
Do rent controls work? - realdlee
http://www.economist.com/blogs/economist-explains/2015/08/economist-explains-19
======
philsnow
There's a similar mechanism in place for owners in California, 1978 California
"Prop 13" [0]. Among other things, this limits the amount that the "assessed
value" of a property can increase to 2% per year, unless the property changes
hands, in which case it can reset to "market" value.

It has contributed to people staying in their houses a lot longer than they'd
otherwise be able to. This increases the amount of NIMBYism as older people
don't vote (in general) for things which change the "character" of the places
they've lived in for 40 years.

Proponents will say that it increases stability of communities, taking as an
article of faith that community stability is something that should be
optimized for.

Among other things such as lack of effective regional public transit, I
consider Prop 13 to be a sizeable disadvantage to the bay area's continued
viability as a tech hub over the next 20 years, as it even further constrains
the amount of housing available, "affordable" or not.

Anyway, this is of course probably old news to you if you have ever considered
buying property here, but for people who are not from around here, it bears
mentioning. Are there such controls elsewhere in the world?

[0]
[https://en.wikipedia.org/wiki/California_Proposition_13_(197...](https://en.wikipedia.org/wiki/California_Proposition_13_\(1978\))

~~~
capkutay
Maybe the hidden advantage of Tim Draper's plan to split California into 6
states [0] was reversing rent control.

0:
[https://en.wikipedia.org/wiki/Six_Californias](https://en.wikipedia.org/wiki/Six_Californias)

~~~
thephyber
Rent control in San Francisco was a local ordinance in San Francisco.

There are many, many factors involved in dividing up an existing government
into 6 new governments. Existing laws (namely Prop 13), significantly more
abridged state Constitutions, existing contractual liability obligations
(CALPERS & CALSTERS retirement plans), and other contracts would likely be
renegotiated in light of a different set of laws.

The only thing I particularly liked about this is that California's population
base is currently an outlier and our US Senate representation is vastly
underpowered in proportion to other states. I don't think the founding fathers
knew that one state would have 69x the population of another state without the
people voting to change either the state composition or the method of
calculation of senators.

~~~
ende
The Senate has nothing to do with representing the population of the states,
that's what the House of Representatives is for (its even in the name). The
delegates to the Senate represent the sovereignty of the states within a
Federal structure. They are basically ambassadors.

------
njs12345
A land value tax (
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)
) is an economically interesting alternative to rent controls that doesn't
seem to suffer from the same perverse incentives that rent controls sometimes
do.

FWIW, the housing market is pretty far from a free market, so well-implemented
rent controls could be a good thing. I think like all government policies,
really it comes down to implementation - I can imagine Germany doing a much
better job than the USA here.

------
dmfdmf
Depends on what you mean by "work".

They are not economically valid but today are a political means to use the
power of govt force (i.e. the gun) to transfer benefits from the property
owners to the renters.

~~~
simoncion
Do you live in a district with rent control? If you do, are _not_ very
wealthy? (That is to say, are you unable to spend $2 million purchasing
housing for yourself or your family?) Finally, are you a landlord?

If the answers to the first two questions are "yes", and the last question is
"no", then I'm _actually_ quite interested in hearing your thoughts on rent
control. :)

I live in San Francisco [0], am _not_ wealthy, and am trapped in my rent-
controlled apartment by the skyrocketing rents of the non-rent-controlled (and
reset-to-market-rate-after-vacancy) units around me. If it weren't for rent
control, _every_ rental in the city would be renting for at _least_ $3000 per
bedroom per month, [1] and I would have been pushed out of the city more than
a year ago.

[0] SF has a _serious_ and inexplicable allergy to new housing construction.
It is this refusal to build enough housing to meet even a fraction of housing
demand that is the source of the obscene rents in the city.

