German constitutional court strikes down Berlin rent cap
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[1] https://jwmason.org/slackwire/considerations-on-rent-control...
I would posit, however, that it isn't rent control having a major effect on housing supply but rather regulations on new housing. Zoning difficulties, permit difficulties, requirements to accommodate personal vehicles, etc.
Caps on rent prices reduce the incentive to build high end housing where the margin would be higher, but rent caps limit this, so less gets built overall.
For people who want to learn more: this process is called 'filtering'. See eg https://www.planetizen.com/blogs/100293-how-filtering-increa...
> New housing tends to be upscale, thus more expensive.
Yes, and that's also the mechanism for how we got nicer and nicer houses over the centuries.
The idea that rent control doesn't reduce available housing stock sounds true enough in the sense that people enjoying rent controls are less likely to move, and they count just as much as a new resident that might have displaced them, but from the perspective of the new resident the available supply is definitely suppressed and thus the price forced up for all non-rent-controlled apartments.
The other one is the unequivocal statement that long-term tenancy is better for the fabric of a neighborhood. In principal I agree with that, but I've known a lot of people in SF that would like to move but can't simply because they are priced out of the current market rate rentals. In these cases, it's not clear whether the benefit of having a controlled rent is worth the inability to move, especially if overall market rates could still be within reach sans rent control.
I don't see that from the perspective of a new resident it must necessarily be worse with than without rent control. The scenario that would make the difference in overall supply would be if the old resident had to move out against their will, and obviously that's what we're trying to avoid.
You really do have to incentivize some construction, though. Getting the ball rolling by buying some unzoned land and building good quality public housing on it can also be good.
Yes, we want developers to go and seek profit. Build, build and build, until the market price for housing is roughly in line again with actual construction costs.
If luxury housing is most profitable, that's fine: those rich folks don't just pop into existence, they leave some slightly lower market housing behind when they move. (And then someone else moves to that, etc, down the chain.)
The total amount of housing is more important to affordability at the low end than the type of housing.
Let's take NYC as an example - there are many people moving to NYC daily and many are high income people(finance and tech). Where do you think they are going to rent? Are they going to get that $2000 1910s railroad apartment with noise from the subway or... are they going to go for a $4000 apartment in a complex with a gym and a pool?
These gentrifying inflows of people have little to no effect on availability of lower cost housing. New housing complexes prevent neighborhood gentrification, by siphoning off the gentry into new buildings.
Under Thatcher "right to buy" council houses (public housing) was brought in, in the 80s - at the same time, councils pretty much stopped building to replace the housing stock that was taken.
Rents have increased massively above inflation, and waiting lists have soared to over 20 years in some cases for the council houses that are left.
Meanwhile, developers build large amounts of "luxury flats" which are sold to foreign investors who often keep them empty.
https://londonist.com/london/housing/how-many-vacant-empty-h...
According to the above article 22,000 empty homes in London, but it wouldn't surprise me if there were many more.
See eg https://www.economist.com/britain/2017/02/11/britains-delusi... or https://www.economist.com/leaders/2017/08/03/how-to-solve-br...
About the empty homes: they could start by abolishing the empty-home and single-occupier discounts for council tax.
(If you want to go further, instead of just abolishing those discounts, replace them with extra tax charges for unoccupied property.)
And then jack up the council tax by a lot. The council tax is unpopular, but actually virtually free for renters, its economic burden falls almost completely on landlords.
(You can perhaps see that easier with a simple thought experiment: imagine there was a cut in council tax, rents on new leases would go up almost immediately, until the total cost to the renter is the same as before.
Of course, a thought experiment is not a prove. Just an illustration.)
Even better than the council tax would be a land value tax. But they could make slight tweaks to the council tax to get closer.
If those 'evil foreigners' paid lots of taxes on their empty flats, no one would need to mind:
We can build up high enough, if there are enough permits, to afford a few empty homes. Especially if the foreign owners of those empty homes were to finance our government expenditures with their generous tax payments.
