.
From wikipedia "The Economist was founded by the British businessman and banker James Wilson in 1843, to advance the repeal of the Corn Laws, a system of import tariffs.[17] A prospectus for the "newspaper" from 5 August 1843 enumerated thirteen areas of coverage that its editors wanted the publication to focus on:[18]
Original leading articles, in which free-trade principles will be most rigidly applied to all the important questions of the day."
Chang argued uncomfortable truth of capitalism and criticizes globalization represented by the book "The Lexus and the Olive Tree" in the first chapter. He argued that there are errors in theories regarded as established theory related to economic development and refuted them with economic theory, and historical and current data. In the later chapter, Chang claimed that "Market and democracy clash at the fundamental level." In epilogue, he wrote about Brazil in 2037 that faced gloomy future as a consequence of reckless beliefs in neo-liberalism policies. Finally, he made the case for new strategies for a more prosperous world that may appall the 'Bad Samaritans'.
https://en.wikipedia.org/wiki/Bad_Samaritans:_The_Myth_of_Fr...
An interesting digression of views is evident in a dispute between publishers of the English an American editions of Chambers Encyclopaedia:
Free Trade (American Edition), 'a dogma of modern growth, industriously taught by British manufacturers and their commercial agents. For many years certain political economists have laboured to establish this theory upon a reliable basis, and have asserted that the doctrine represents an important truth; but no nation has attained substantial prosperity except by protection to native industry, whether avowed or disavowed. The doctrine had no foothold in the policy of any nation, and had no legislative birth until put forth by Sir R. Peel in 1846. While it was in the interest of Great Britain to protect her industry, she imposed sufficient duties; and when, by this means, her producers of wealth became strong, and able to compete with those of other countries, protection yielded to reciprocity; and even at the present time, the nations most clamorous for free trade rely upon it in theory only, reciprocity in fact, and protection in principle. Even the most strenuous advocates of the theory dare not put it to the test of experience in its fullness. The teachers, therefore, remain self-deceived. The cloistered sophists of their schools, and the propagandists of free-trade, are doubtless as learned as the sophists of any age, and practically as useless. Free-trade expressions need Americanising, as they are utterly hostile to our prosperity, and subversive of scientific truth. Whenever an advocate of this dogma, schooled in their errors, has found devolving upon himself the responsibility of dealing with practical questions, he finds their supposed cardinal truths as groundless as the mythical Arcadias and Utopias of romance. The sophistries of free trade are put forth to lull the suspicions of the deluded purveyors to the wealth of England, and are advocated most strenuously by agents of British manufacturing houses and foreign residents in our cities, whose chief aim is the accumulation of wealth by extensive sales of foreign products, regardless of the injury they may inflict on American interests.' With a great deal more on the same purpose --- an entire perversion of the original.
https://old.reddit.com/r/dredmorbius/comments/4xe2k1/chamber...
Rent control is not even close to the only barrier to the free trade of housing. It's one of the most minor, but its one of the few that actually protects consumers verses protecting the interests of mega corps like most regulations do. So of course the mega corps are opposed to it.
In general, if you think price-controls are bad, you should dislike a wide arrange of programs: farm subsidies, minimum wage, medicare expansion, rent control, executive pay limits, etc.
But it's interesting that most people I talk to support some of those, but oppose the others.
If there is no regulation, rather just the most efficient trading, how do you compete with the gigantic entities that hoard inelastic goods to manipulate the price. It takes a lot of capital to efficiently counter their maneuvers. The problem is that 1) you are not in the market to exploit arbitrage opportunities, you are there to buy something you need 2) you do not have the capital to exploit that type of arbitrage opportunities and remain solvent.
You know that silly saying "The market can stay irrational longer than you can stay solvent"? What is a rational market for a large entity with capital is very different from what is rational for a small entity with little resources.
The entire premise of capitalism is that you get stuff by exchanging something of value you have for something of value that someone else has that you want. If you don't have any stuff to trade, you trade your time. Once you have some stuff, you either trade that stuff for other resources, or continue to trade your time.
Yes, of course you can invest your labor, as you should, but if all you have is this small resource on a completely unregulated efficient market, big fishes can manipulate the price of your labor. If you have a ton of money you can counter their manipulation and make money, but if all you have is your labor you simply have to accept the manipulated price.
