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Why Rent Control Doesn't Work

freakonomics.com

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Re: Why Rent Control Doesn't Work

#81

Post by aeternus »

hackeraccount wrote: post #66

Rent control is government setting the price on a good. I've always thought that price is metadata about a good or a service. Changing the price doesn't change that reality - it just hides it. If the rent is too high why not just give people money and let them spend it on rent? That's probably idiotic but it makes more sense to me then telling the people renting out units that they have to charge a certain amount. At…

>If the rent is too high why not just give people money and let them spend it on rent?

This doesn't work because the money will go straight to landlords. Rent prices simply increase across the board. There's even an argument that indirect improvements, like building parks and improving infrastructure, generally does not benefit renters since it drives rental prices up. Landlords reap the majority of the benefit.

Building more would definitely help, but that is directly against the interest of existing landlords. They will fight it hard since it will generally erode their views and decrease their property value.

We really need a solution that incentivizes higher density where there is high demand.

Re: Why Rent Control Doesn't Work

#82

Post by NowThenGoodBad »

phailhaus wrote: post #79
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. 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…

Thank you, this is one point people miss. The other is the value of the real estate and it's increase. Sure, you might not get that 36,000 a year but that is completely dwarfed by a 23% increase in the median home price, bringing it to $1.4 million[1]. You could rent for 10 years or just buy and sell it off a year or 2 later.

So, while it is true that not renting would mean not getting that $3000 a month, it really comes out to chump change when you consider how the price of the property has rapidly risen.

Re: Why Rent Control Doesn't Work

#83

Post by aeternus »

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…

I would also be careful about saying it 'works' for the renters.

I know multiple people that are subleasing rent-controlled apartments in SF. The actual renter lives well outside of SF, and sublets the apartment at slightly below market. This works out for both the original renter and the new renter (who would not qualify for rent-control) so there is negative incentive to report.

In some cases, the renter can live off the delta in rent and 'invest' nothing but the security deposit. Risk of getting caught is minimal, and there is little paper-trail.

Interestingly, you now have two people / families rather than just one that is pro-rent control.

Re: Why Rent Control Doesn't Work

#84

Post by tobylane »

rzwitserloot wrote: post #44
ukoki wrote: post #38

Earlier quoted context omitted.

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, convertin…

The second type usually uses a BTL (buy to let) mortgage, which can be interest-only and feasible where an occupier's mortgage wouldn't be. The UK government has successfully made these considerably less appealing, such as cutting tax relief on BTL mortgage payments. The housing was released into the better parts of the housing market.

Re: Why Rent Control Doesn't Work

#85

Post by solatic »

aeternus wrote: post #24
solatic wrote: post #18

Earlier quoted context omitted.

> Keeping an apartment empty and outside the housing services supply market should be cripplingly expensive. Jerusalem tried this. Lots of apartments owned by wealthy foreign landlords who only occupy the apartments once or twice a year, if that, on holiday, transforming large sections of the city into ghost neighborhoods. https://www.timesofisrael.com/jerusalem-ups-ghost-apartment-... It hasn't worked. Odds are that…

Use a land value tax, and update it frequently. If rents are going up in an area, then the land value is increasing and taxes should go up accordingly. This also removes the disincentives around making property improvements. It makes little sense for cities to penalize people for renovating and improving property. It also adds healthy competition among landlords/owners and encourages higher density in places where la…

Israeli property tax is different than in the US. In the US, property taxes are levied upon property owners, but in Israel, property taxes are levied directly upon residents - owners who are landlords pay no property tax in Israel so long as tenants are paying the tax. The advantage of the Israeli system is that it allows the government to offer steep discounts on property rent to protected classes, i.e. senior citizens who get a 75% discount on their property taxes because nobody wants to kick Grandma and Grandpa out of their homes, offering steep tax discounts to low-income tenants, etc.

In such an environment, switching to a land value tax is regressive.

Re: Why Rent Control Doesn't Work

#86

Post by solatic »

true_religion wrote: post #22
solatic wrote: post #18

Earlier quoted context omitted.

> Keeping an apartment empty and outside the housing services supply market should be cripplingly expensive. Jerusalem tried this. Lots of apartments owned by wealthy foreign landlords who only occupy the apartments once or twice a year, if that, on holiday, transforming large sections of the city into ghost neighborhoods. https://www.timesofisrael.com/jerusalem-ups-ghost-apartment-... It hasn't worked. Odds are that…

Zoning should take into account rental status. So an area can be zoned for primary home ownership or home rental. Thus if you have your secondary unoccupied residence in that zone, then it would be a zoning violation so you must live in it or rent it out.

Most of the ghost homes are owned by foreigners for whom that is their sole residential property in Israel. Penalizing the purchase of additional units is ineffective.

Furthermore, even if you could figure out a way to set up zoning regulations to achieve these aims, how would you penalize violations? Fines are just factored into the cost of ownership, just like the taxes on empty apartments.

Re: Why Rent Control Doesn't Work

#87

Post by olliej »

I used to be against rent control, but when I found that in CA there is a constitutional amendment that prohibits the government from increasing the taxable valuation of property by more than 2% per year I became strongly pro it.

If you want to increase rent costs by more than 2% you’re acknowledging that your property value has increased by more than 2% and you should pay taxes on that. But the tax valuation can’t increase by more than 2% so you shouldn’t be able to increase your rent by more either.

So I’d favour something strong than rent control (that only applies to continuous residents), I’d say that no rent, lease, or similar arrangement can increase at a rate of more than 2% (or whatever the limit on increases property taxes is) year on year, irrespective of occupancy, or changes in tenants.

Re: Why Rent Control Doesn't Work

#88

Post by DuskStar »

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…

> 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 hoarders. Ideally you go bust quickly if you sit on it, much as you would with perishable goods.

Agreed!

> When you apply that view to housing services you find that the power to exclude is the hoard that needs defeating. Keeping an apartment empty and outside the housing services supply market should be cripplingly expensive.

Aaand you've lost me. IMO it's not the people keeping an apartment empty and off the market that are the issue - they're suffering a loss for this, equivalent to the rent. No, the people 'hoarding' are, essentially, the NIMBYs. It costs me nothing to prevent you from building 1000 apartments to replace a parking lot in Downtown LA, but that lowers the value of my house (reduced demand) so I'm going to make it as legally difficult as possible - that sort of thing.

Re: Why Rent Control Doesn't Work

#89

Post by rahimnathwani »

dv_dt wrote: post #70
rahimnathwani wrote: post #45

Earlier quoted context omitted.

"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.

Sure, but the same thing happens to landlords. If they can afford the buy in, then they keep their properties and charge as high a rent as possible. Usually you find landlords slowly expand their holdings over time, and if your city can't support enough private buyers, then it becomes predominantly landlord owned and there are no affordable places anywhere. So the question becomes, if not rent control, then what do w…

"then it becomes predominantly landlord owned and there are no affordable places anywhere"

I'm not sure I follow. Why would a large proportion of properties being owned by landlords reduce affordability?

"So the question becomes, if not rent control, then what do we do to keep our cities livable to a range of people?"

Allow people and companies to build apartment buildings, either on green field sites, or by knocking down houses. Stop allowing existing property owners (NIMBYs) to veto new building.

Re: Why Rent Control Doesn't Work

#90

Post by aliswe »

ptaipale wrote: post #36
aliswe wrote: post #21

TL;DR version: Rent control keeps overall rents artificially high by disincentivizing new construction. Correct?

In addition, it encourages inefficient use of existing housing.

Like me not finding incentive for renting out my existing apartment when I'm out of town?
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