The luxury flats had no effect on supply - because it wasn't nearly enough. Getting government approvals is hard and then you have low council taxes in London. And closer to the city centre - the lower the council taxes!
Let alone - 22k is literally a drop in the bucket. It wouldn't make a damn difference in a city of 10mil!
Thus there has been, arguably, a big incentive to build new buildings and develop new housing projects, because you could raise rent as much as you want on the tenants.
The thing is, cities are not incentivized to allow more housing because of prop 13 and the amount of tax revenues they get.
Personally I hate the many barriers that prevent San Francisco from creating more it's own new high quality public housing like many places in the EU or basically all of Singapore does. I think if those limits, which are mainly structural and historical, were eliminated, such that the city could make money directly from housing rental instead of solely through property tax, we'd see a very different SF, with well developed well run public housing that everyone would want to live in, instead of the too often poorly maintained public housing concentrated in economically disadvantaged areas.
I'd ask anyone, before they tell me straight off why they think this can't work, to go look up singapore's housing system. Like I definitely could be wrong, but it does appear to be possible.
Unfortunately SF doesn't have a good track record in this regard judging by the Midtown Park Apartment fiasco: https://www.sfchronicle.com/bayarea/article/Residents-of-S-F...
I too think a Singapore-style development model would be worthwhile trying. That is, subsidizing development of housing that would eventually be sold and transferred to tenants, with or without restrictions such as market value percentage caps on resale, stricter rent controls if leased out, etc. It's almost the only viable way forward because there's simply not enough public funds, now or ever, to make a dent in the supply problem without leveraging private financing. That's the beauty of the Singapore model.
But for various practical (e.g. management expertise) and legal (difficult to constitutionally restrict the benefit to pre-existing city residents only) problems, to do this at scale would probably require the joint efforts of the Federal government, state, and city. Or perhaps some billionaires would be willing to step forth to try the experiment themselves, rolling property sale revenues into new projects.
Ultimately, though, this doesn't solve the NIMBY problem. And if you can solve that problem, there's less need and pressure for attempting big experiments like this.
- govt had a surplus of units in the 90’s (Asian financial crisis) so moved to a “buyers put down money then we’ll build”. As such there is a 5 year wait for new HDBs, a lottery system and lots of disappointed young adults
- HDB lottery means you might end up with an HDB downtown (win!) or way on the outskirts (ok). The ones downtown appreciate a lot more so it’s truly like winning the lottery
- you own the HDB and it sells at market rates. Lately govt has been trying to slow price growth while not blowing up people’s investments
- Singapore 99 year lease on land is getting to the halfway point and people are left in limbo - will my HDB be worth $0 in 40 years? Or will I get an extension? En bloc development? Some people are gambling that it won’t go to zero and govt is publicly stating that for most people it will.
Also see this comment https://jwmason.org/slackwire/considerations-on-rent-control... and the author's response. One can argue that it's less that the theory is "wrong" but that that the theory doesn't match reality: the housing and employment markets are deeply flawed in hard-to-fix ways. Maybe we want to fix these markets, but if we want to intervene at that scale, we might as well be open to other non-market strategies at managing those resources too.
In the mean time, rent control is "easy" with empirically demonstrated benefits.
I was referring to the the econ-101-style reasoning that the mainstream has used when engaging with public to say the minimum wage or rent control is bad.
It also tells us it will reduce the quantity and quality of jobs and rentals. But whether or not that's the right choice is going to depend on a lot of things theory can't tell us like how elastic the market is or what we value.
Yes people can value many different things, and I fully support that, but I think before we get to those subjective things it's better to get into the objective parts,
If doubting the mainstream economic consensus still seems a bit edgy, consider that much of it is still bound up in the supply-side scarcity-based thinking this forum loves to disdain. In this case, the lack of the urban growth we could have dwarfs other sins.
However, rent control is fundamentally about providing stability and security for existing tenants. I've yet to see any study try to account for that, perhaps because it's very difficult to quantify. But without accounting for this benefit then empirical studies can only ever show the downsides.
