Rent Control Reduces New Development: Bug or Feature?
marginalrevolution.com
marginalrevolution.com
Rent controls need to be combined with long-term social housing policy to be effective.
State funded housebuilding without rent control would maximize new development, and the additional housing would put downward pressure on rents providing much of the benefit of rent control without the drawbacks.
Like raising the minimum wage it is a very profit hostile policy though. Thats probably why marginal revolution despises both policies so much.
Tyler Cowen takes koch money and the laws of supply and demand work the same way for the market for faux academic legitimacy in economics as they do for housing: if you have the cash, it can be bought.
Does it really reduce profits, or does it increase prices? In general the economy balances out so ROI is the same everywhere so profits only decrease temporarily, so all costs comes from other sources long term, like reduces development or increased prices.
If rent control only resulted in minimally less construction, then it just resulted in minimally less profits as the two are linked in the private sector.
>In general the economy balances out so ROI is the same everywhere so profits only decrease temporarily
The only industry where is is "true" is small restaurants, where profit margin get hit short term but stay steady at 10% over the long term. This is because real restaurant profits are mostly consumed by their landlords, and it's their landlords who suck up the difference long term.
This doesn't apply to big corporate restaurants like McDonalds because they have pricing power and often are their own landlords.
Even so the SME restaurant industry hates the idea of raising the minimum wage more than most because it tends to lead to a wave of restaurant bankruptcies until rents adjust.
Chicago, Detroit, and NYC all tried that and abandoned it due to cost overruns, corruption, high liabilities, and the limiting of eminent domain powers following the civil rights movement - most urban housing projects were built by demolishing historically African American neighborhoods, and the resulting structures were segregated (as James Baldwin eloquently pointed out in 1963 during the height of the civil rights movement)
The same thing happened in Western Europe as well with France and the UK abandoning similar urban housing projects.
Singapore and HK are unique in that the governments are authoritarian and can kick people out with minimal notice or recourse if they really want to.
The biggest blocker is always going to be land acquisition - either we reject the entire notion that you have property rights and the right to recourse, or you accept that these basic civil liberties are a requirement for a democracy and thus building will have to be done by the private sector because unlocking public funds would take 3-5 years on top of 2-3 years of construction.
For a more recent example, look at China's urban renewal projects in the 2000s and 2010s, and how local governments would use forced evictions as well as minimal compensation and occasionally shooting protesters [0][1][2] or the mass evictions in Beijing in 2017-18 [3] - this was how Housing Projects were built across America from the 1930s-1960s.
Opposition to that policy was also a major reason why Xi Jinping was initially quite popular, because he was opposed to these kinds of projects at scale, and Fujian never saw the kind of mass demolitions that you'd see in other Chinese provinces.
[0] - https://www.washingtonpost.com/wp-dyn/articles/A6968-2004Oct...
[1] - http://news.bbc.co.uk/2/hi/asia-pacific/4507130.stm
[2] - https://www.reuters.com/article/olympics-evictions-idUSPEK57...
[3] - https://www.nytimes.com/2017/11/30/world/asia/china-beijing-...
Reflecting on the conflict of Israel and also in the show “yellowstone” basically originates from land ownership issues, i really think this human constructed abstraction and entitlement is fundamentally flawed. I really think it needs reworking and needs to be held as less sacred in America. Besides do people really own land when the government demands rent in the form of property taxes?
So long as housing is so fundamentally stressful in current systems with resulting pervasive homelessness and rent seeking capitalism applied to shelter thats long paid for its investment yet still inflates in costs applying pressure on low income residents: i dont think mostly inalienable rights to property ownership in many cases is a public good.
There is no good answer to that.
Either you accept civil liberties of which property ownership is a critical part or you accept that civil liberties like ownership do not matter.
Owning property is a right every human agrees with (it's literally article 17 of the UN Declaration of Human Rights). This is why you either need to compensate exhorbitantly or threaten to break a few legs and skulls in order to gain property.
The mass urban housing projects of the 30s to 60s were literally built by mass demolishing black neighborhoods - look at Central Boston's redevelopment for example, as well as Cincinnati's.
And that's why these projects ended once the Civil Rights movement succeeded - why should black residents lose their property and intergenerational wealth to urban projects built by governments that didn't care for them.