[1] That's _at least_ $36,000 post-tax dollars a body must spend per bedroom
per _year_. For reference, someone grossing $125k/year has ~$76k in post-tax
dollars at their disposal. This means that someone making low six figures
would be spending somewhere around _half_ of their take-home pay on rent.

~~~
tsotha
>I live in San Francisco [0], am not wealthy, and am trapped in my rent-
controlled apartment by the skyrocketing rents of the non-rent-controlled (and
reset-to-market-rate-after-vacancy) units around me.

You're not trapped anywhere. You can no longer afford to live in San
Francisco, and you're forcing someone else to pick up your tab instead of
moving to a city you can afford.

~~~
gnu8
You say that like the people (through the government) don't have the right to
apply price controls to the market. They do.

~~~
mc32
I rent. But conversely, I dont believe the gov't should regulate rental prices
via rent control. It's a perverse incentive. If the gov't wants cheaper units,
build cheaper units themselves. Virtually confiscating property from owners is
not the way. If I had money to own or build, I certainly would be
disincentivized to build if I knew those properties could become rent
controlled. I really don't understand the reasoning of rent control beyond
knee jerk reaction.

Now. I live in SF but I don't believe it's my "right" to live here, so long as
there were affordable units within commuting distances. By affordable I mean
enough units at different income levels. But gov't needs to encourage
building, not stifle building, which seems they work very hard at.

~~~
simoncion
> If I had money to own or build, I certainly would be disincentivized to
> build if I knew those properties could become rent controlled.

You live in SF, so you _know_ that new construction will not be covered under
rent control laws. [0] Why would you say this?

> But gov't needs to encourage building, not stifle building, which seems they
> work very hard at.

Agreed.

If the city government removes the anti-development zoning laws in much of the
city _and_ works to placate the rabid anti-development leaders in both the
"DON'T SPOIL MY VIEW!" and "NEW CONSTRUCTION IS _ALWAYS_ RENT CONTROLLED UNIT
DESTRUCTION AND YOU SHALL NEVER DESTROY A SINGLE RENT CONTROLLED UNIT!" camps,
and there is _still_ barely any new construction, then _perhaps_ it will be
time to see why a law that controls rent _only_ in buildings constructed prior
to 1970-mumble is stifling construction of new buildings in 2015.

[0] Except in special cases like the Trinity Towers project. In that case,
Sangiacomo got permission to destroy a building full of rent controlled units
if he replaced each of those units with a rent controlled one in the new
building. This was a 1:1 replacement. No rent controlled units were lost, no
additional rent controlled units were created, and Sangiacomo got a new
building full of "market rate" units in the bargain.

------
tsotha
> Interestingly some evidence shows that those living in rent-controlled flats
> in New York also tend to have higher median incomes than those who rent
> market-rate apartments.

This isn't surprising at all. Whenever you have a constrained resource with a
price cap you still pay more. It's just that you don't pay more in money (at
least, not directly). It becomes a matter of who you know, and people with
money are better able to get to know people.

~~~
bradleyjg
You have to be careful when looking at NYC. We have a small program called
rent control and a much much larger program called rent stabilization (plus
some other odds and ends). So a stat specifically about rent control units is
just talking about a few tens of thousand of mostly very old people.

------
umeshunni
The saddest thing about this article was the linked NYT article by Krugman on
San Fransisco's housing crisis .. From 2000!
[http://www.nytimes.com/2000/06/07/opinion/reckonings-a-
rent-...](http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-
affair.html) Looks like nothing has improved in the last 15 years

------
JohnSz
Montreal has rent control. The result is that its financially inadvisable to
renovate. Part of the rent control is you can raise the rent $31/year per
$1,000 of renovation. That's a 30 YEAR payback. You can be replacing a roof
the second time before you've recovered the costs for the first time, even
forgetting about inflation and opportunity costs.

Other provisions of the rent controls are just as restrictive.

The result is rental buildings here are in poor shape, as owners let their
buildings degrade and then sell them. Few are being built.

Well ... there are more rental voters than landlord voters.

~~~
ConfuciusSay
But in Montreal, as in SF, if the tenant leaves you can adjust the rent back
to "market rates", which does benefit a landlord who renovates. Also, a good
percentage of the new "condo" towers going up are specifically rental only.