There exist the same stability and security concerns with property taxes. Oddly, few economists seem to seriously promote Georgist land value taxes, notwithstanding lay enthusiasm. Probably because they intuitively understand that it's politically untenable, regardless of how economically efficient it is, to tax people out of their homes just because the world around them has changed. And indeed, if you look at every example in the United States where LVTs have been attempted, you see that LVT rules and their administration invariably succumbed, often almost immediately, to myriad exceptions and loopholes in the face of political pressure, especially from residential property owners.
Is it impossible to avoid rental controls in large, high-demand cities, or impossible to institute rigorous LVTs? I don't think so. But it's much more difficult in some political-economic contexts than in others. Many things need to align to make it tenable, not the least of which is the capacity to deal with the disruption for existing residents and ensuring that the security and stability needs for future such residents can be met in other ways.
Don't forget that for an economist you can solve problems by, for example, packing housing insecure people into box cars and shipping them off to the desert where you've built beautiful bungalows for them to live out the rest of their lives, so long as the cost of those bungalows is less than the efficiencies unleashed by opening up the market for people of more means. Or maybe less cynically, give them monthly stipends that they could (and hopefully would) use to relocate. But suffice it to say, such solutions are often, to varying extents, contrary to normative economics--i.e. what we're fundamentally trying to achieve or are capable of achieving socially.
To my mind, the question of whether rental control is bad or good seems misplaced and impossible to answer without more context. And rent control policies can always be tailored to the local situation. Loosely speaking, pretty much the entirety of the U.S. is already subject to some kind of rental control in the sense that there are almost always laws, for example, that provide tenants the benefit of long notice periods before eviction, or which nullify directly or indirectly damages for early lease termination. These impose real costs that get baked into rents, but the benefits to tenants are generally considered worthwhile.
I get this, but lets also be honest that we're trading off this stability against rental quantity and quality. And while this stability can be good like when is able to afford to live in a neighborhood they have deep roots in. But it can also be bad like when someone really wants to move neighborhoods but can't afford to due to rent control.
Are we better off with our military budget being so high? Why aren't many (or any?) budding economics Ph.Ds writing thesis papers quantifying inefficiencies in strategic military spending? Perhaps because they understand that to answer such questions you have to quantify both the costs and the benefits; but quantifying the benefits is intractable and/or just plain futile. It requires establishing a set of criteria as a proxy for the "benefit", and good luck getting people to accept those criteria when it came time to act on your policy proposals. And to be at all persuasive you often need to establish and analyze a bunch of counterfactuals, which is similarly problematic. Any policy conclusion is necessarily built on sand. This is fundamentally why politics isn't just some subset of economics or accounting. For sure there are ways to apply economics to improve efficiencies, but they're quite distinct from approaches that attempt to answer whether defense spending is, in the abstract, worthwhile, or what the optimal expenditure is.
All that said, certainly the less that a policy domain is amenable to rigorous quantification, the less accountable are voters and politicians. And rent control can often be used as an excuse to avoid facing hard choices about reducing housing supply costs, such as addressing restrictive zoning issues. But that's the nature of politics. One group is anxious about housing or other economic security. Another group is fearful of a Marxist policy dystopia unhinged from market price signaling. It's the same basic story over and over again.
DING! DING! DING! There you go! You got it exactly right.... It's a tax on people who are less wealthy, to support wealthier(on average) people.
If you want to provide support for the underprivileged - means tested rent payment supplements are a better idea, than rent controls.
As for being priced out - yeah, the world is like that and people get priced out of coffee, homes, clothes and other things. Doesn't mean that a barista should be able to afford a single bedroom apartment in Tribeca.
> Among economists, rent regulation seems be in similar situation as the minimum wage was 20 years ago. At that time, most economists took it for granted that raising the minimum wage would reduce employment. Textbooks said that it was simple supply and demand — if you raise the price of something, people will buy less of it. But as more state and local governments raised minimum wages, it turned out to be very hard to find any negative effect on employment.
The reason it's hard is that they're not doing controlled experiments. They're not starting in a place with no minimum wage and instituting a significant one. They're starting in a place that already has a minimum wage and enacting a minor increase in the amount.