Look at how the 1968 DC Riots and 1967 Detroit Riots were exacerbated by HUD plans to revitalize "slums" (black majority neighborhoods) like Capitol Hill and Lafayette Park
> Besides do people really own land when the government demands rent in the form of property taxes
In return for those taxes they get piped water, roads, police, local schools, sewers, garbage collection, and other basic services.
> resulting pervasive homelessness and rent seeking capitalism applied to shelter
Mass Eminent domain of land only leads to crony capitalism anyhow. Either way it's the same contractors and builders who are doing development - the difference is now instead of wooing voters you just woo the political class instead.
Nor is there actually a need for mass development to alleviate homelessness - housing subsidies can and do help, as SLC and Houston have both shown as well as Section 8.
That said, you will have to follow the law - meaning no substance abuse or criminal activity.
Civil liberties are just a human abstract construct which go at odds with reality and as such cause inevitable downstream problems no matter how the civil liberties or laws are constructed or fabricated. Like you said theres no good answer but as such (while fully cognizant of issues with all sides) im beginning to dislike the current state of the status quo thats really only a modern phenomenon (nation states and most pieces of land being claimed for ownership by individuals or worse: large stakes of land claimed by small groups).
Literally every society holds ownership of land and property as a fundamental core value.
> im beginning to dislike the current state of the status quo thats really only a modern phenomenon (nation states and most pieces of land being claimed for ownership by individuals or worse: large stakes of land claimed by small groups)
People will not willingly give up their property without adequate compensation (and even then might not due to emotional attachment).
If you want to back your words with threats of physical force, feel free to go ahead. There's a major reason most civil and criminal cases in both China and India revolve around land disputes and conflicting ownership.
This has been the status quo of society for millenias - this is why you have folk stories like Hattefield McCoy, the biblical story of Zelophehad, the dishonest plowman of European folktales, the qissa of Dulla Bhatti's revolt against the Mughals, and the conflict between Der Shin and Der Yi in Chinese folklore.
Private Land Ownership has literally been codified in the Hammurabi Code, the Arthashastra, the Bible, and the Book of Rites from the Zhou Dynasty.
I wish typing on an ipad with a flip phone size keyboard wasnt so troublesome. So please excuse issues with my typings.
Funny enough in the bible, one can not cross into the spiritual realm with any earthly possessions. This partially highlights how nonintrinsic ownership is to reality. Looking at past serfdom societies or others ownership took a different form. Hunter gathering societies think borders are incomprehensible. Then theres colonialism where european powers took over Africa then claimed its inhabitants owed them an annual tax for the land which the natives already resided on. Israel claims ownership of Palestine on behalf the jews based on some 2000year religious inheritance and used force and manipulation to settle/colonialize already claim lands. Thats not to say im pro palestinian claims either. People will make some rationalized justification on why they are entitled to something when the natural state of nature is to just roam and intermingle freely. Theres all these weaselly ways to deprive people of property like gentrification or legal manipulations.
Then theres always exceptions like imminent domain. Theres also the flipside if force used to seize territory, theres also the force used to protect illgotten territory from trespassers. Then theres the capitalist stakeholder math that crudely gives a vast disproportionate share of ownership to a few stakeholders (usually the progenitors of the capitalistic endeavor) despite it really being a rather conmunist at least laborwise endeavor. To put clearly its strange that jeff bezos can own ten percent of all of amazons collective largess despite it being a product of a million or 100000 laborers.
All im saying is property ownership isnt natural and is usually stitched together in a crude manner usually according to the values of the times. Im uninterested in holding it sacred though i do recognize confiscating peoples properties at willynilly whims is quite problemmatic.
Of course it violates human rights to force people out of their homes, but that's because it's wrong to interfere with how people choose to live, not because people have some kind of intrinsic and exclusive right to the land they are currently occupying.
Article 17 [0]:
1. Everyone has the right to own property alone as well as in association with others.
2. No one shall be arbitrarily deprived of his property
---------
Land is a form of property in every single definition used in literally every form of jurisprudence.
[0] - https://www.un.org/en/about-us/universal-declaration-of-huma....
Edit: why the negative downvotes to an a proven refutation
> Edit: why the negative downvotes to an a proven refutation
You didn't refute anything, red being a color doesn't mean a color is necessarily red. That is a classic logical mistake to make.
Maybe?
If you want a specific form of property, and you have the means to acquire it, lots of people would probably think that you should be let owning what you want.
