Hacker News Reader

Comment by metaphorm | Hacker News Reader

> It also reduces tenant mobility

this is such a great point and I wish it was talked about more in the discussions of these issues. rent control basically traps people in a single apartment for the rest of their lives. it traps their sons and daughters there too (if they elect to "inherit" the apartment, which they frequently do).

this is one of the ways that ghettos come in to existence. the ability to move to somewhere else is really fundamental to preserving a person's freedom and quality of life. rent control takes that away and replaces it with a market dislocation and transfer payment.

View on HN

I cannot fathom how this is a trap. If the resident can afford to move elsewhere, then it's certainly not a trap. And if they can't afford to move, then removing rent control doesn't "free" them. They're just fucked.

I know many people who have moved out of rent-controlled apartments for one reason or another. I've done it myself. I don't know a single one who says, "Whew! Thank goodness I escaped that terrible trap of being able to afford living in a place I liked!"

The assumption is that without rent control, average prices would be lower. Therefore someone who couldn't afford to move previously now could.

Or if the intent is to provide a subsidy, to have a system where the tenant can receive the same relative amount of subsidy no matter where she may choose to reside.

This strikes me as an illusion based on conflating two different someones. The someone who feels trapped under rent control would often have been driven to move elsewhere years before if rent control didn't exist. The someone in the non-controlled apartment who doesn't feel trapped is likely to have a higher income.

The assumption is that without rent control, average prices would be lower.

So... the assumption is that left to itself, a good which is incredibly scarce in a market full of wealthy, fiercely competitive customers would see a price decline?

I mean, I can sort of see a long-term argument for it (the people who would occupy the housing are dependent on a much larger and much less wealthy serving class for their food and other necessaries and luxuries, and as that serving class was priced out of being able to live anywhere within an increasingly-large radius, housing would begin to become less attractive and thus prices would finally come down at least a bit). But I highly doubt that's the argument attempting to be made here, as one of the goals of rent control is to shortcut to the end of that cycle (where costs have come down enough that the serving class can afford to live nearby again).

Did you read the article? Absent rent control, the article plausibly claims equilibrium rent would be higher than the rent controlled rent but lower than the market rent, because "market" rent reflects the rent only on a very small share of the available housing.

But the situation is actually better than that because if we could convincingly get rid of rent control there would be a lot of new entry into the market, making the good less scarce.

Under tight rent control, landlords have an incentive to take apartments off the market and convert them into condos or luxury homes. Remove rent control and some of those apartments will come back, which grows the supply and drives down price. Under a true market where landlords can recoup development costs we should expect see an increase in both the supply and quality of available apartments compared to the current day.

The articles scenario assumes that the supply is elastic (and only bound by rent controls), while the demand is static, which is not even remotely plausible (e.g. see http://en.wikipedia.org/wiki/Urbanization - almost everyone wants to live in a city)

What would really happen is a massive influx of demand, because many people rich people (rich in this context: "Have the means to buy high-priced properties") who do not want an apartment today (because there are none which meet their 'standards', partly thanks to rent controls), would start to move in. This would lead to a situation where a) all new supply would be concretated in high-priced estate, which would still be bought up by the increased demand, while b) the bottom (i.e. todays rent controlled apartments, going with the assumption these are not well maintained and therefore 'cheap') would just go up in price, because there still wouldn't be any new options for the inhabitants of those properties. Result: Higher prices for the current occupants of apartments, a new crop of high-priced apartments bought up by rich people, no better supply of "main street" living room.

That's literally what the original article argues. The rent control leaves a smaller supply of houses to be bid up by a fixed pool of people who want to live in SF. Whether the toy model the author uses to illustrate this is correct or appropriate is of course debatable.

I wonder if you read the article at all or went straight to the comments. Your comment reminded me of the "banana" experiment that Ars Technica ran a while ago.

The article is so ludicrously oversimplified that I didn't feel it merited the dignity of a rebuttal, but if you can find an argument that doesn't rely on the frictionless-spherical-humanoids assumptions of efficient markets, feel free to bring it up.

I'm not sure I see the connection between this article's arguments about rent control and efficient markets theory. Efficient markets are those that incorporate all available knowledge about goods into their prices. Rent control isn't a problem of price uncertainty and asymmetric information.

Maybe I'm missing something, but if I'm not, I think you're hurting your point by waving terminology like that around. By trying to discredit an unrelated concept from econ, it's like you're saying "if you can find an argument that doesn't rely on economics of any sort, feel free to bring itup".

For a more accurate model we would need:

* the actual number of people who wish to move to SF at any given time

* the number of people who pay rent control, but could pay more, and what that number is

* the actual rents that people pay under rent control

As obvious as parts of a toy model might be to people who are familiar with economics terminology, the toy model's conclusions are really quite 'new' to some people. For example: the rents in SF dont need to be 'supported' in the sense most of us think (by everyone). They merely need to be supported by a small amount of wealthy people bidding on a tiny amount of available apartments.

