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The redistribution of housing wealth caused by rent control (2023) [pdf]
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Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#42[flagged]
If you don't mind investors being unwilling to do new construction. It's a band-aid on a much bigger problem.
Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#43Important context: This paper is from 2023. In 2025, St. Paul massively rolled back rent control restrictions. Their rent control used to have no exemptions, but now it's become very similar to SF rent control. Strict limit on how much rent can go up for current tenants, but can reset close to market rate when there's a 'just cause' vacancy. And all buildings built after X date are exempt entirely. (X=2004 in St. Pau…
> but can reset close to market rate when there's a 'just cause' vacancy.
Unfortunate policy, and generating weird incentives to get people to leave!
In Queensland (not exactly perfectly managing the rental crisis but...) their policies include not being able to raise rent more than once every 12 months (leases tend to be 12 months). Importantly it's linked to the property, not the tenants.
There's no actual cap in practice on how much you can raise it by ("reasonable" I believe is the nonfalsifiable term used) but it doesn't generate perverse incentives to kick people out
Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#44> Over the nine months following the passage of rent control in St. Paul, Minnesota in 2021, average property values fell by 4.4% to 5.8% This to me is the big one. So in addition to rents being more affordable (even if wealthier renters capture most of the gains) limiting the rental market profits also makes houses more affordable to buy? The paper is trying to argue this is bad, but I’m not seeing it. It’s almost l…
It's worrying because it reduces the incentive to build more housing.
Generally reduced construction results in higher real estate prices not lower prices. Proof: look at the well studied example of California.
Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#45When Boston ended rent control in the late 90s, all of the sudden the landlords invested in their goldmine buildings and generally improved the city. It sucks for those trying to rent or buy (including me, I paid 60% more for a house in 2002 than what it was worth in 1996), but the city has certainly had a renaissance. IMHO, the problem now is bad zoning. The rich car-centric suburbs are preventing denser housing- to…
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Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#46> Over the nine months following the passage of rent control in St. Paul, Minnesota in 2021, average property values fell by 4.4% to 5.8% This to me is the big one. So in addition to rents being more affordable (even if wealthier renters capture most of the gains) limiting the rental market profits also makes houses more affordable to buy? The paper is trying to argue this is bad, but I’m not seeing it. It’s almost l…
Counterintuitively, collecting rent is not considered "rent-seeking" by the econ definition, eg: https://www.investopedia.com/terms/r/rentseeking.asp
Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#47> This paper studies the effects of rent control on the housing wealth of renters, landlords, and homeowners. Over the nine months following the passage of rent control in St. Paul, Minnesota in 2021, average property values fell by 4.4% to 5.8%. This seems like too short-term a study. The argument against artificially holding prices down is that people won't produce as much as they would otherwise and people won't b…
> But I doubt the impacts of rent control would appear in the market this quickly, it'd take years for the market signals to be measurable. Hard disagree. Rational investors have no problem whatsoever projecting the impact to future cash flows and adjusting the amount they're willing to pay now. That's like saying the stock market wouldn't respond quickly to changes in next year's tax law.
> Rational investors have no problem whatsoever projecting the impact to future cash flows and adjusting the amount they're willing to pay now.
That's not accounting for the time value of money.
Suppose you have a rental unit and before rent control you were planning to rent it out. That now has far less attractive returns and it suddenly makes more sense to sell it as a condo to an occupant rather than keeping it to rent it out. Likewise, other prospective landlords no longer want to buy it at the previous market price (returns went down and they can invest in stocks or housing in some other city instead), so the short-term effect is to increase the number of property sellers and decrease the number of buyers. Short-term, property values going down is the expected thing.
But construction going down is also the expected thing, for the same reason. If property values are lower then the number of viable construction projects is lower and less construction happens.