Of course "means to acquire" encompasses a lot of situations in which ultimately a person has more power than others: you might have more money than your peers bidding for this property, or it might be an "adverse possession" kind of situation, or anyhow ultimately you get the state/law/authorities to agree with you, which means that you can benefit from the state's monopoly on violence...
Not everywhere. At least not in the form of private property that an individual can own
> All urban land in China is owned by the Chinese government and is commonly referred to as “state-owned land.” All rural and suburban land is owned by rural collectives (i.e., local groups of farmers) and is commonly referred to as “collective land.”
https://resourcehub.bakermckenzie.com/en/resources/global-co...
Allowing private ownership of land is a mistake, but thankfully this mistake is not universal
Yes, developers are profit driven and this a good thing. So are grocery store owners for that matter and that is also a good thing. Since developers (usually) turn a profit, they attract investment dollars, and in turn convert those dollars into new homes. These new homes, especially if built in desirable areas, give wealthier people options to buy, who are now less likely to bid up the price of older homes as they do now.
The first way, as the author point out, it directly disincentivizes developers from building new homes. The second way is more insidious: it gives politicians, typically progressive politicians, the needed cover to claim they are addressing high rents, while they continue to support the real driver of housing costs: restrictive zoning that bans new construction and leads to supply shortages.
Inclusionary zoning operates in a similar manner.
Rent control also reduces property prices which reduces NIMBYism. People are less inclined to fight new development when they arent up to their eyeballs in debt and 60% of their net worth isnt on the line.
It's not property supply that suffers most from rent control. It's the ever increasing streams of unearned income going towards largely the same people fighting new development.
The evidence is in the article. So please don't come in here with your cherry picked data to try to claim something that is already widely known to be false.
NYC's (as well as those in other American cities like Boston, Detroit, and San Francisco) massive development push in the 1950s was also infamous for using eminent domain to do this mass construction at the expense of African American neighborhoods - and displaced African American residents were not resettled in these projects [0][1][2][3]
It's easy to build fast if you're taking land away from disenfranchised communities who have no ability to push back.
[0] - https://www.bostonreview.net/articles/brent-cebul-tearing-do...
[1] - https://www.bloomberg.com/news/articles/2017-07-09/robert-mo...
Of course, this immediately has these first-order effects:
- Putting thousands of home owners into financial dire straights, by reducing their income at the same time that their refinanced mortgages are increasing by as much as 100%.
- Eliminating thousands more rental units of coming onto the market, by eliminating the AirBnB income stream necessary to rationalize building or renovating those units into existence.
These first-order effects are so obvious, that it cannot be an accident -- the assumption would assume such a low intelligence on the part of the politicians enacting this legislation as to be deeply insulting.
But the alternative explanation; that this was an intentional result, also brings into question:
Why would a politician want to simultaneously destroy both tourism (making short-term rental accommodations both less plentiful and more expensive), while also destroying thousands of rental units from being constructed, making long-term rentals both less plentiful and more expensive?
The obvious alternative -- goosing the production of all types of short- and long-term rental units by encouraging the production of AirBnB units (increasing their supply, thereby decreasing their cost and profitability, encouraging the migration of existing AirBnB stock to long-term rentals) -- appears to have bypassed the BC political elite.
How (and why) would they not want that?
Not homeowners, short-term rental investors. Many probably are homeowners, but that's not relevant - many more homeowners saw absolutely no change, since they didn't invest into this particular industry.
> Eliminating thousands more rental units of coming onto the market
Thousands more short-term rental units, not real rental units. People who renovate/build for AirBnB will keep their units on AirBnB, not suddenly decide to put them up for real/long-term rental. The units that theoreticallt won't be built now wouldn't have helped the housing crisis even a little bit.
Without regulatory intervention, tourism is so much more profitable, that anyone who wants to invest in realestate and optimise for profit would be foolish to deal in long-term rentals. By making the AirBnB business model less profitable, some investors might actually go "back" to investing in long-term rentals, increasing supply.
And, that an increased supply and reduced profitability would not drive some of that short-term rental stock into the long-term rental market?
It appears to be the consensus opinion of HN that reducing supply increases availability and/or affordability.
Howso??
The AirBnB market is much more profitable than rentals, so all investment is going there and many flats are even being converted. By incentivising AirBnB, you're driving the supply of flats down as they are converted and the all the new supply that is created goes straight to AirBnB.