The existing minimum wage would have already done most of the damage you're trying to measure, but you're folding that into the baseline and ignoring it. All you get is the amount from the increase, which for a modest increase may not rise to the level of statistical significance.
Meanwhile they have biased data, because the state legislatures, if they have any sense of self-preservation, aren't going to enact a minimum wage large enough to damage the local economy. So you have selection bias in the sample, and even at the raised amount, only a low single digit percentage of people are making the minimum wage.
These all make it hard to measure any macro-scale effect because you're making a change to a fraction of a fraction of a fraction of the economy.
But he goes from that to a conclusory assumption:
> Today, it is clear that minimum wages do not reduce employment.
Which is facially ridiculous as an absolute declaration. No one can seriously claim that raising minimum wage to a million dollars an hour wouldn't severely reduce employment.
This is a bad sign, and it only continues from there:
> They also found that eliminating rent control also raised rents in homes in the same area that were never subject to the controls, reinforcing the idea that rent control contributes to neighborhood stability.
Plausibly because landlords have little incentive to make improvements to rent controlled properties, which then decompose and negatively impact the quality of the neighborhood, and removing rent control removes that perverse incentive. It's like arguing that maintaining a tire fire on every street corner would reduce rents in the area. Possibly true; still a terrible idea.
Notably this also implies restrictions on new construction, because higher prices should make new construction profitable until prices fall back to the level where it isn't, absent some (e.g. regulatory) constraints.
> The main conclusions from this literature are, first, that rent regulation is effective in limiting rent increases
This is kind of ridiculous. Yes, a law against rent increases will prevent rent increases, by law. The question is, at what cost? And what are the alternatives (e.g. policies to increase housing supply) to achieve the same result without it?
> The absence of rent regulation may also create political obstacles to efforts to increase housing supply, attract new employers, or otherwise improve urban areas, since current residents correctly perceive that the result of any improvement may be higher rents and displacement.
Wait, so people will create obstacles to efforts to increase the housing supply (which should reduce rents) because "current residents correctly perceive" that the result is higher rents?
Meanwhile rent control causes non-improvement of urban areas, because landlords lack the incentive to make improvements if the improvements can't yield higher returns.
There is an obvious contradiction between wanting improvements and not wanting the improvements to increase housing costs, which, all else equal, they would. The way to square the circle is to increase housing supply, so that quality can increase without higher demand bidding up the price of a finite supply.
So this is where we come to the crux of it:
> Fourth, in many high-cost areas, housing supply is relatively fixed. The reason that existing homes in many large cities cost multiple times more than the costs of construction, is that the ability to add new housing in these areas is very limited, by some mix of regulatory barriers like zoning, and physical or economic barriers. In economists’ terms, the supply of housing in these areas is inelastic – it doesn’t respond very much to changes in price.
The conclusion that rent control will do something good is based on the assumption of inelastic housing supply due to regulatory barriers. But that's the real problem that has to be solved, and fixing that relegates rent control back to the dustbin where we found it.
JW Mason's blog he quotes a lot of studies to "support" his post but here is a list of the studies he quotes. What you'll find are all the ones that even address the question find "rent control decreases rental housing, decreases rental quality, definitely decreases rent in the short term (maybe increases maybe decreases long term), and increases tenant lifespan". These are all the same things an econ 101 class would tell you. He's definitely using these studies for support and not illumination.
Here's a list of all the papers he quoted and what they said.
2007 study by David Sims
The sudden end of rent control in Massachusetts in 1995 provides a natural experiment to study the effects of rent control. My results indicate that the intuition presented in simple microeconomic models is correct. Rent control decreases the quantity of rental units supplied, as well as rent and unit maintenance. It also lengthens renter stays. In addition, some evidence suggests that rent control produces small spillover effects that decrease the rent of uncontrolled units in controlled areas
2014 study by Autor, Palmer, and Pathak
Doesn't really look at his question at all.
