
Why Rent Control Doesn't Work - MagicPropmaker
http://freakonomics.com/podcast/rent-control/
======
neilwilson
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.

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.

Ask yourself this. What's the market force that drives rent prices down and is
it equivalent in force to that which drives rent prices up? People need
housing to live, but housing only needs people if there is a chance of a
profit.

~~~
alexgmcm
I would much prefer a land value tax and relaxation of regulations preventing
new construction (in London you can't build in certain areas/over a certain
height because of Protected Views [1], which seems utterly bizarre, as if
maintaining views is more important than sufficient housing)

[1]
[https://en.wikipedia.org/wiki/Protected_view](https://en.wikipedia.org/wiki/Protected_view)

~~~
rzwitserloot
Protected view is an oversimplification. As in, whilst the law names, and
officially only ensures protected views, the actual effects of that law go a
little further than that and I bet plenty in the law making profession are
aware of this, but feel that the law as is is sufficient.

Specifically: The protected view law reduces crowding. Without it, the # of
folks living per square kilometer in London would be higher than it is right
now, and that would mean London needs to expand all sorts of services
(medical, public transport, heck, even the # of butchers and the like), needs
to deal with more concentrated pollution, and in general just needs to 'run
better' just to keep up the same standard.

And that is not a stupid goal.

Yes, it clashes with affordable rent. I have no solutions, just pointing out
that the idea 'hey, affordable rent is way more important than protected
views, so, duh, get rid of that law!' is probably a bit shortsighted.

~~~
avar
It is a stupid way to achieve the goal because if you're legitimately trying
to mitigate other specific things you could tax for those things. E.g. for one
example you mentioned allow new development, but set trash disposal fees at
some absurd amount.

It also assumes a zero-sum economy. Once you have more population density you
have more of a tax base to pay for all those things, and some fixed costs go
down as density goes up.

The claim that public transit of all things is going to get worse with higher
density is, frankly, ridiculous. If it really persists as a problem you can
use the extra money from the new tax base to bring in urban planners from
Tokyo.

> I have no solutions[...]

I have one to address NIMBY-ism everywhere: We say sure, you can have
"protected views" or whatever, but then you need to pay market value for those
things.

We'll see how long that lasts when people need to pay out of pocket for the
opportunity cost of not constructing a skyscraper just to occasionally enjoy
the view, as opposed to incumbents getting to vote for "free" and getting the
direct benefit of their property values rising.

------
deepsun
Well, economists said similar things before the Great Depression. But market
couldn't fix it, so government had to basically redistribute tax money "from
rich to poor". Yes, there were mega-projects like Hoover dam, but the main
idea was to give poor some money to buy the goods.

I don't have opinion on rent control in question, but I can see it as yet
another form of redistributing money "from rich to poor". Every single
revolution happened because of income disparity, so I can see it as a form of
loosening that tension a bit. Whether it works -- I don't know.

~~~
rahimnathwani
"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.

~~~
dv_dt
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 we do to keep our
cities livable to a range of people?

~~~
rahimnathwani
"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.

------
esotericn
The idea of renting a property as a long-term solution to remaining on a
specific plot of land fundamentally makes no sense.

A five or ten year fixed lease, if you can negotiate one, might.

It's completely unsurprising that on a year-by-year lease the rent might rise
and you may want to move out. That's what a 1 year lease _is_.

All of the emotional pandering surrounding that is simply unnecessary. If you
want to live somewhere for an extended period you either need a long lease or
to buy a place.

That's not a politically popular viewpoint for reasons I can't quite
understand.

~~~
MsMowz
That's not a popular opinion because it's functionally the same as saying only
the people who can afford to buy a home or enter a long-term lease should have
access to affordable, stable housing. Since politics is about who gets what,
and since most people don't have much in terms of savings or leverage, it's in
the interest of most people to oppose your viewpoint because it's against
their interests.

It's only emotional pandering if you don't think politics should be a useful
instrument to people without money.

~~~
esotericn
Yes, only people who can afford to enter into a long term lease have access to
stable housing.

There is no "should" here. It's definitional. That's literally what a long
lease is, as opposed to a short lease.

> It's only emotional pandering if you don't think politics should be a useful
> instrument to people without money.

It's emotional pandering because it's devoid of actual logic.

You've injected the 'people without money' bit here as if it's relevant when
actually this is a matter that affects everyone.

~~~
pixl97
>The law, in its majestic equality, forbids the rich as well as the poor to
sleep under bridges, to beg in the streets, and to steal bread.

One should realize that politics can be used to cement long terms societal
stability, and not just make one rich as fast as possible.

~~~
esotericn
Sure.

It can't make a short term lease a long term lease though.

You can, of course, eliminate or curtail short term leases.

Whether such a thing is preferable is up for question.

------
hackeraccount
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
least in this case you still have a price signal - though if you toss money
like it's nothing at a problem you tend to get inflation especially if you
give people money and tell them they _have_ to spend it on a single good.