I think that's an important fact regarding how 'frothy' the market is. It can definitely go higher.

I'd challenge you to accurately state the efficient market hypothesis then state the assumption in the article that is comparable.

Spoiler: I don't think there is one. You're using the term as a catch all for "economic arguments I don't believe".

This article goes into a lot of depth on the effects of rent control:

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

"Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, another study reported that more than 95 percent of the Canadian economists polled agreed with the statement."

> 93 percent of U.S. respondents agreed > another study reported that more than 95 percent of the Canadian economists polled agreed with the statement.

Well yeah, that's about as reliable as asking the members of the Supreme Soviet if socialism is a perfect society model.

Maybe we could do this study again and include the numbers for people which are not part of the "free market will save you"-propaganda group? Or add a few reasons why the answers should be correct besides "I want it!"? Come on ... american and canadian economists .. you can do better.

Can you do better? What study shows otherwise?

Meanwhile your argument is super hand-wavy. There is not an infinite quantity of rich people wanting to live in San Francisco. I don't think it's reasonable to assume a priori that demand can not decrease absent rent control.

I've witnessed a couple in a SF 1 bedroom rent controlled apartment (of many years) fret over when to have a child. A 2 bedroom at market rate is a non-trivial change. It certainly feels like a trap to them.

Isn't the expensive rent for the 2-bedroom the actual trap that prevents them from moving?

A trap they only have the opportunity to be in because they weren't forced out many years ago by increasing rents.

It's a liquidity problem for the whole marketplace. There's only a limited amount of space to rent in the first place. When people get older and don't need as much space, they don't move to a smaller unit to free up space for people who need more space for growing families. So you end up with one person living in a space for four people and four people living in a space for one person.

>> It also reduces tenant mobility

> rent control basically traps people in a single apartment for the rest of their lives.

so does buying a house. still, some people tend to appreciate it regardless of how bad the added lack of mobility is for them.

They stop appreciating it pretty fast when they're underwater and need to move for a job. See: 2007. Part of the contract between a lessor and a tenant is that the tenant is making some sacrifices in exchange for the ability to leave their apartment any time they want to. You can't have it both ways.

It seems to be a strange and repeated message board blind spot that we're very alert to equity in upside, but not in opportunity cost. The same thing happens in virtually every HN discussion about the stock market. Everything always seems to be based on the notion that prices are always rising, and our only concern is sharing those profits as uniformly as possible. No. The market is fundamentally structured around the likelihood that prices can go either way.

But pretty much everyone assumes that over the longterm, the market will rise.

Otherwise everyone investing in index funds for retirement is screwed.

First, renting is supposed to be an option for mobile people. Renters' mobility is more important than homeowners' mobility, who have self-selected to be somewhere for a while.

Second, rent control generally makes you more and more stuck each month. Selling your home and buying a new one is a one-time hit, and if there is sufficient motivation, it will happen after a while (technically, brokers' fees increase with the home value, but they are 6% or less, so doubling the broker's fee is a lot more palatable than doubling your rent).

Third, home ownership offers other options, like renting it out, if Prop 13 keeps you stuck with the house.

Fourth, home ownership is not subject to the tension between a tenant and a landlord who doesn't want them there.

Owning a home means you are subject to housing market fluctuations.

If you want to move elsewhere, and housing prices have gone up substantially, you have increased equity in your current property to cover the increased cost elsewhere.

You're completely ignoring equity.

Mortgage payments are based on the loan amount, not the value of the property. Excluding transactions costs, if you buy a $X house and have $Y month payments, then the property value doubles to $2X, you can sell and still buy another house that costs $2X, add $X to the down payment, and still have a $Y/month mortgage.

So if you own a home, not only do you have mobility, but if you move to another house of lesser value you can extract equity without increasing monthly costs.

Now Prop 13 is what restricts mobility for homeowners, because property tax can be 10x on a new purchase if you've been in the old house long enough. Rent control and Prop 13 both need to go.

> You're completely ignoring equity.

You're assuming equity is guaranteed.

If you buy a house at $X, and it adjusts to $X/2 because of speculation or job losses in the area, you're still paying down the $X + $Y mortgage, where $Y is interest, fees, and whatever else the bank tacks on, now or in the future, and have no way to recoup your losses. And you still have to pay property tax, based on the assessed value of your property circa pre-collapse.

> If you buy a house at $X, and it adjusts to $X/2 because of speculation or job losses in the area,

Historically that is almost unprecedented - and no, a few thousand homes in a couple of areas does not make it any better an argument. Over time, property values go up - it's not a theory, it's a fact.

