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.
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.
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.
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.
While that is true, it is a separate issue than what GP raised. In fact, the point you raises goes in the opposite direction - it makes rent control far worse and more damaging! Locking in pre-existing claims to land (renters being allowed to stay as long as they want at cheap prices) and restrictive zoning laws BOTH serve to constrict the housing supply. Because land is already a finite resource, any restriction on how many housing units per parcel of land can be built is an even more harmful policy.
"Pick how much and what quality of medical care to receive"
Last time I was in an ambulance I was a bit too unconscious to really do my due diligence in checking that the hospital it was taking me to was in-network and didn't balance bill.
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."
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.
I think the words "free trade" are a bit overloaded, at least in the way OP used them. I am very much a globalist and think free trade between countries is very important. I am also very much against unregulated markets (which I assume is what OP meant by "free trade", i.e. free trade / unregulated market on the scale of a city and its housing market).
I don't find it hard to be against free trade. All you have to want to do is protect your own model because you believe in it more than another. I don't believe in many foreign labor laws, so I don't think those goods should be priced the same as goods produced under different rules. I would rather the products were produced by robots under better conditions. I hold a similar view of capital. Of course it is easy to agree with free trade if you don't attach any consequences to it.
I'd strongly recommend Ha-Joon Chang's Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism:
Chang argued uncomfortable truth of capitalism and criticizes globalization represented by the book "The Lexus and the Olive Tree" in the first chapter. He argued that there are errors in theories regarded as established theory related to economic development and refuted them with economic theory, and historical and current data. In the later chapter, Chang claimed that "Market and democracy clash at the fundamental level." In epilogue, he wrote about Brazil in 2037 that faced gloomy future as a consequence of reckless beliefs in neo-liberalism policies. Finally, he made the case for new strategies for a more prosperous world that may appall the 'Bad Samaritans'.
An interesting digression of views is evident in a dispute between publishers of the English an American editions of Chambers Encyclopaedia:
Free Trade (American Edition), 'a dogma of modern growth, industriously taught by British manufacturers and their commercial agents. For many years certain political economists have laboured to establish this theory upon a reliable basis, and have asserted that the doctrine represents an important truth; but no nation has attained substantial prosperity except by protection to native industry, whether avowed or disavowed. The doctrine had no foothold in the policy of any nation, and had no legislative birth until put forth by Sir R. Peel in 1846. While it was in the interest of Great Britain to protect her industry, she imposed sufficient duties; and when, by this means, her producers of wealth became strong, and able to compete with those of other countries, protection yielded to reciprocity; and even at the present time, the nations most clamorous for free trade rely upon it in theory only, reciprocity in fact, and protection in principle. Even the most strenuous advocates of the theory dare not put it to the test of experience in its fullness. The teachers, therefore, remain self-deceived. The cloistered sophists of their schools, and the propagandists of free-trade, are doubtless as learned as the sophists of any age, and practically as useless. Free-trade expressions need Americanising, as they are utterly hostile to our prosperity, and subversive of scientific truth. Whenever an advocate of this dogma, schooled in their errors, has found devolving upon himself the responsibility of dealing with practical questions, he finds their supposed cardinal truths as groundless as the mythical Arcadias and Utopias of romance. The sophistries of free trade are put forth to lull the suspicions of the deluded purveyors to the wealth of England, and are advocated most strenuously by agents of British manufacturing houses and foreign residents in our cities, whose chief aim is the accumulation of wealth by extensive sales of foreign products, regardless of the injury they may inflict on American interests.' With a great deal more on the same purpose --- an entire perversion of the original.
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.
Some of those are required for national security (ex: a vibrant, diverse agriculture industry) but most would be better off without an extra thumb on a scale.
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.
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.
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.
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.
How do you participate in the market without initial resources? Even if you have some minimal initial resource, how do you act efficiently in the market when you do not have the resources to buy the information that lets you act efficiently?
If there is no regulation, rather just the most efficient trading, how do you compete with the gigantic entities that hoard inelastic goods to manipulate the price. It takes a lot of capital to efficiently counter their maneuvers. The problem is that 1) you are not in the market to exploit arbitrage opportunities, you are there to buy something you need 2) you do not have the capital to exploit that type of arbitrage opportunities and remain solvent.