I'm also not sure what you mean by "buy the expensive information necessary for acting efficiently on the market". What information is that? In the current world, all the information you could want is essentially free. What is not free is a certificate from a university. The information itself costs as much as an internet connection, though. And that can be had quite readily even on the lowest of salaries.
If you are small you do not have access to the expensive analysts that tell you how this perfectly efficient market will move. There is a fixed initial cost to join the "efficient" part of the market, that nobody but the big players will have. They will know when on average new workers join in so they can undercut their salaries / they will know when houses will be in demand so they can hike up prices / etc. If the small guy has that information they can efficiently adjust the time to participate, but that information will not be available without the expensive initial investment into analysis. The economy of scale that exists for the big players ensures that the market will be efficient only for them.
While that is, in principle, possible. Can you think of any times it's actually happened absent regulation? The only times that come to my mind are when a company exploited regulation to achieve this.
> If you are small you do not have access to the expensive analysts that tell you how this perfectly efficient market will move. There is a fixed initial cost to join the "efficient" part of the market, that nobody but the big players will have. They will know when on average new workers join in so they can undercut their salaries / they will know when houses will be in demand so they can hike up prices / etc. If the small guy has that information they can efficiently adjust the time to participate, but that information will not be available without the expensive initial investment into analysis. The economy of scale that exists for the big players ensures that the market will be efficient only for them.
This is a fun theory, but there's really no evidence of any of this dynamic occurring anywhere in our current economy, and in general is a misunderstanding of how supply and demand actually work. The problem with this theory is that, even if you assume companies were able to do this, the amount they'll be able to squeeze out of people by doing so is not actually that large. Predictive analytics definitely can give you an edge, but they do not give you an infinite edge.
For certain types of businesses, yes, that makes it hard to compete. But if you come up with a viable way to compete with some scale player, there's plenty of pools of capital out in the economy that'd be happy to fund your idea. That's what venture capital is all about: matching resources to ideas.
EU tops rankings for quality of life and standard of living every year. Sprinkle in some canadian, Australian Japanese and new Zealand cities an there is your top 50.
'Countries with cities commonly ranked in the top 50 include Austria, Switzerland, New Zealand, Germany, Canada, Denmark, Finland, Australia, Sweden and the United States. Vienna (Austria) has been ranked first for ten consecutive years.'
I mean, sure, Germany has more cities on the list than the US; but Germany isn't the EU. Most of the EU has zero cities in the top 50.
EU has 30 of the top 50 places....US has 6...come on now.
Also, I am flattered (truly!) that our conversations have left a lasting impression wrt my opinion on American housing.
ordinary people = renters
elite groups = rentier class
democracy = mob rule
When more than 50% of the populace are renters they have the power to enact rent control in democracies.
Populism is not and has never been a right wing thing. Populism is the idea the the people should control society and their interests are more important than abstract concepts like the economy which benefit primarily the elite. The term has no political leaning.
Rent control is not a leftist policy. It's neoliberalism. Neoliberalism is not leftist in the slightest. It's simply a rebranding of right wing policy.
Rent control is populism.
"Build baby build" is not a silver bullet.
A hypothetical possibility that doesn't hold true for any city that has enacted rent controls.
"Build baby build" is a silver bullet.
Using Manhattan as your example of maximum possible density is... odd. Kowloon City [1] had much higher density and had the disadvantage of poverty.
I'm not saying that we should turn all residential areas into facsimiles of Kowloon City, but there is a ton of space between what currently exists - even in Manhattan - and that. I'm deeply skeptical that any place in the US or Europe has reached the limits of building more housing and is forced to look at other options.
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Market fragmentation and opaqueness helps keep prices higher
This can work in conjunction with building more and give more ways to curb excess
What a curious anti capitalist sentiment.
First, I think most capitalists agree that regulation in some form is required, as totally free markets are inherently unstable. Second, this ignores the governments role beforehand in encouraging subprime loans and afterwards during the bailout. Third, it ignores the fact that by most measures, capitalism has increased the global standard is living too literally unheard of levels. In almost every part of the world, now is better than any other time in history to be alive. Not to imply that some things arent seriously wrong and require fixing, but let's give credit where credit is due and not throw the baby out with the bath water
Control the rent by controlling the price of real estate by removing investors as competition for the purchase of land and buildings for home and business.
In the mean time... I have difficulty pointing out specific reasons this always fails due to the weird involvement of racism in public housing in the US tainting my primary experience of such a system, but I believe it does have flaws even if implemented in a manner that isn't intentionally trying to ghettoize portions of a city.
