Rent controlled apartments are great for people who live in them. They are less good for everyone else.
100 years ago if you wanted to open a store all you needed was a building and a door. Now if you want to open a store, you need a parking lot bigger than the building itself to serve the same number of people.
You used to be able to house thousands of people in what is now a suburb that houses just a hundred.
It's a crippled land-use philosophy which forces a land shortage in any city more populated than a village.
However as long as rent increases are capped at the maintenance cost increases I don’t see the negative effect, because the landlord still captures the cash flow at the time the lease begins. Yes it has a negative effect on equity compared to if the landlord could raise rents as much as they want, but I don’t see that as an objective good nor does it affect many people besides the landlord.
Rent control does create perverse incentives regarding subletting, evictions due to factors other than the nonpayment of rent, and fulfilling tenant maintenance requests though. But in terms of market participants besides the tenant and landlord I really think only the lack of liquidity is a problem.
I'm not using your phrasing, "artificially constrained supply", because it seems like artificial could have a very squishy definition. A lot of economists these days are saying that rent control leads to lower supply, but they seem to mean it as more of a natural consequence (i.e. without necessarily needing the kind of NIMBYism and red tape that gets blamed for low supply in the largest cities with rent control).
If the rent increase (and thus profit) is capped, but the market price isn't then it soon becomes rational to sell your rental apartments, stop being a landlord and invest in something with better returns. You see this a lot in Sweden. More and more rental apartments are being turned into owned apartments, sold off and removed from the rental markets since it's simply the most profitable thing to do.
nor does it affect many people besides the landlord.
It affects people who need an apartment and who want/have to rent instead of buying. Make being a landlord too hard and risky and you get fewer landlords and fewer apartments to rent on the market. When I got a job in Norway (no rent control) it took me two phone calls and less than a week to find a rental apartment in the part of town I wanted to live. When I got a job in Sweden (strict rent control) it took me months to find a place and it was a short term contract for a place way out in a shitty suburb far from where I wanted to live.
It's economically inefficient for Grandma to continue living in Palo Alto in a $4 million home when that land could instead have a multi-family housing complex to support the demand for workers in the region. It'd be the same story for someone who's in rent-controlled housing for $400/mo but the equivalent market rate is $3500. It's inefficient.
If we're saying rent control has externalities, we need to acknowledge that any scheme that fixes your housing cost has the same effect.
Not everything is about economic efficiency and maximizing investments.
For most people a house is not an investment to be maximized, it is home. Particularly for someone elderdly who has lived there most of their life.
You cant pick and chose what to be outraged about when its those very policies causing the problem
Get back in the Faraday cage, drone!
I agree that efficiency of use should not be the driving factor around property use and ownership.
I don't think newcomers should be considered more important than incumbents, but currently the pendulum has swung way too far in the other direction; often newcomers just cannot enter many housing markets, and that's not fair or healthy either. There's nothing inherently "right" about being lucky to be born at a particular time and in the right place and right financial situation to buy housing in a region that just happens to become highly desirable decades later.
Why should people be forced to give up their homes just because someone else desires them?
By this logic, if newcomers seize granny’s house they should expect to immediately be forced out by the next group who has desire.
There is no coherent argument about fairness or luck here.
The only argument here is a new group of relatively rich people looking for a way to seize desirable properties for themselves without.
Why should a tech-bro who just sits at a keyboard all day be able to force out granny and grandpa who worked as a secretary and an auto-mechanic? Does the tech-bro ‘deserve’ it more?
If they succeed in forcing granny out it will be at least as unfair as it was before.
Why should some people have to give up their homes, but not others, is the more interesting question to ask. If nobody should ever have to give up their living arrangement due to exogenous factors (like a trillion dollar industry popping up in your backyard-- which, to be fair, isn't what happens to most neighborhoods), then we should be doubling down Prop 13 and rent control.
That is not at all how California Prop 13 works, although it is an often repeated myth.
Under prop13, the property tax goes up 2% every year (technically up to 2%, but unless you're in an economically depressed area it's always 2%).
So it is a damping function, essentially equivalent to rent control, to smooth out the swings in market price and replace it with a fixed yearly increase you can predict.
In practice, however, the property tax goes up more than 2% per year because counties and cities are allowed to attach all kinds of fees under the umbrella of property taxes and those don't count towards the 2% increase limit.
I still believe that to be mostly the case, but I think a) tough luck, communities have housing problems that rarely have easy fixes, and rent control can help, and b) rent control, if implemented in a certain way, is probably something that is generally good.
By "certain way", I mean removing the problem you state: all units in a city should be subject to rent control. In addition, rent increase caps should be indexed with wage growth, or some sort of wage growth + CPI blend that ensures housing costs don't rise faster than wages, but that landlords can still remain financially solvent as their own costs go up. And finally, tenants moving out and new tenants moving in shouldn't be a trigger for a landlord to "reset" the rent to "market" rate.
Change those things, and I think rent control will work much better. And I think it will also serve as downward pressure on purchase prices, because prospective landlords won't want to buy rental properties if their rental income can't cover a high monthly mortgage payment. It might push down on non-rental property prices too, since if they get too high, people will prefer to rent instead of buy.
Of course, all of this needs to be accompanied by building new housing all the time. Affordable rental pricing is great, but it still sucks if you end up unable to rent something because you're competing with 100 other people for 1 unit. Supply must rise in response to demand, and that alone will serve as a powerful check on rent and purchase prices. (Then again, arguably in an place where supply and demand are in equilibrium, you don't need rent control in the first place!)
I'm not an economist or housing expert, so I know this won't fix everything, and there are probably problems with my (overly simple) proposal above. But I agree that the current implementation of rent control in many places (in the US, at least) offers pretty bad trade offs.
Renting as a whole should really be much more restricted as a short-term thing though - build more houses for people to own, and lower the deposit requirements so people can start a mortgage earlier.
Every professional worker should be able to own their own home - so they have security, can decorate it, etc. and aren't losing tens of thousands just to a landlord every year.