The more perverse side effect of rent control shows up in the cases where
rental tenants on a 30 year old lease, paying peanuts per month is posting
their apartment (or multiple apartments) on AirBnB at market rates. All the
while, the property gets much more wear and tear, increasing maintenance
costs.

------
guyzero
While I agree that building housing is a better solution, it's hardly trivial.
It's very capital intensive and in a lot of cases no one is willing to put
that kind of capital up. Turn detached single family homes into denser
townhouses? GOod luck. Turning industrial land into high rises is easy enough
but that doesn't really cover the entire spectrum of housing types. What
cities in the Bay Area really need to do is tear down 60's suburbs and rebuild
as if they were 1860's London.

But that's not going to happen.

~~~
FelixP
There is TONS of investment capital sitting on the sidelines looking for
decent returns at the moment. Capital availability is not the issue here.

------
arikrak
Rent Control (absolute caps on prices) doesn't make sense. In NYC, a small
number of apartments are under it and have ridiculously low rent. Rent
Stabilization (limiting how much landlords can raise rent on existing tenants)
sounds like a bad idea economically, but it can be very hard on tenants to
have their rent raised dramatically so they're forced out of their homes. The
initial rent prices are set by the market, so it shouldn't discourage
investment and development of buildings.

------
jessaustin
Perhaps "Betteridge" could be one of the pseudonymous _Economist_ columnists?

------
joeevans1000
This is an absurd editorial. The cited arguments against rent control assume
that rent control is just about capping rents. Rent control is about much more
than that: it often is about capping rent for long time residents. If your
grandmother has lived in her apartment for 65 years, she should not be tossed
out just because a 19 year IT worker can pay more. Rent control takes in many
factors, and is not just about capping rents in a region. However, I don't
expect The Economist or it's reader demographic to care much about those
affected by the rabid efforts to dismantle what protects many, just so that
people can better profit on their properties.

~~~
mc32
I don't think it's absurd. There are definitely some hard policy questions.
However, that said, Krugman, an economist many populists like to cite agrees
with their position. Rent control is short-term good, long-term bad.

The solution is one of two things, more housing units, or fewer residents in a
given area --look at any town/city where there is a pronounced long-term
population decline, do you see a similar, "minimum rent" control? No, but you
do see rent go down and typically the place suffers many ills.

All it comes down to is everyone wants in when the going is good and everyone
wants out when the going gets bad.

------
clarkmoody
The State loves control, especially when it is packaged as "fairness." In the
case of rent control, it's simply "fair" that you should be able to afford a
place to live in the city and not have the evil capitalists prey upon the
middle class. As the article mentions, price controls are nearly universally
understood as inefficient among economists. The inefficiency expresses itself
as a shortage of housing. Those who are able to find a place will enjoy cheap
rent and then thank the politician who gave it to them. The rest will need to
commute so they are out of the voting district anyway :-)

The article mentions building limits. Call it "zoning" or "neighborhood
preservation" or "green belts" but it's all State control over what should be
private property decisions made by individuals. Artificially limiting supply
through a restrictive building permitting process will drive up costs. Hence,
the need for rent controls.

So the State controls both the supply and price of housing in these metro
areas. Any public figure or pundit who blames "capitalists" or "failure of the
free market" for the housing woes should be laughed out of the room.

How can we solve the problem? Stop trying to fix it with government. Allow
rents to equalize at the market rate and allow supply to be determined by the
market. Until the statists relinquish control, the problem will never be
resolved. But the upside is that we will get to read these nice _Economist_
articles forever.

~~~
ConfuciusSay
There's two other major factors beyond rent control and zoning. One is cheap
credit, insured by the government, and the second is the massive flow of
foreign money coming into NA real estate. If you don't take care of all those
factors together, you won't get true price discovery.

The other thing is, the moment you do get true price discovery, you're popping
a giant financialized bubble, and potentially triggering another self-
reinforcing downward cycle (we'll be facing that soon anyways though).