I'm talking about eliminating real estate investors, not property ownership by end-users. There would still be a fine market economy but it would be much less common for someone to be buying real estate they weren't intending to use themselves.
Command economies are ridiculous because human nature. They aren't stable because they involve a small number of people being in control of resource allocation and the benefits for "cheating" and making those decisions to benefit yourself and your goals make it far too likely that the power will be abused.
This means if you were to consider renters, land owners etc within a free market, the rational option is to take actions which improve their lot. This may be short term solutions, but it's the result of people behaving in their own rational self-interest. If a city has 50+% of people renting; then they will take action to lower the costs of renting. Similarly, if a city has a large amount of people owning property, then people will take action to increase the value of their property.
The only action to stop this would be...government intervention. Which means then the government is responsible for regulating the market against the whims of the people it's supposed to represent. In the case of renting and home ownership, I don't think a free market can ever truly exist.
But if you made it less desirable to investors, they'd build less of it -- and you'd make the housing supply worse.
If you remove their drag on the economy (taking much more value than they give) there would be more capital ready and willing to build housing. You start removing investors from the housing economy then the capital flowing from workers pockets to landlords profits slow down and stop.
Two effects there
1) The capital that was invested in real estate is going to be invested somewhere else.
2) The capital that was going to real estate returns is going to be invested somewhere else.
1 means more investment in business and R&D.
2 means more people have more discretionary spending, some of which would go to investing in real estate for their own uses.
... so, investors.
You are not an investor if you're buying your own home to live in.
Another question might be: there's nothing stopping anyone from doing this now. You could go start one of these at this very moment if you wanted to. Why do you think it hasn't been done?
Once all units are sold, the building is co-owned between them. There is nothing left for the developer to sell. Perhaps a rental property management service, paid for by the owners.
Landlord profits don’t “slow down and stop”. They are like any other investment.
And until money grows in trees, you need capital from somewhere, either from investors or if the government pays for it, taken as taxes. There is no “magic” here.
It keeps rent at the monopoly price and increases the cost to people who own and occupy land themselves.
This "money for nothing" situation increases demand for land a, exacerbating the supply issue.
Land value tax would force better land use, and more efficiency means more for those in need.
In fact, one could do worse than being more like them. And clearly rent control does not kill a city or economy or quality of life.
And actually, a list of the most miserable cities is going to be overwhelmingly rent control free.
Edit: for clarification, I am claiming there is _no_ evidence for a causal relationship between the presence or absence of rent control. Any inferred relationship is entirely conjectural and completely unsupported by evidence: cities obviously prosper perfectly well with rent control.
That theory seems to hold up in a most cities, see SF, LA, London, NY etc. The introduction of rent control did nothing but to reduce housing availability and increase prices.
For example: on what evidence would we say NYC was hurt by rent control? Rent control started in the 1920s and was quite strong for decades, yet NYC continued to out grow dozens of potential competitor cities without it. Therefore at worst, rent control had no measurable effect on growth.
https://www.nber.org/digest/oct12/w18125.html
Although the year 1994 in a city a few miles away isn't exactly the same as New York, it seems far fetched to argue we wouldn't observe the same thing if we ended rent control here today.
It is indeed a fine example of how eliminating rent control does not result in new housing.
So yes, if you eliminate what rent control there is in NY (which is limited to old buildings), their value would sky rocket along with rental income and the incentive to replace them with larger buildings would disappear.
Removing rent control hurts current renters in the short term. It also removes restrictions on supply that improve the overall health of the market over a longer time horizon.
I'm just seeking proof of that. There are limitless alternative even contradictory theories. Why, other than matching preconceived world views, do we choose one over the other without evidence? In the Cambridge example 25 years have passed but there is, as you say, no additional housing and prices have risen further. Nor was there any burst of economic growth. In what way and to what end has the market become healthier?
And if it does not increase supply of new construction then it is zero sum gain. It merely benefits one group, in this case landlords and new residents, over old residents and tenants generally. And the harm done is not temporary, the increased outlay in housing is permanent regardless of who is paying it. And wealth is transferred to unproductive literal rent seeking from productive activities such as consumption, employment and businesses (who now have bigger payrolls just to pass through employees to housing).
And now, with transient population replacing a permanent one, interest in long term undertakings such as mass transit and community undertakings such as environment, homelessness or even economic stimulus also wane.
