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Why Rent Control Doesn't Work

freakonomics.com

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Re: Why Rent Control Doesn't Work

#71

Post by gumby »

If you consider an economy as a dynamic, rather than static system, then there can be a place for a form of rent control that functions like a dashpot. People have trouble dealing with high-speed changes in their situation, especially many such changes, so wild swings of rent etc turn into stressful high-speed chop.

When you think of a city's economy as a static system you can tell yourself that you can predict the result of fixing a single variable (e.g. rent in this case). Of course over time it has results you might not have anticipated, and results that are hard to fix due to hysteresis (e.g. rents go up slowly, so buildings are not maintained, and suddenly you get to the point of a lot of derelict buildings and no tax base proportional to your maintenance needs).

Re: Why Rent Control Doesn't Work

#72

Post by gnicholas »

Plasmoid2000ad wrote: post #50
amscanne wrote: post #26

Earlier quoted context omitted.

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…

> 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.

In a city with rent controls, however, finding another unit that is the right size and has rent control is not easy (because everyone is hanging onto their units — and in some cases illegally subletting them). This becomes a self-perpetuating cycle, where there is a decreased supply of available units, which makes it less likely that people in rent-controlled units will dare to venture out and look for another unit that is a better fit in terms of size/location/etc.

Re: Why Rent Control Doesn't Work

#73

Post by xrd »

orangecat wrote: post #14
xrd wrote: post #11

This is an interesting conversation. As others have said, this article does indicate rent control works for the renters. What are the arguments about who it doesn't work for? I've heard landlords angry about this kind of thing in Oregon but never heard them complain about the values of their properties skyrocketing. It's human nature to only see the downside. But, is the solution to make these rent controls temporary…

this article does indicate rent control works for the renters Current renters. Future renters get locked out. What are the arguments about who it doesn't work for? By discouraging development, it creates an environment where the only people who can afford housing are the rent control lottery winners, and the very wealthy who can outbid everyone else for the few remaining units. In other words, San Francisco.

That's interesting.

When all is said and done, I'm not opposed to discriminating against future renters.

My reasoning: I grew up in Portland, and I love(d) the art and music scene there. And, lots of the people who were at the forefront of building that culture (rightly or wrongly) did not (or could not) invest in their long term housing future by buying a crappy house in a terrible neighborhood that now is totally gentrified. I feel like they made an investment in the quality of life that I benefited from, and rent control seems like it helps them. It does discriminate against future renters. But, isn't that the point, that future renters didn't invest in the city in the same way? I would love to find a solution that makes it so that future artists can come in and make the same contributions without having to be trustafarians, and it seems like organizations like the Actors Fund in NYC (https://actorsfund.org/) work to make this possible in a small way.

I do see that rent control policies discriminate (prevents a pure free market) against property owners. But, it does not seem like we are really accounting for all the benefits they get when a property increases in value because of the investments made by renters in the area. If we could do that honestly, maybe we could come up with a more honest way to handle rent control.

Re: Why Rent Control Doesn't Work

#74

Post by xrd »

repsilat wrote: post #23
orangecat wrote: post #14

Earlier quoted context omitted.

this article does indicate rent control works for the renters Current renters. Future renters get locked out. What are the arguments about who it doesn't work for? By discouraging development, it creates an environment where the only people who can afford housing are the rent control lottery winners, and the very wealthy who can outbid everyone else for the few remaining units. In other words, San Francisco.

It also discourages downsizing. If you're old and retired, and want to move into a house that's a bit smaller now that your kids have moved out, maybe you can't afford to because it would mean paying more in rent than you do currently. This can exacerbate (or cause) shortages.

I would argue this is actually a separate thing. Rent control does one thing. Zoning laws like they have in SF that prevent building more dense structures prevent people from selling in one area and then finding a new property that is much smaller in the same area. The combination of rent control and NIMBY zoning laws makes downsizing challenging.

Re: Why Rent Control Doesn't Work

#75

Post by cafard »

"And the most recent paper has shown that crime has gone down — particularly, street crime has gone down right after the elimination of rent control in Cambridge."

Is that because the removal of rent control caused a net loss of the poor in Cambridge? Certainly not all of those who'd have a hard time affording Cambridge were committing crimes.

Re: Why Rent Control Doesn't Work

#76

Post by bzbarsky »

xrd wrote: post #73
orangecat wrote: post #14

Earlier quoted context omitted.

this article does indicate rent control works for the renters Current renters. Future renters get locked out. What are the arguments about who it doesn't work for? By discouraging development, it creates an environment where the only people who can afford housing are the rent control lottery winners, and the very wealthy who can outbid everyone else for the few remaining units. In other words, San Francisco.

That's interesting. When all is said and done, I'm not opposed to discriminating against future renters. My reasoning: I grew up in Portland, and I love(d) the art and music scene there. And, lots of the people who were at the forefront of building that culture (rightly or wrongly) did not (or could not) invest in their long term housing future by buying a crappy house in a terrible neighborhood that now is totally g…

> I'm not opposed to discriminating against future renters.

Note that in the typical case the "future renters" are the kids of the current renters....

Re: Why Rent Control Doesn't Work

#77

Post by bzbarsky »

around_here wrote: post #31
kungfoodog wrote: post #16

Earlier quoted context omitted.

One anecdotal example of this - my sister, lives in SF, near market in a rent controlled apartment paying ~$2200 for a single bedroom. She is a director at a tech company making high 300k - 400k a year depending on bonus etc - so obviously doesn't need rent control to have a roof over her head. Recently her job moved to South Bay (Palo Alto) but she refuses to move cause she can't let go of the "great deal" in the ci…

She leaves, and some also wealthy person gets to pay way more for it. The also wealthy landlord gets to get way too much for it. I'm happier to watch the owners of capital hurt for it. Decommodify housing. Full stop, no rents. Housing by need.

Who gets to determine the need?

I've lived, though as a child, in a place where housing was distributed "by need" -- the USSR, though even then in the 80s things were liberalizing some. It was, in retrospect, a horrible combination of corruption, underinvestment in housing, and what would in the modern West be considered terrible living conditions.

Re: Why Rent Control Doesn't Work

#78

Post by asdffdsa »

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…

If you decide to continue renting solely due to the artificially low price, isn't that hoarding? The tenant literally sitting in the item (living in an apartment) like the man who kept renting a 6-bedroom apartment for $300/month has the power to exclude, and a hoard that needs defeating. Is rent control a good tool to fix hoarding?

Re: Why Rent Control Doesn't Work

#79

Post by phailhaus »

stickfigure wrote: post #12
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…

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.

Not realizing potential profit is not the same as losing money. If I own an apartment that costs $0 to maintain, then not renting out that apartment costs me nothing. It's not "cripplingly expensive" just because I _could_ rent it out for $3000/mo. It actually has zero impact on my income, and I could stay like that forever.

The cost of keeping an apartment empty is only the amount it costs to maintain it.

Re: Why Rent Control Doesn't Work

#80

Post by bradleyjg »

brianwawok wrote: post #61
bradleyjg wrote: post #59

Earlier quoted context omitted.

They are long dead. How does it make any sense to give a windfall to a group of owners far removed in time and ownership to “balance” that?

That's not my argument ;) My argument is that is why you don't give landlords a one time cash payment when you end rent control. You are making someones property worth MORE, paying them is giving them a double win.

Ah I see. I meant that landlords would have to buyout of rent control with a one time payment not get paid.
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