A better fix is to increase the supply of housing and to the extent it's
possible lower the fixed costs for building. If there's more of it the price
will go down. I understand the argument that says "If we let them build more
they'll only build for rich people" Sure. My answer to that is let them build
more. It will take time but eventually the supply of units for non rich people
will increase and when it does the price will go down.

That's all easy to say but I doubt any of that will happen.

~~~
aeternus
>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.

------
skybrian
Note that Oregon's new rent control law is at 7% + inflation per year which
seems like a very mild restriction and unlikely to cause bad long-term
effects?

I would guess this only guards against sudden, extreme increases; eventually,
someone on fixed income will have to move somewhere cheaper, but at least they
know what's coming and have some time to figure it out.

It seems unlikely these studies say very much about mild rent control.

~~~
imtringued
It would definitively have better outcomes but I don't think it would be
politically acceptable. 7% means doubling rent every 10 years. Building more
housing within those 10 years to prevent excessive increases in rent is
certainly possible but will it actually happen? The type of government that
uses rent control doesn't actually want to take it's medicine (more housing).
They just want a quick win even if it causes problems over the long term.

------
xrd
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? Is the big problem, as the article
suggests, that the laws don't adapt to the dynamic nature inherent to cities?

Could blockchain solve this?

Joking!

~~~
orangecat
_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.

~~~
repsilat
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.

~~~
xrd
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.

------
irq11
This is a good discussion of rent control, even though the title is
unfortunately click-baitey.

The great thing about this episode is that it actually does something that
most popular discussions of rent control don’t do: it acknowledges that it
_does_ work, for the rent controlled people. It also acknowledges that the
harms of rent control are smaller, and spread across a large number of people
(which is why rent control policies are popular).

~~~
LanceH
It does work for those renting. Whether those are who it needs to work for
gets greatly distorted as time goes by. The cost is also not widely
distributed, but can fall heavily on the property owner.

~~~
kungfoodog
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 city. Way I see it - everyone is hurting - she,
cause of he horrible commute, but can't let go of the "great deal", someone
who probably really deserves that apartment/rent, the landlord, the
environment.

I know just one anecdotal example and I am sure there are many other examples
on the other side where rent control helps. But to me, it looks like rent
control really distorts the market way too much to be an effective solution to
the housing crisis.

~~~
around_here
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.

~~~
bzbarsky
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.

------
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.

------
memoir2comment
* SF: has rent control, prices go up.

* Cambridge: removes rent control, prices go up.

How do you show the causal relationship? Seems like there's constrained
housing supply everywhere.

~~~
imtringued
Why look at the price rather than the population/housing capacity growth? If
you have housing for 500000 residents and 600000 looking for housing or living
in the city then prices will go up simply because demand outstrips supply as
you said. The demand probably grows every single year.

Rent goes up because people can afford it, so this is actually not a problem
that needs to be solved. What needs to be solved is the fact that 100000
people cannot find a place in the city at all. No matter how low or high the
price of rent is, you will always have a shortage of 100000 units if you're
not increasing the supply.

------
avs733
I lost respect for freakonomics and their analysis a while ago. What I used to
find pointed and creative I now see as willfully ignoring elemebts of reality
to come to some conclusion that is notable mostly for it's faux-contrarian
'creativity.' they, along with Malcolm Gladwell, some take a complex
issue...use complexity to dismiss existing reductivist solutions...and then
substitute their own equally reductivist conclusion.

Add in that suddenly after Koch industries became a sponsor of their radio
show/podcast they did a total softball interview of one of the Koch brothers
with no disclaimer that they were a sponsor

~~~
jahewson
I enjoyed the Charles Koch interview, sure it wasn't hard-hitting journalism -
it was about him and personal philosophy. I hadn't heard about the sponsorship
but it turns out that's because it's not true:
[https://twitter.com/freakonomics/status/938505933508038658?l...](https://twitter.com/freakonomics/status/938505933508038658?lang=en)

------
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).

------
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.

------
bradleyjg
As a resident of NYC I’m all for getting rid of rent control (stabilization)
_but_ I have to say that it leaves a sour taste in my mouth to just hand over
a windfall to landlords that bought buildings while rent control was in place
and accordingly paid a lower price.

Maybe some kind of rent control buyout program would make more sense.

~~~
brianwawok
What happened to all the landlords who owned a building when rent controlled
was first introduced? Most got stuck with a huge future loss.

Seems weird to subsidize one side but not the other.

~~~
bradleyjg
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?

~~~
brianwawok
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.

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

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

Correct?

~~~
ptaipale
In addition, it encourages inefficient use of existing housing.

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

~~~
ptaipale
Not really a problem. A more significant thing is not finding incentive to
move to a 2-room apartment after kids have grown up, because regulated price
of your 6-room apartment is same as the 2-room would be.

