
Europe embraces rent controls, a policy that never works - jseliger
https://www.economist.com/europe/2019/07/18/europe-embraces-rent-controls-a-policy-that-never-works
======
xkgt
Free market works only as long as both parties have the freedom to bail out.
In case of essential commodities like housing or healthcare, this isn't the
case. Even if a deal is beyond your budget, you can't turn it down and live in
the streets. The other option to live further away has upper bounds in terms
of practicality. And this power imbalance, creates a reinforcement loop which
would spiral out of control without any external corrective measures like
Government interference or workforce/business exodus.

~~~
pzone
If this is true, then what about clothing? You can't go around unclothed, you
always have to pick some sort of clothing to wear. Does this mean clothing
manufacturers have some sort of special power over you, and must be regulated
by the government?

Just like picking what clothes to wear, you can pick your apartment, pick how
much and what quality of medical care to receive, and this is enough to ensure
a reasonably well functioning and competitive market without special rules.
These markets aren't that special or different.

~~~
zootam
People can import clothes from just about anywhere, and there is plenty of
clothing for everyone (maybe not distributed evenly but enough exists)

Space and time are the constraints that drive housing prices. Building denser
housing is expensive and hard, much more difficult than sourcing and importing
clothing in today's world.

Localized markets can require localized policies, because applying the same
rules evenly to all markets wouldn't make sense, abstaining from creating
local rules can make things worse, but creating them can also create new
problems.

I think rent control can be healthy as a small buffer. I think fundamentally
these are 'microscopic' policy bandaids to larger macrosopic problems.
Unfortunately, it takes a very powerful organization with the right incentives
to solve the macroscopic problems.

~~~
pzone
While it is true that land is a finite resource which makes it a unique sort
of asset, this is a separate issue than what GP raised. In fact, the point you
raise goes in the opposite direction - it makes rent control far worse and
more damaging!

Locking in pre-existing claims to land - through renters being allowed to stay
in units as long as they wish at cheap prices, and enacting restrictive/NIMBY
zoning laws - serves to constrict the housing supply. Because land is already
a finite resource, any restriction on how many housing units per parcel of
land end up being built is an even more harmful policy.

------
reillyse
Taken with a grain of salt.

Supporting free trade is literally one of the founding reasons for this
publication.

From wikipedia "The Economist was founded by the British businessman and
banker James Wilson in 1843, to advance the repeal of the Corn Laws, a system
of import tariffs.[17] A prospectus for the "newspaper" from 5 August 1843
enumerated thirteen areas of coverage that its editors wanted the publication
to focus on:[18]

Original leading articles, in which free-trade principles will be most rigidly
applied to all the important questions of the day."

~~~
ChickeNES
Why would anyone be opposed to free trade in this day and age?

~~~
kyruzic
Because "free trade" does not exist unless all regulations go away. But
American mega corps (which includes political parties) like to pretend free
trade means just get rid of the regulations we don't like, but keep all the
ones that prevent competition.

Rent control is not even close to the only barrier to the free trade of
housing. It's one of the most minor, but its one of the few that actually
protects consumers verses protecting the interests of mega corps like most
regulations do. So of course the mega corps are opposed to it.

------
nostromo
It's interesting to me how we decide which price-control schemes we like and
don't like.

In general, if you think price-controls are bad, you should dislike a wide
arrange of programs: farm subsidies, minimum wage, medicare expansion, rent
control, executive pay limits, etc.

But it's interesting that most people I talk to support some of those, but
oppose the others.

~~~
malandrew
I oppose all of those as they all distort the market and make it less
efficient. Price-controls have all sorts of second and third order effects
that are never considered by those advocating for them.

~~~
krastanov
Efficient markets are great for people that have the money to participate in
the market. If you do not have resources, an efficient market will ensure you
will have a very hard time gaining resources.

~~~
closeparen
So give people the money the need to participate in the market. “Price
controls are bad” doesn’t mean you give up, it means you use less distorting
tactics like transfer payments instead.

~~~
krastanov
I agree this is a great idea! But a large portion of the taxpayers would decry
this as handouts for the lazy, so the less perfect, but more palatable
solution ends up being used. Uninformed beliefs that pretend to be ethics are
the roadblock to your solution, and these take a long time to be fixed.

------
hak8or
Sadly as populism continues to rally across Europe, I cannot imagine this
getting better anymore soon. Especially since populism tends to lean heavily
towards very short term and shallow solutions instead of long term permanent
ones.