>you're still paying down the $X + $Y mortgage, where $Y is interest, fees, and whatever else the bank tacks on, now or in the future

The bank can't 'tack on' arbitrary 'fees, and whatever' in the future on any decent mortgage - in fact I've never seen a residential mortgage that allowed that. If you don't get a fixed rate mortgage then your rates may rise, but that's an argument against variable rate mortgages, not home ownership.

> And you still have to pay property tax, based on the assessed value of your property circa pre-collapse

No, at least not in California - counties were required to reassess property value down after the crash, and they did. In fact from what I've seen they haven't been assessing value back up enough to keep up with the market.

> And you still have to pay property tax, based on the assessed value of your property circa pre-collapse.

Most jurisdictions have regular reassessment schedules, and while some have formulas that delay or limit the effect of market value increases, most don't for decreases which take full effect immediately.

I know people who had their homes re-assessed in 2009-2010 and their property taxes decreased significantly from the pre-collapse amount.

Have you ever looked at the possibility where one's family has to move every year or so because landlord decided to increase rent to 'catch up' with market. This is what it looks like in communities where lot of people wants to move in but no rent control. One can move in but will not have any stability.

There's a lot more "catching up" to do in a highly rent-controlled market (assuming you're not subject to rent control). For the same reasons "market rate" is artificially high (as pointed out by the linked article), the "market rate" goes up by a very large percentage each year. If all units were market rate, the market rate would not be increasing by nearly as much.

I live in Somerville, MA, which does not have rent control. My rent has gone up by at least 10% every year for the past 4 years. This is not sustainable.

No, it isn't. Unless inflation is at least 10% as well - and wages keep up.

But imagine if Somerville did have rent control. The minority of units on the market would have rents go up by much, much more than 10% a year, and people who need a new place would be screwed. This is what's happened in SF.

And with 30 days notice - not fun in an overheated rental market. In Denver as few as 7 days notice, if the rental is monthly.

http://www.denverpost.com/business/ci_27709567/apartment-dwe...

I moved into an apartment in Westchester, NY two years ago. My landlord keeps increasing the rent by 20% every year. It is owned / managed by a large company which owns many apartments in the area; they just keep inflating the rental prices.

I can't deal with this anymore, as a result I have to move out now.

I see nothing wrong here. It's his apartment, and it's market. Want stability -- buy a house, (PS: I'm myself renting for a cheap price because of rent control, but I admit it's a bad system).

It's his apartment, but such high increase is not in line with the market prices, inflation and wage growth.

They are simply banking on the fact that moving for tenants is costly, time consuming and could affect kid's school. Moreover, they only gave me 3 days to decide if I want to renew or move out. They gave the renewal offer 33 days before lease end, and I have to give a notice of 30 days if I want to move out.

Last year, I fell into their trap and gave into the substantially increased rent; but now what they are asking is at least 30% higher than market.

If your lease is being modified you are likely not bound by the 30 day notice...

I lived in an apartment complex where the owner raised the rent $50 every month. Rent was $850 and by the time I left it was at $1250. Best to get a lease and not rent month to month sometimes.

rent control basically traps people in a single apartment for the rest of their lives.

It doesn't "trap" anyone; that's just hyperbole.

The main effect is that it gives a significant number of people a chance to stay in the city in a profoundly deteriorating market for middle-class housing stock (driven, in NYC's case, to no small degree by external factors such foreign investment, and radical and -- in the view of many -- essentially undemocratic "pro-building" changes to the local zoning laws).

this is one of the ways that ghettos come in to existence.

Perhaps. But given the vastly greater forces at play (racism/classism; the collapse of inner-city manufacturing base; and deliberate wholesale razing of neighborhoods in NYC, Boston and elsewhere; mistaken notions about the wonderful community-building effects moving people out of quirky single-family housing and into massive high-rise development projects; and just the inevitable effect of multi-lane freeways in high-density urban areas, generally) it seems you'd have a hard time pinning it as one of the major factors.

It's not hyperbole in the least bit, I've seen it first hand.

A lot, maybe most by now, of my friends who live in SF cannot afford to move at all - they really are trapped in their current lease. It's often even worse because rent control encourages so many off-the-books subleases, so they can't directly deal with the landlord for fear of being caught. If the lease holder decides to give the lease up, they're screwed. This has happened to more than one of my friends who lived with someone else who had the lease and then moved out. The original leaseholder kept the lease as a courtesy, but it's actually a liability to them and they won't do it indefinitely. It's a shitty situation for all involved.

One argument against rent control is that it drastically drives up the price of the available units because there's such a reduced supply, exactly because the "trapped" can't move. This is a vicious cycle that causes even more renters to become trapped.

With subsidies instead of rent control, the available rental stock would be bigger, renters could choose from more options, and not be penalized for needing to move. Subsidies would still have an effect of increasing demand and ability to pay, thus pushing up prices a little, but the price inflation would be spread across the whole market, rather than concentrated on just the small portion of vacant units.