The correct solution is to add more housing which evidently is unconnected to rent control. Certainly on existing units.
The reason I believe this is economics 101. People want simple solutions to difficult problems. If prices are too high, we create laws that keep them low (so simple!). Problem is that supply is finite, even with new units being constructed cities have been unable to keep up with the influx of new residents. In many cases this is due to other similar suffocating regulations around building height, density, inability to pay out current residents for new construction etc. When supply is sparse and prices are often 50% less than market rate for long term renters, you increase their incentive to stay. That further restricts supply and prices go up for anyone not under contract. If you have an alternative theory of how this would work, I'm curious about it. What are the dynamics, beyond "prices are cheaper"? How does rent control reduce or solve a housing crisis?
>And if it does not increase supply of new construction then it is zero sum gain.
That's a hard thing to prove but I'd wager that isn't the case. Playing forward the rent control dynamic, it's likely that landlords could extract more money per unit on average than they would have in a less supply restricted market. The housing market is far from perfectly competitive without rent control. Landlords have many tools at their disposal to jack up prices beyond what the fair market value is with and without rent control. If the turnover rate is lower, those tools become easier to use. There are fewer comps and almost zero competition. That leaves a wider lane for price gouging on everything from rent to parking to laundry.
[1] https://www.brookings.edu/research/what-does-economic-eviden... [2] http://freakonomics.com/podcast/rent-control/ [3] https://www.city-journal.org/html/does-rent-control-help-poo...
The economic theory alluded to doesn't take into account intangible factors like community cohesiveness, economic precarity and the effects of that on mental health. These things are real and have an impact on the wellbeing of residents.
Housing security is the foundation on which an individual's ability to produce and prosper is based. Housing isn't a commodity to the people living in it and economic theory that reduces the complexities of housing to market-based supply and demand are intentionally selling a value system that prioritizes the transfer and accumulation of capital above all other needs.
That you take my statement of fact as an expression of offense speaks to your limited understanding of the qualitative aspects of housing.
Should we therefore think that the lack of rent control caused them to be miserable or vice versa? (Is that not what you're implying?)
You just made the rest up.
And the annual rental increase 1970 to now is roughly double what it was 1920 to 1970. Yet for housing, 1920 to 1970 saw roughly 50% growth while 1970-now saw roughly 20%
I read recently that people in California think that rent control is a better solution to the housing crisis than building more housing by a large margin.
It startles me a little because if there is one thing all economists agree on (even the Richard K. Galbraith and Paul Krguman kind of economists) it is that rent control is a bad policy.
Secondus, the people with the 20 million dollar Malibu mansions are the ones who pay for the politicians' campaigns.
https://news.ycombinator.com/item?id=20527867
If you want a simple answer, carapace's comment stood out to me:
- - -
It's because we're hella young out here. Relative to the East Coast anyway (I mean, London has Roman ruins...) Do an image search for old timey SF and you'll see: the Sunset was sand dunes until about last Tuesday, etc. Dudes used to pan for gold out by Lake Merced.
Also, this was the weirdo town. Bohemia on the Bay. Serious folk didn't really come here to be serious and sane. The old line was, "All the crazy people move to California, and all the crazy people in California move to San Francisco." To which residents add, "And all the people too crazy for San Francisco move to Berkeley."
So yeah, you've got a young town full of nuts and flakes that no one really paid much attention to until the last ~50 years or so, whadda ya expect, eh?
- - -
Before Web 2.0, only the weird Ivy League graduates would consider moving out to the Bay Area. Now the secret's out and everyone wants to move here.
Wait until you hear what Rome has!
I'd like to see less efforts to demonize NIMBYism and more efforts to eliminate the factors that make NIMBYism necessary.
This is the definition of NIMBYism.
Unearned income is obviously a net economic drag. I'm not saying there shouldn't be any, I want to retire some day too. In fact in German the word for retiree is "rentner." The problem comes when there is a permanent rentier class that simply extracts rents from the working economy. They are parasites. Most of the valid criticisms of capitalism are actually just criticisms of excessive rent-seeking. And that can exist under any economic system.
Houses don't appear immediately and isn't it a good idea to keep people in their homes while the supply grows (building new houses) and the economy stabilizes?
If (x = net present value) < (y = cost to develop) then I don't build.
And more importantly, disincentivizes maintenance and upgrades to older buildings.
Maybe, maybe not. It seems like a foregone conclusion among many people, but isn't backed by evidence or data.