The theoretical point of oversaturation when AirBnB supply starts leaking back into long-term rentals would only happen if the number of investors was infinite and prices were set by a perfect inverse relationship to supply. In reality, neither of those assumptions hold. Investors are finite and their number decreases with profitability, which is inversely proportional to supply, so it's unlikely they'd ever reach oversaturation. And AirBnB prices don't decrease linearly with supply, most people just look at what they'd make with long-term tenants and set their price so they end up with some margin more than that...
For a (slightly gruesome) analogy: You have a leech. You want the leech to drink even more blood, until it finally fills up and your circulation reaches an equilibrium. Until that happens, you're bleeding out and you probably won't survive. Why not just cut the leech off?
- Studio apartments that are rented to visitors in the summer, and students in the winter.
- homes that the homeowner can vacate during the summer tourist season, and either occupied or rent in the winter.
- Homes, which can be divided into two or more Airbnb, that the owner can can vacate because they have a second home.
- all construction made possible to marginal borrowers, that was rationalized by the potential for Airbnb income in a pinch.
- construction of hotel and apartment units, prevented due to that possibility of further legislative interference by government.
- Loss of productive, wealthy, citizenry who could build, who can move to more business favourable jurisdictions at will.
But, you’re willing to bet that none of these will occur, and that the market will not respond to vastly increased housing unit supply with lowering prices and increasing availability.
Is this a bet that you’re really willing to make?
For a while maybe it's a profitable trade to put your hands in your neighbour's pockets, but when it stops working, you don't get to cry about "dire financial straights".
Are you certain you are representing most unit owners fairly?
I check Airbnb when I move, and I'd rate a full time rental next to me similarly to a busy street. Not a deal breaker, but certainly a strike against it. If others do the same, that translates to a direct reduction in property value for the host's neighbours.
I don't have any moral issue with Airbnb hosts or travellers - I have used it about as much as you have. I don't mind people making money from it.
But when a city decides to quantify the externalities and impose restrictions, it is absolutely not appropriate to talk about financial losses hosts have. They made a cynical bet on relaxed (poor) governance, and lost. You or I shouldn't care any more than they should care about my startup failing.
I’m just stating the obvious.
That your plan for a house with a rental unit attached isn't profitable under the new regime isn't a disaster, it's the market doing its job. If residents wanted it enough, they'd be willing to pay for it. There is no disaster by definition.
You're not stating the obvious, you're talking your book.
I personally know property owners, large and small, and their properties are fluidly exchangeable between long and short term rentals.
Reducing the production of new rental units will have the obvious result.
I'm not even suggesting that cities should ban or restrict Airbnb, just that doing so can be rational and business owners need to take the risk of this into account. Given the delta in profitability, the market does understand this.
I did not claim that Airbnb units aren't fungible with rentals, that's obviously true, and rereading this discussion I don't understand how you believe I made that argument.
I doubt people are going to shed many tears for people who overleveraged themselves into a risky investment and got burned.
>- Eliminating thousands more rental units of coming onto the market, by eliminating the AirBnB income stream necessary to rationalize building or renovating those units into existence.
What good is all that supply if it's being used for airbnbs? Having a bunch of cheap airbnbs isn't going to help the local housing crisis. You might decry it is nativism, but I think it's totally appropriate for a polity to prioritize the wellbeing of its citizens/permanent residents over tourists.
- lower profit AirBnBs to long-term rentals
Reducing supply of AirBnBs does the opposite; drawing marginal suppliers (legal AirBnB units that used to be long term rentals, are converted to AirBnB.)
You’ll have to provide extraordinary evidence that reducing total supply of something (units) can lead to lower prices and more availability. Because it has never done so, in all of history…
You know what would result in "driving holders of that stock to diversify into different client bases" (ie. long term rentals) even more? Forcing them to do so eliminating all demand from the short term rental side. Moreover, doing that would convert almost all of those units to long term rentals, not some marginal percentage your model implies.
But the scenarios you described seem to be excluded from the legislation?
https://www2.gov.bc.ca/gov/content/housing-tenancy/short-ter...
>Effective May 1, 2024, the Province is implementing a provincial principal residence requirement which will limit short-term rentals to:
>* The host’s principal residence
>* Plus one secondary suite or accessory dwelling unit on the same property