~~~
curiousgal
As opposed to..? Letting the market handle it? That worked wonders about a
decade ago.

~~~
Camas
As opposed to building more and denser housing.

~~~
toomuchtodo
Sometimes, you cannot build more housing, or denser housing, so you use rent
control so tenants who do live there don't spend all of their income on
housing, and some people don't get to live there (because of housing limits).
If you turned San Francisco into Manhattan, and still had unquenched demand
for housing while still maximizing every square meter of three dimensional
space within desired geo bounds, what then?

"Build baby build" is not a silver bullet.

~~~
Camas
>Sometimes, you cannot build more housing, or denser housing

A hypothetical possibility that doesn't hold true for any city that has
enacted rent controls.

"Build baby build" is a silver bullet.

~~~
HarryHirsch
In New York City the subway is running at capacity. Building housing isn't
enough, you also need infrastructure.

~~~
pzone
Brooklyn resident here. Plenty of room on the subway during my morning
commute. Wish they would build more condos here so I could enter the market.

------
colechristensen
I am of the strong opinion that governments should have a finger on the scale
to a much higher degree than rent control, with the desired effect of making
owning real estate somebody else uses a minimally attractive investment.

Control the rent by controlling the price of real estate by removing investors
as competition for the purchase of land and buildings for home and business.

~~~
nostromo
You want to make real estate cheaper by making it less desirable to investors.

But if you made it less desirable to investors, they'd build less of it -- and
you'd make the housing supply worse.

~~~
colechristensen
Investors aren't necessary to build housing.

If you remove their drag on the economy (taking much more value than they
give) there would be _more_ capital ready and willing to build housing. You
start removing investors from the housing economy then the capital flowing
from workers pockets to landlords profits slow down and stop.

Two effects there

1) The capital that was invested in real estate is going to be invested
somewhere else.

2) The capital that was going to real estate returns is going to be invested
somewhere else.

1 means more investment in business and R&D.

2 means more people have more discretionary spending, some of which would go
to investing in real estate for their own uses.

~~~
darawk
Who is going to build an apartment building aside from an investor?

~~~
kyruzic
A group of interested buyers who could afford to find its construction if it
weren't for investors driving prices sky high.

~~~
nostromo
> A group of interested buyers

... so, investors.

~~~
colechristensen
No.

You are not an investor if you're buying your own home to live in.

~~~
darawk
And who is going to organize this process?

~~~
colechristensen
The people who would like to live there.

~~~
darawk
Ok. How is that going to work? How will the process be coordinated?
Contractors hired? Decisions made?

~~~
colechristensen
There are lots of options. One is forming a co-op organization and using that
to build, then the board of the co-op is in control of that kind of thing.
Units are mapped to shares of the entity and there are no other shares. Buying
a unit means buying shares. Building upkeep is handled with a regular fee. A
significant portion of owned apartments around the world are operated in a
similar arrangement.

~~~
darawk
But wouldn't you have to wait until you sign up say, 100 or 200 people to
build a reasonably dense apartment building? How is that going to be
practical? A co-op is then going to have to run on consensus about what sorts
of amenities to build, and what to do with common spaces, etc.

Another question might be: there's nothing stopping anyone from doing this
now. You could go start one of these at this very moment if you wanted to. Why
do you think it hasn't been done?

------
TomMckenny
The cities listed as having rent control are Berlin, Barcelona, Amsterdam and
Paris. And you can add New York. When one thinks of failed cities, these do
not come to mind.

In fact, one could do worse than being more like them. And clearly rent
control does not kill a city or economy or quality of life.

And actually, a list of the most miserable cities is going to be
overwhelmingly rent control free.

Edit: for clarification, I am claiming there is _no_ evidence for a causal
relationship between the presence or absence of rent control. Any inferred
relationship is entirely conjectural and completely unsupported by evidence:
cities obviously prosper perfectly well with rent control.

~~~
kahnjw
You're suggesting there is some causal relation here that I'm not sure exists.
Desirable cities have housing crises. Those cities implement policies to
attempt to abate these crises. Ironically, theory says that restrictions like
this make the crises worse: what incentive does it give renters except to hold
their leases, thereby further restricting supply?

That theory seems to hold up in a most cities, see SF, LA, London, NY etc. The
introduction of rent control did nothing but to reduce housing availability
and increase prices.

~~~
omegaworks
>Ironically, theory says that restrictions like this make the crises worse

The economic theory alluded to doesn't take into account intangible factors
like community cohesiveness, economic precarity and the effects of that on
mental health. These things are real and have an impact on the wellbeing of
residents.