A recent turning point is that the number of adult renters in major U.S. population centers is beginning to exceed the number of homeowners. As they age, they begin to participate more in the political process (despite the voting age being 18) and carry more clout. You end up with two major blocs of political power: (1) city council members vested in the status quo who want to strictly regulate new housing to preserve "neighborhood character" (i.e., property values); and (2) renters demanding rent control.
Strange bedfellows they may seem, but the two kind of go hand in hand in the sense that they've already got a sweet deal and want to protect it.
You know where housing is still pretty affordable and you can make a decent living even if you're poor? Houston, which famously doesn't have zoning. Granted, this can cause lots of other problems (many attribute a lot of the flood damage caused by Hurricane Harvey to overbuilding), but it seems very clear that if you want to have affordable housing, you have to build an f-ton of housing, and Houston has done that, while all of these over-regulated housing-crisis cities clearly have not.
No, I wouldn't say it is true. The things is most people on hacker news would agree that it is so because you have read it so many times before. But they can't actually specify what that actually is because that isn't really known. All that economists really agree on is rent control is unsurprisingly a worse way to allocate resources based on money. But that says little to nothing about the political and social costs which makes the economic discussion largely irrelevant. If rent control decreases market efficiency by 5%, but increases political efficiency orders of magnitude because people no longer fear that building more will force them to move, it is a worthy trade off. Similarly to achieve affordable housing without rent control in an already hot market requires the government to implement changes to the direct detriment of landlords and land owners, which usually isn't popular.
Economics isn't a field like others. It is very overtly political. Unless you know exactly what they can and can't prove, and to what degree they can prove it, it might not be relevant. Which isn't something you will actually find most of the time, because it often isn't.
So, basically any renovation then. €0.50 per square metre is 5¢/sq ft!
However, if you do renovations, you can raise the rent to whatever you want. So what happens is that home-owners re-paint the interior every 2-3 years, and set the rent to match the market. I have friends who have gotten the notice of renovations (you can break/complete a contract if it's for renovation), and then 3 months later gotten the option of renting the same space - but only with a 30%-50% markup.
Only difference? Fresh coat of painting.
I would hope that any board would provide no resistance when health related renovations are on the table - slum lord apartments with mold problems can have life long effects on any occupants forced into the living situation by their income.
When people live in little piggy banks....
You can hardly argue against rent controls but for interest rate controls. Why favour bankers over property occupiers?
In fact, my post said nothing about interest rates currently being set on a free-market basis, because the whole point was that central bank interventions are distorting and setting those rates in a way that generates huge inflation in the property markets that is then treated as insignificant for purposes of calculating inflation statistics. Property inflation --> Rent inflation. Concentration of wealth + Rent inflation --> Rent control | Homelessness.
Edit: and more from Stanford
https://www.brookings.edu/research/what-does-economic-eviden...
. Taking all of these points together, it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal. Indeed, by simultaneously bringing in higher income residents and preventing displacement of minorities, rent control has contributed to widening income inequality of the city.
This type of policies depend on many factors and while they may not work in some circumstance (time and place) they can be more effective in others. The problem is recognizing when that is AND re-evaluating the situation. The latter I feel is almost never done.
For regulations like this it's important to put in the law text that requires a full re-evaluation of its efficacy and roll back when there are more drawbacks than benefits, just because the policy worked at one time it doesn't mean it will continue to be effective forever.
It is not free, it's expensive to be poor. It's always cheaper to be an investor, your taxes get a lot lower due to better access of off-shore services you get. The less rich you are the more expensive your financial overhead fees get.
Thus there is no level playing field. In a basic free market you only need to enforce 2 rules. No fraud, and no monopoly.
Instead what you see in many big cities is sketchy capital flying in and a virtual monopoly dominated by Airbnb and their fleet of landlord contractors causing an artificial shortage that results in over half the units being empty by midweek.
If the competition was level then the rental prices and even property prices would be actually be reasonably matching the average incomes of the local population.
This means that rent control is merely a bandaid measure that should be removed once we ensure that everyone in the market is actually paying their fair share.
Given the current status quo I personally think it's better to have rent control than not to have it, even as a just a temporary patch on this problem; but by no means do I think it will solve the problem for good.
This might seem a little more credible if it came from someone other than the economist.
The bastions of free capitalism aren't exactly doing great on affordable rent either...
The don't build tall building policies however...