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Why Rent Control Doesn't Work

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Re: Why Rent Control Doesn't Work

#41

Post by njepa »

amscanne wrote: post #26
stickfigure wrote: post #12

Earlier quoted context omitted.

Keeping an apartment empty ... should be cripplingly expensive. It is? I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo. The problem seems to be that offering an apartment under a rent control regime creates an opportunity cost, so maybe the owner thinks it's worthwhile to "spend" $3k/mo to achieve a future return some other way.

This was one of the key points in the episode: rent control changes this. It's not about the landlords, it's about the tenants. If you've rented a rent-controlled apartment for a long time, even if it's huge (because you rented it when you had a large family), then it is not cripplingly expensive to hold on to it when your needs change. It is cheaper, in fact, for you to hold on to your 6 bedroom apartment, though yo…

In markets that rely on rent control as a mechanism for affordable housing, you can usually exchange rent controlled units.

Re: Why Rent Control Doesn't Work

#42

Post by rzwitserloot »

alexgmcm wrote: post #29
neilwilson wrote: post #6

Supply side markets work when they defeat the power of hoarding. Pick any market, and if sitting on the item makes you money in the long term, rather than putting it to use then you have a monopoly problem of some sort. For a market to work, it must always be the case that using the item to cause some socially useful economic flow to happen is more profitable than sitting on it, or trading your hoard with other hoard…

I would much prefer a land value tax and relaxation of regulations preventing new construction (in London you can't build in certain areas/over a certain height because of Protected Views [1], which seems utterly bizarre, as if maintaining views is more important than sufficient housing) [1] https://en.wikipedia.org/wiki/Protected_view

Protected view is an oversimplification. As in, whilst the law names, and officially only ensures protected views, the actual effects of that law go a little further than that and I bet plenty in the law making profession are aware of this, but feel that the law as is is sufficient.

Specifically: The protected view law reduces crowding. Without it, the # of folks living per square kilometer in London would be higher than it is right now, and that would mean London needs to expand all sorts of services (medical, public transport, heck, even the # of butchers and the like), needs to deal with more concentrated pollution, and in general just needs to 'run better' just to keep up the same standard.

And that is not a stupid goal.

Yes, it clashes with affordable rent. I have no solutions, just pointing out that the idea 'hey, affordable rent is way more important than protected views, so, duh, get rid of that law!' is probably a bit shortsighted.

Re: Why Rent Control Doesn't Work

#43

Post by njepa »

alexgmcm wrote: post #29
neilwilson wrote: post #6

Supply side markets work when they defeat the power of hoarding. Pick any market, and if sitting on the item makes you money in the long term, rather than putting it to use then you have a monopoly problem of some sort. For a market to work, it must always be the case that using the item to cause some socially useful economic flow to happen is more profitable than sitting on it, or trading your hoard with other hoard…

I would much prefer a land value tax and relaxation of regulations preventing new construction (in London you can't build in certain areas/over a certain height because of Protected Views [1], which seems utterly bizarre, as if maintaining views is more important than sufficient housing) [1] https://en.wikipedia.org/wiki/Protected_view

Why would the rich want sufficient housing? As long as you can remove rent control the rich benefits from scarcity of housing. They get more rent income, higher property values and less competition. It makes being wealthy much more useful that it would be otherwise.

Re: Why Rent Control Doesn't Work

#44

Post by rzwitserloot »

ukoki wrote: post #38
alexgmcm wrote: post #29

Earlier quoted context omitted.

I would much prefer a land value tax and relaxation of regulations preventing new construction (in London you can't build in certain areas/over a certain height because of Protected Views [1], which seems utterly bizarre, as if maintaining views is more important than sufficient housing) [1] https://en.wikipedia.org/wiki/Protected_view

How about just taxing the profits of house sales exorbitantly? Eg 70% tax on profits of house sales unless you are a UK resident and it's your only home. This way it's still worth buying housing with the intention of leasing it, but buying housing just to sit on it will be drastically less profitably.

There are 2 kinds of home owner.

In the netherlands we have a saying: "Little house, little tree, little animal" (huisje, boompje, beestje). It means: Family life in a suburban home with a pet, a kid or two, a house with a garden, a car on the porch, a stable job, and the home is yours, you're paying off your mortgage, and you'll grow old with a nice nest egg in the form of having built up actual ownership, converting your salary into paying off the mortgage in the timespan of your career.

That's one kind of home owner. Of particular note is that at least in The Netherlands, and I bet in the UK too, the government likes this image. Most citizens do too. So, there are tax breaks for paying off mortgages and such.

The other kind buys as many houses as they can, converts it to crappy rent and because the dream, and the government's policies, are somehow trying to marry the mutually exclusive notions of 'anybody should be able to afford a starter house' and 'all houses should be good investments, giving you more return than just sticking that money in a bank someplace', rent is really high because the competition of just buying a house is really expensive too.

I bet that it is politically virtually impossible to attempt to deal a blow to the 'huisje, boompje, beestje' owners even if it makes perfect socio-economic sense.

So, seeing that as a political impossibility, you're looking for a way to somehow tax only the second category and also doing it in a way that lobbyers of the second category can't misconstrue your plan to get the first category on board.

I bet this is extremely hard to do: It's all one market, after all. If the second category is taxed into oblivion, their demand will cease to exist, which means house prices, also the house prices of the 'huisje boompje beestje' folks will fall drastically. This will do excellent things to the affordability of rent, but it makes those career folks edgy, to say the least.