Housing security is the foundation on which an individual's ability to produce
and prosper is based. Housing isn't a commodity to the people living in it and
economic theory that reduces the complexities of housing to market-based
supply and demand are intentionally selling a value system that prioritizes
the transfer and accumulation of capital above all other needs.

~~~
nerfhammer
supply is how much of a thing is available to be had; demand is how much
people want that thing. If there isn't much of a thing and people want it a
lot, it will be difficult to get. Acting offended at the reference to the
existence of these variables does not eliminate their effects.

~~~
omegaworks
>Acting offended at the reference to the existence of these variables does not
eliminate their effects.

That you take my statement of fact as an expression of offense speaks to your
limited understanding of the qualitative aspects of housing.

------
PaulHoule
It seems rent control is popular in many places.

I read recently that people in California think that rent control is a better
solution to the housing crisis than building more housing by a large margin.

It startles me a little because if there is one thing all economists agree on
(even the Richard K. Galbraith and Paul Krguman kind of economists) it is that
rent control is a bad policy.

~~~
pizza
Why is it so hard to build in California, anyway? And why is it so hard to
change the reason it is hard to build?

~~~
et-al
California housing discussions are common here. Plenty has been said about it
in yesterday's _Approaching Peak Housing Dysfunction in California_ thread:

[https://news.ycombinator.com/item?id=20527867](https://news.ycombinator.com/item?id=20527867)

If you want a simple answer, carapace's comment stood out to me:

\- - -

It's because we're hella young out here. Relative to the East Coast anyway (I
mean, London has Roman ruins...) Do an image search for old timey SF and
you'll see: the Sunset was sand dunes until about last Tuesday, etc. Dudes
used to pan for gold out by Lake Merced.

Also, this was the weirdo town. Bohemia on the Bay. Serious folk didn't really
come here to be serious and sane. The old line was, "All the crazy people move
to California, and all the crazy people in California move to San Francisco."
To which residents add, "And all the people too crazy for San Francisco move
to Berkeley."

So yeah, you've got a young town full of nuts and flakes that no one really
paid much attention to until the last ~50 years or so, whadda ya expect, eh?

\- - -

Before Web 2.0, only the _weird_ Ivy League graduates would consider moving
out to the Bay Area. Now the secret's out and _everyone_ wants to move here.

~~~
StavrosK
> I mean, London has Roman ruins...

Wait until you hear what Rome has!

------
munk-a
If the government feel that housing should be subsidized for a certain segment
of the population (like workers employed locally in the city) then the
government should implement direct subsidies in the form of cost
reimbursements distributed to renters/owners without the knowledge of property
managers - every other scheme for rent reduction that I've seen has been
critically flawed.

------
deathanatos
> _Landlords who want to make renovations that would push up prices by more
> than €0.50 per square metre will have to seek approval._

So, basically _any_ renovation then. €0.50 per square metre is 5¢/sq ft!

~~~
TrackerFF
On the other side: I live in a country where you can only raise the rent by
the rate of inflation, so not a whole lot.

However, if you do renovations, you can raise the rent to whatever you want.
So what happens is that home-owners re-paint the interior every 2-3 years, and
set the rent to match the market. I have friends who have gotten the notice of
renovations (you can break/complete a contract if it's for renovation), and
then 3 months later gotten the option of renting the same space - but only
with a 30%-50% markup.

Only difference? Fresh coat of painting.

------
dfeojm-zlib
Rent controls work _if and only if_ there's sufficient authority and
incentives to motivate developers to grow housing inventory vertically
(skyscrapers) and/or horizontally (sprawl + public transport) just enough to
not have a glut while aiming to approximate the desired rent-controlled
price(s) such that there's less arbitrage, gaming, property owner loss and/or
exploitation. (In effect, rent-controlling with structural market policies,
while providing rent controls as a secondary guaranty layer to protect
renters, especially vulnerable populations.) Housing is one of the more
inelastic markets because everyone needs it, and so even minor constraints in
supply can rapidly lead to price spikes.

~~~
malandrew
If there were sufficient authority and incentives to motivate developers to
grow housing inventory, rent control wouldn't be advocated for in the first
place.

~~~
munk-a
Why should developers be incentivized to grow housing inventory over
independent owners? Large scale developers already have quite a lot of assets
to distribute as needed - I do agree that onerous construction impediments
should be lowered (those sourced from NIMBYism - not general sustainability
and environment concerned) and those impediments - or outright blocks - are
responsible for a lot of the housing crises we can observe today.