We measure the capitalization of housing market externalities into residential housing values by studying the unanticipated elimination of stringent rent controls in Cambridge, Massachusetts, in 1995. Pooling data on the universe of assessed values and transacted prices of Cambridge residential properties between 1988 and 2005, we find that rent decontrol generated substantial, robust price appreciation at decontrolled units and nearby never-controlled units, accounting for a quarter of the $7.8 billion in Cambridge residential property appreciation during this period. The majority of this contribution stems from induced appreciation of never-controlled properties. Residential investment explains only a small fraction of the total
2007 study by Gilderbloom and Ye
In general, conventional generalizations about rent control do not distinguish between moderate and restrictive controls in the housing market. There has been a great deal of change in the last few decades as rent controls have moved from being restrictive to more moderate forms. This article examined a moderate form of rent control, looking at 76 regulated cities in New Jersey. Moderate rent control in New Jersey stands as symbolic rather than distributional reform. Our research suggests that the pressure of real estate groups, government, and the courts has made modern-day rent control laws toothless in terms of their impact on rents. A similar finding has been found in southern California (Heskin et al., 2000). About the only measurable impact is that landlords may have cleverly reduced the size of rental units to create more units and profit in rent control cities. At best, it appears that most rent control ordinances have only succeeded in preventing rent increases that are excessive. These ordinances have also provided protection against arbitrary evictions, incentives for maintenance of rentals, and knowledge to tenants about the level of rent increases to expect in the future. Certainly, this is a small improvement for tenants who have had none of these protections in the unfettered market. Our study shows that, as a moderate type of rent control, the rent regulations in New Jersey may have avoided some of the negativity of the conventional regulations
2015 study by Ambrosius, Glderbloom and coauthors
This study replicates, using 2010 Census data, and extends past work on moderately rent-controlled municipalities in New Jersey, which began policies to stabilize rents while allowing landlords modest returns in the 1970s. Our approach compares controlled and non-controlled communities over 10,000 persons; and regresses rental housing characteristics (rent and quality/quantity) on two measures of rent control: nominal (1/0) and ordinal (an index of policy diversity/strength). Because the decade 2000–2010 was unique due to the housing bubble and recession, we expand previous analyses by introducing two additional dependent variables: changes in property values, which may be affected by restrictions on rents; and foreclosure rates, a problem affecting investors and a proxy for abandonment. We find that these 40-year-old policies do not exert any statistically-significant effects on their communities’ housing markets once other factors are controlled—a finding which has implications for affordable housing and advocacy in New Jersey and beyond.
Diamond McQuade, and Qian in 2018
Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals' migration, we nd rent control limits renters' mobility by 20% and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.
There is a consensus in economics, that rent control is bad idea. Inasmuch as economics can be considered a science, supporting rent control is an anti-science position.
https://en.wikipedia.org/wiki/Rent_regulation
https://freakonomics.com/podcast/rent-control/
https://www.econlib.org/library/Enc/RentControl.html
https://www.economist.com/leaders/2019/09/19/rent-control-wi...
Are you aware that there is no consensus in economics that rents are determined by the interaction between a determinate upwards-sloping supply curve, representing landlord's willingness to so many units at any given price, and a likewise downwards-sloping demand curve for renter's disposition? Many of the just-so stories about Econ 101 assume this is so.
Ctrl+f consensus, and you find: "There is a consensus among economists that rent control reduces the quality and quantity of rental housing units."
No problem, I edit Wikipedia and SOFIXIT applies. Since many economists have woken up to the failure of the "price determined by intersection of buyer-demand and seller-supply curves" thesis following the spectacular failure of this fitting the facts in the case of the minimal wage as documented by Krueger and Card in the 80s, there is today no such consensus.
As for minimal wage - there is a consensus about it, you just fail to mention what the consensus is... (are you an economist?)