It'll take quite a while for sufficient generational turnover (and 'the youths' need to vote A LOT more. Even if it does not matter at all; politicians are incentivised to chase policies that benefit those who vote) for me to believe any law that will screw over HBB folk is going to pass.

Re: Why Rent Control Doesn't Work

#45

Post by rahimnathwani »

deepsun wrote: post #3

Well, economists said similar things before the Great Depression. But market couldn't fix it, so government had to basically redistribute tax money "from rich to poor". Yes, there were mega-projects like Hoover dam, but the main idea was to give poor some money to buy the goods. I don't have opinion on rent control in question, but I can see it as yet another form of redistributing money "from rich to poor". Every si…

"I can see it as yet another form of redistributing money "from rich to poor"

Except that rent control is not usually means tested.

If you've lived in a rent-controlled apartment in SF for 10 years, and worked as a software engineer all that time, you might choose to stay put even if you buy an apartment. You can pay rent at slightly above prices from 10 years ago, and receive market rent on your new place.

Re: Why Rent Control Doesn't Work

#46

Post by esotericn »

The idea of renting a property as a long-term solution to remaining on a specific plot of land fundamentally makes no sense.

A five or ten year fixed lease, if you can negotiate one, might.

It's completely unsurprising that on a year-by-year lease the rent might rise and you may want to move out. That's what a 1 year lease _is_.

All of the emotional pandering surrounding that is simply unnecessary. If you want to live somewhere for an extended period you either need a long lease or to buy a place.

That's not a politically popular viewpoint for reasons I can't quite understand.

Re: Why Rent Control Doesn't Work

#47

Post by chii »

neilwilson wrote: post #30
stickfigure wrote: post #12

Earlier quoted context omitted.

Keeping an apartment empty ... should be cripplingly expensive. It is? I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo. The problem seems to be that offering an apartment under a rent control regime creates an opportunity cost, so maybe the owner thinks it's worthwhile to "spend" $3k/mo to achieve a future return some other way.

" I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo." That depends on the secondary capital effects of the reduction in supply. If you keep that and several other apartments empty in an area then you force up the rents and capital prices on the ones you do let out. Just like De Beers drip feeding diamonds onto the market, or the Saud…

i dont think there is monopoly in the housing rental market for this to compare with de beers.

It's more likely that the tenants could potentially damage the property and will require maintenance to the owner, and the rent isn't worth it vs the property's natural capital gain. Esp. if the property was rent controlled.

Property prices (and thus rental prices) needs to float at a market rate - any artificial control will just distort it in such a way that it doesn't really make it more beneficial. If housing affordability is the issue, that's a matter of government policy problem (from zoning, to taxing capital gains too lax).

Re: Why Rent Control Doesn't Work

#48

Post by jplayer01 »

JamesBarney wrote: post #37
neilwilson wrote: post #30

Earlier quoted context omitted.

" I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo." That depends on the secondary capital effects of the reduction in supply. If you keep that and several other apartments empty in an area then you force up the rents and capital prices on the ones you do let out. Just like De Beers drip feeding diamonds onto the market, or the Saud…

This is just a description of a normal Monopoly which I think is pretty rare in housing because I never hear about it.

Don't need a monopoly if owners collectively behave this way, and they largely do (as we see in places like London or Berlin) because it ensures rising rent and thus increasing profit and property value.

Re: Why Rent Control Doesn't Work

#49

Post by [deleted] »

alexgmcm wrote: post #29
neilwilson wrote: post #6

Supply side markets work when they defeat the power of hoarding. Pick any market, and if sitting on the item makes you money in the long term, rather than putting it to use then you have a monopoly problem of some sort. For a market to work, it must always be the case that using the item to cause some socially useful economic flow to happen is more profitable than sitting on it, or trading your hoard with other hoard…

I would much prefer a land value tax and relaxation of regulations preventing new construction (in London you can't build in certain areas/over a certain height because of Protected Views [1], which seems utterly bizarre, as if maintaining views is more important than sufficient housing) [1] https://en.wikipedia.org/wiki/Protected_view

[deleted]

Re: Why Rent Control Doesn't Work

#50

Post by Plasmoid2000ad »

amscanne wrote: post #26
stickfigure wrote: post #12

Earlier quoted context omitted.

Keeping an apartment empty ... should be cripplingly expensive. It is? I mean, if you owned an apartment that could rent for $3000/mo, then keeping it empty is a direct reduction of your income by $3000/mo. The problem seems to be that offering an apartment under a rent control regime creates an opportunity cost, so maybe the owner thinks it's worthwhile to "spend" $3k/mo to achieve a future return some other way.

This was one of the key points in the episode: rent control changes this. It's not about the landlords, it's about the tenants. If you've rented a rent-controlled apartment for a long time, even if it's huge (because you rented it when you had a large family), then it is not cripplingly expensive to hold on to it when your needs change. It is cheaper, in fact, for you to hold on to your 6 bedroom apartment, though yo…

Rent control doesn't have to work this way, for example right now in Ireland. Rent control is associated with the Unit, not with the tenant.

If you move to another rent controlled Unit, there's very limited situations where the landlord can increase the rent beyond the limits.

A big problem is probably once you've implemented rent control, changing the system later becomes increasingly more difficult the longer it's been in place... as someone is always going to lose out.

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