The lack of construction then continues until rents, even after rent control, are high enough to justify more construction, i.e. are even higher than they were originally, because now to justify the same investment as before you need the current rent to be high enough to account for the inability to increase it later. And with less construction happening, that's the natural result in a growing area. More people have to bid on the same number of units, rents go up. So the short-term effect is lower real estate prices, the long-term effect is higher.
Now you say, if we expect real estate costs to be higher later, why don't investors take advantage? Which is the "time value of money" issue. If you invest there now because the prices will be high later, what do you do with the property in the meantime? If you don't rent it out, paying $1 today to get $1 in ten or twenty years is dumb, so you only buy if the current price is at a discount. If you do rent it out, then you'd be stuck trying to sell a building with a rent-controlled tenant, which isn't worth as much as the same building as empty as you bought it which you could sell as condos or rent out at current rents instead of price controlled ones, and then you still need a discount. And so the current seller has to provide a discount even if the real estate costs will be higher in a few years.
Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#48Earlier quoted context omitted.
> But I doubt the impacts of rent control would appear in the market this quickly, it'd take years for the market signals to be measurable. Hard disagree. Rational investors have no problem whatsoever projecting the impact to future cash flows and adjusting the amount they're willing to pay now. That's like saying the stock market wouldn't respond quickly to changes in next year's tax law.
Except the housing market, especially the rental market, is still significantly driven by small rental property owners and is a significant source of generational wealth transfer. Starting with the assumption that all or even most investors / actors are rational is a continuing pox on both economic scholarship and societal thinking
actors are in aggregate rational and self interested, but emotions are important.
Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#49> This paper studies the effects of rent control on the housing wealth of renters, landlords, and homeowners. Over the nine months following the passage of rent control in St. Paul, Minnesota in 2021, average property values fell by 4.4% to 5.8%. This seems like too short-term a study. The argument against artificially holding prices down is that people won't produce as much as they would otherwise and people won't b…
The plot on page 39 certainly looks like the St Paul market turned somewhere around July of 2020, over a year before the rent control, and the downward trend accelerated over the next couple of years. I'm skeptical of the authors' ability to tease out the contribution of rent control to a process that had already begun well before the alleged causal event.
It's terribly hard to isolate rent because of the supply/demand shock (in geographically dependent directions) that COVID had on the market. It made people move, a lot of people got a lot of free money and were out of work, among many other changes.
Re: The redistribution of housing wealth caused by rent control (2023) [pdf]
#50> This paper studies the effects of rent control on the housing wealth of renters, landlords, and homeowners. Over the nine months following the passage of rent control in St. Paul, Minnesota in 2021, average property values fell by 4.4% to 5.8%. This seems like too short-term a study. The argument against artificially holding prices down is that people won't produce as much as they would otherwise and people won't b…
The plot on page 39 certainly looks like the St Paul market turned somewhere around July of 2020, over a year before the rent control, and the downward trend accelerated over the next couple of years. I'm skeptical of the authors' ability to tease out the contribution of rent control to a process that had already begun well before the alleged causal event.
I lived there at the time. The George Floyd riots were in late May/early June 2020. I went to the protests by the police station in the Powderhorn neighborhood, that's the police station that got burned down. I got the hell out before that, though.
Most of the damage was concentrated in Minneapolis, a little south of the river. But what happens in Minneapolis affects St. Paul, and vice versa. St. Paul wasn't unscathed, either. Property values dipped as a result of the riots, and I'd go find more evidence of that if it wasn't just taken as a fact by the people who live there.
There was also an arson on a construction site in downtown St. Paul later that summer that spooked a lot of folks too.
There's also George Floyd Square, an ad-hoc memorial at the intersection where he was murdered. For reasons beyond me, this was a source of controversy for well over a year, and I know a lot of MN righties who took the city's willingness to leave the memorial there as "capitulating to crime" or something.
In short, don't use Twin Cities property values in the early 2020s to make generalizations about economics or policy. It took years for those scars to heal. Things didn't really go back to normal until 2023 at the absolute earliest, and some things haven't ever gone back to the way they were.