I'm one of those poor, suffering people, "trapped" by my rent control.

If this is confinement, then I'll admit that I much prefer confinement to the life of freedom I would experience when my landlord kicks me out in order to get a richer tenant.

Thanks for your concern, though. It's really touching.

You were (from your bio) one of the first engineers at Justin.tv (now Twitch.tv), a search and data mining engineer at Yelp.com, and a founder of Vayable, a YCombinator-funded startup.

You're comfortable with the idea that you get rent control? The market has been set up to essentially subsidize you, at the expense not only of the evil landlords but of all the potential SF tenants who do not get rent control, many of whom are (I can only assume, but it seems a pretty safe guess) far less economically secure than you are.

I'm sorry to personalize it like this (I'll forget your name soon after I write this comment). I really don't mean this as an attack. I'm just pointing out that you're a member of an undeniably elite class of worker, one that is essentially inheriting most of the economy (I believe "eating" it is the verb our industry prefers) and --- no moral judgement here --- displacing previous residents from the old outmoded economy. I'm a little startled to hear you suggest that you need a subsidy.

Wait...what is this "subsidy" you speak of? My landlord's costs are mostly fixed. I pay the same portion of the mortgage that I did when I moved in here -- and it's not like I'm paying a tiny amount of money, either. I'm subsidizing my landlord, not the other way around.

My landlord's inability to exploit me at optimal efficiency to pay for her income-generating asset is not a subsidy, it's just a policy decision in favor of tenant's rights.

Your landlord's costs are fixed --- modulo property taxes, which rise with the appraised value of the property --- but the value of the property fluctuates with the market. In San Francisco, that market is skyrocketing. Your rent should be too. It isn't: due to rent control, you capture the upside (below-market rent) instead of your landlord.

Respectfully: you are practically the poster example of the problem with rent control in a supply-constrained and rapidly gentrifying real estate market. Working class families get moved out of the city. That happens; it's part of economic growth. Meanwhile, a policy that should serve first and foremost to protect the interests of the least mobile workforce participants instead protects an elite startup founder at their expense.

Someone who wanted to make a case against SF rent control could literally just point at you. "We're distorting the housing market for the benefit of elite tech workers. We should stop doing that."

I don't blame you for accepting rent control. You're a rational actor, the option was available to you, and if you want to commit charity, there are probably more efficient vectors for that available to you than enriching a landlord. But I don't think your experience is a particularly good illustration of the public policy benefit of rent control.

Crickets.

Hey, I am too, though I recently moved so I got hit with the reset.

I guess you're just ignoring the part where no rent control and direct subsidies would lower the prices of the available rental stock. Do you like being penalized for moving? I don't.

Yes, I'm ignoring your completely unsupported hypothetical about subsidies.

You don't need to invent fancy theories to explain rents in SF: we're in a demand bubble, driven by the influx of venture-funded tech companies into the city. This is neither new, nor surprising.

I totally agree that we're in a demand bubble, but it's exacerbated by rent control and the historical difficulty of building new units.

This isn't a very fancy theory, it just effects supply and demand. I don't think you'll find many economists who would disagree with the assertion that rent control reduces supply, thus driving up prices. That reduction is caused by people incentivized to stay in a unit when they otherwise might have moved.

Exacerbated by how much? Is the effect bigger or smaller than the huge, obvious and clearly explained demand changes over the past few years?

Well, at the very least, you should send your landlord a freshly baked pie and a letter of gratitude each month with your rent check as thanks for paying some substantial portion of your rent.

Well the landlord benefits from Prop 13 which is basically "rent control for property owners", so the landlord should really forward that pie and letter of gratitude to the California taxpayers who are subsidizing him.

Like most, my landlord's costs are largely fixed. So she should probably send me a pie for paying an unwavering percentage of her mortgage in exchange for zero equity.

But yeah, tell me more about how rent-seekers are getting a bad deal. We renters are such parasites, with our unreasonable need for stable living situations in exchange for the willingness to pay for other people's investments. We just take take take, don't we?

When I went to UC Berkeley, I never lived in Berkeley. I knew people that lived in ultra cheap apartments and houses, but every time I went to an open house, there were 50 other people waiting with me. I always lived in Oakland.

A guy I worked with had lived in his apartment for 20 years when he finally bought a house (because he got married). He had been paying a ridiculously low rent for decades, and he just couldn't move and spend 10x more for what he got.

It may be counter intuitive to you, but it is not hyperbole.

right, so the question is, was he "trapped" in his apartment, or was he given the chance to stay there when he would otherwise have been forced out long ago by rising rents.

He wasn't trapped, he was greedy. Only to him, he was trapped, because the other people were being greedy for wanting market rates.

Reply on news.ycombinator.com