------
drtillberg
It's a problem caused by 20 years of monetary stimulus and 40 years of
complete freedom by central banks and governments to manage the money supply.
Monetary policy has bid up leveraged assets like real estate many times over.
Supply follows money, not people, and money has been concentrated in the hands
of fewer people. Any intelligent conversation about this needs to include
monetary policy.

When people live in little piggy banks....

~~~
bhangi
I'm not sure why you're downvoted, but I think that this nails the biggest
reason for runaway inflation in housing prices. When money supply is cheap,
asset prices will be bid up. The only people who can afford the assets and
profit from further increases in their prices are those with the means... in
other words, the rich get richer while others are left behind.

~~~
neilwilson
It's downvoted because it puts the cart before the horse. Monetary policy
intervention _interferes_ with the market by forcing interbank interest rates
to be higher than they would be in a free market. As any banker will tell you
the price of interbank reserves in a free market is zero - as there are more
than are required to clear the banking system. In a free market asset prices
are naturally determined by the last creditworthy person prepared to pay the
current price of money who visits a bank. Which will be higher than zero
because ordinary people have no access to the interbank, and therefore the
bank can put their risk and cost mark up on the price of money.

You can hardly argue against rent controls but for interest rate controls. Why
favour bankers over property occupiers?

~~~
drtillberg
Oh, a simple misunderstanding! I was arguing _against_ the central bank
controls on interest rates that have so distorted to the property market. Glad
we cleared that up!

In fact, my post said nothing about interest rates currently being set on a
free-market basis, because the whole point was that central bank interventions
are _distorting_ and _setting_ those rates in a way that generates huge
inflation in the property markets that is then treated as insignificant for
purposes of calculating inflation statistics. Property inflation --> Rent
inflation. Concentration of wealth + Rent inflation --> Rent control |
Homelessness.

------
neonate
[http://archive.is/unc4f](http://archive.is/unc4f)

------
bassman9000
Thomas Sowell on rent control

[https://youtu.be/dnj2WRIG11U](https://youtu.be/dnj2WRIG11U)

Edit: and more from Stanford

[https://www.brookings.edu/research/what-does-economic-
eviden...](https://www.brookings.edu/research/what-does-economic-evidence-
tell-us-about-the-effects-of-rent-control/)

 _. Taking all of these points together, it appears rent control has actually
contributed to the gentrification of San Francisco, the exact opposite of the
policy’s intended goal. Indeed, by simultaneously bringing in higher income
residents and preventing displacement of minorities, rent control has
contributed to widening income inequality of the city._

------
d1zzy
Never say never.

This type of policies depend on many factors and while they may not work in
some circumstance (time and place) they can be more effective in others. The
problem is recognizing when that is AND re-evaluating the situation. The
latter I feel is almost never done.

For regulations like this it's important to put in the law text that requires
a full re-evaluation of its efficacy and roll back when there are more
drawbacks than benefits, just because the policy worked at one time it doesn't
mean it will continue to be effective forever.

------
nisten
I can't comment on whether it works or not because most of the article is
paywalled for me, but what I can comment on is on a logical observation of the
free market.

It is not free, it's expensive to be poor. It's always cheaper to be an
investor, your taxes get a lot lower due to better access of off-shore
services you get. The less rich you are the more expensive your financial
overhead fees get.

Thus there is no level playing field. In a basic free market you only need to
enforce 2 rules. No fraud, and no monopoly.

Instead what you see in many big cities is sketchy capital flying in and a
virtual monopoly dominated by Airbnb and their fleet of landlord contractors
causing an artificial shortage that results in over half the units being empty
by midweek.

If the competition was level then the rental prices and even property prices
would be actually be reasonably matching the average incomes of the local
population.

This means that rent control is merely a bandaid measure that should be
removed once we ensure that everyone in the market is actually paying their
fair share.

Given the current status quo I personally think it's better to have rent
control than not to have it, even as a just a temporary patch on this problem;
but by no means do I think it will solve the problem for good.

------
tutuca
So funny downvotes in this thread...

------
Havoc
>, a policy that never works

This might seem a little more credible if it came from someone other than the
economist.

The bastions of free capitalism aren't exactly doing great on affordable rent
either...

~~~
malandrew
Within of few years of enactment, every place without rent control and
capitalism is doing better than every place with rent control and capitalism
in terms of median rent.

------
gpm
As someone who just moved to the bay area for the summer, I think rent control
has worked pretty well, I've met multiple Uber drivers who would have had
their lives upturned due to rising rents if not for rent control.

The don't build tall building policies however...