I don't recall you asking me for a name, but if you insist, is Richard Arnott [1] good enough for you? He wrote the highly cited "Time for Revisionism on Rent Control?" You can explore the reaction of the economics profession to his arguments on Google Scholar [3]. He cites the figure of 93% of eonomists opposing rent control, which then could be considered a consensus, but that was before the work of Krueger and Card cast a shadow on these orthodoxies coming from simplistic marginalist arguments whose empirical support was weak anecdotal evidence. Today there is no such consensus.
Incidentally, between the period of the perceived success of the New Deal and the pro-interventionist era immediately following WW2, there was also a consensus of economists on this question, but the opposite one: rent controls were viewed as a good thing.
[1]: http://www.narsc.org/newsite/internal/richard-j-arnott/
[2]: https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.1.99
[3]: https://scholar.google.com/scholar?cites=1157340330382125689...
And from what I read is that there's a debate into how much rent control is OK for the overall economy. Not really a change about its negative impact on the rental market.
It's also worth noticing a bait and switch here. The former consensus was that hard rent ceilings reduce the quality and quantity of supply. Then you see claims that its uncontroversial Econ 101 that any kind of rent control is bad for cities. If justification for the latter claim is sought, it is justified by the past-expiry-date evidence for the former claim. It's a good example of what Scott Alexander calls a motte and bailey argument.
Nature is a prestigious academic journal full of peer-reviewed science papers written by scientists (in various fields, including evolutionary biology).
The Economist is a weekly news magazine written by young journalists with no special expertise. It is not an academic publication and its authors are not economists.
Exactly. They report news and what reputable economists have to say. With sources and quotes. A lot of their articles would be considered a review article in Nature magazine.
> young journalists with no special expertise
That's literally a logical fallacy. Instead of reading about the sources for the particular article, you're dismissing The Economist like it's a tabloid. Tells me more about your integrity, more than you wish to expose.
Short Economist articles are not remotely comparable to literature reviews in top peer-reviewed journals. Such an absurd comparison demonstrates a lack of basic familiarity with either The Economist or Nature.
This particular article consists of a few paragraphs of unsubstantiated dogmatic whining, centered on a facile, grossly misleading comparison of San Francisco to Cambridge MA. It cites zero economists. No reputable scholar would be willing to attach their name to such drivel.
> That's literally a logical fallacy
You don’t seem to understand the meaning of “literally” or “logical fallacy”.
Classic central planning thinking. This would work as long as we ban the agents from doing otherwise.
If you win an actual lottery, you can transfer your winnings.
If you win the rent control lottery, you are forced to sit in the house. Use-it-yourself or lose-it.
Thus, as you say, people stay in the old place even after it no longer makes sense for them.
( There's a public housing requirement of 20% in Belgium)
I don't understand this. Shouldn't there always be incentive to build new houses as long as demand exceeds supply?
(It would presumably mean that the houses that get build would become cheaper to build, i.e. fewer luxury housing with larger margins, but that's not what people are objecting too, rightfully so.)
If rent was allowed to naturally increase due to an increase in demand, investors would quickly be there to build more appartments. But with rent control, you have little opportunity to offer something unique. It's also harder to compete with appartments that are already close to the center, as they are artifically cheapened.
Of course it's made more complex by additional regulation enforcing you can't build up, more than n stories in most european cities.
The big problem (in urban US) isn't that the wrong kind of people get to build, but that not enough building gets done.
Berlin also doesn't build enough at the moment. I heard that Hamburg has done a better job recently of approving more construction.
Just hand them money without strings attached.
(Though, the German government does subsidies poor people's rent already. It's called Wohngeld.)
Or what do you mean?
Given a non properly functioning market due to lack of houses, it might be a good idea to introduce regulation to shift the consequences of the imbalance to those who can bear it the easiest.
People like that are architects of their own demise.
Out of personal experience - rent control, development ban and anti-gentrification advocates are xenophobes that just hate the world changing around them. I've been on the receiving end of these policies, as I moved around EU from Lithuania. These people just hate anyone messing with their vibe.
No value increase unless you keep at least original state and improve on it. Apply to any house older than 20 years, and a giant bubble bursts.
(And I am saying that as a property owner)
Discussion over here: https://news.ycombinator.com/item?id=26817517