Hacker News Reader

Comment by philipwalton | Hacker News Reader

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

View on HN

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).

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.

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'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?

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.

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.

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.

Reply on news.ycombinator.com