You know that silly saying "The market can stay irrational longer than you can stay solvent"? What is a rational market for a large entity with capital is very different from what is rational for a small entity with little resources.
Every able-bodied person has a resource: their labor. They exchange their labor with other humans who have other resources they want.
The entire premise of capitalism is that you get stuff by exchanging something of value you have for something of value that someone else has that you want. If you don't have any stuff to trade, you trade your time. Once you have some stuff, you either trade that stuff for other resources, or continue to trade your time.
You did not answer the most basic question in my comment. If all you have is this minimal resource, how do you "buy" the rather expensive information necessary for acting efficiently on the market?
Yes, of course you can invest your labor, as you should, but if all you have is this small resource on a completely unregulated efficient market, big fishes can manipulate the price of your labor. If you have a ton of money you can counter their manipulation and make money, but if all you have is your labor you simply have to accept the manipulated price.
I'm not sure what you mean by "manipulated price". In a perfectly efficient market, labor will be priced at its marginal value. That is, you will receive the incremental value of your labor. In a perfectly efficient market, there is no such thing as 'manipulation', everything is priced according to its supply/demand curve.
I'm also not sure what you mean by "buy the expensive information necessary for acting efficiently on the market". What information is that? In the current world, all the information you could want is essentially free. What is not free is a certificate from a university. The information itself costs as much as an internet connection, though. And that can be had quite readily even on the lowest of salaries.
In a perfectly unregulated market a large entity can hoard a resource or provide a resource at a temporal loss for themselves so that they bankrupt their small competitors. This is an arbitrage opportunity that can be used against the large entity only if you have a ton of money - if you are small you are out of luck.
If you are small you do not have access to the expensive analysts that tell you how this perfectly efficient market will move. There is a fixed initial cost to join the "efficient" part of the market, that nobody but the big players will have. They will know when on average new workers join in so they can undercut their salaries / they will know when houses will be in demand so they can hike up prices / etc. If the small guy has that information they can efficiently adjust the time to participate, but that information will not be available without the expensive initial investment into analysis. The economy of scale that exists for the big players ensures that the market will be efficient only for them.
> In a perfectly unregulated market a large entity can hoard a resource or provide a resource at a temporal loss for themselves so that they bankrupt their small competitors. This is an arbitrage opportunity that can be used against the large entity only if you have a ton of money - if you are small you are out of luck.
While that is, in principle, possible. Can you think of any times it's actually happened absent regulation? The only times that come to my mind are when a company exploited regulation to achieve this.
> If you are small you do not have access to the expensive analysts that tell you how this perfectly efficient market will move. There is a fixed initial cost to join the "efficient" part of the market, that nobody but the big players will have. They will know when on average new workers join in so they can undercut their salaries / they will know when houses will be in demand so they can hike up prices / etc. If the small guy has that information they can efficiently adjust the time to participate, but that information will not be available without the expensive initial investment into analysis. The economy of scale that exists for the big players ensures that the market will be efficient only for them.
This is a fun theory, but there's really no evidence of any of this dynamic occurring anywhere in our current economy, and in general is a misunderstanding of how supply and demand actually work. The problem with this theory is that, even if you assume companies were able to do this, the amount they'll be able to squeeze out of people by doing so is not actually that large. Predictive analytics definitely can give you an edge, but they do not give you an infinite edge.
For certain types of businesses, yes, that makes it hard to compete. But if you come up with a viable way to compete with some scale player, there's plenty of pools of capital out in the economy that'd be happy to fund your idea. That's what venture capital is all about: matching resources to ideas.
It just changes what you have to sell from being a monthly lease to a monthly lease with an option to extend for as long as you want. It's still a free market.
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.
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?
> Sometimes, you cannot build more housing, or denser housing ... 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?
Using Manhattan as your example of maximum possible density is... odd. Kowloon City [1] had much higher density and had the disadvantage of poverty.
I'm not saying that we should turn all residential areas into facsimiles of Kowloon City, but there is a ton of space between what currently exists - even in Manhattan - and that. I'm deeply skeptical that any place in the US or Europe has reached the limits of building more housing and is forced to look at other options.
"Build baby build" is a pretty good silver bullet - assuming the city is willing to keep up with infrastructure spending to support the denser housing (absolutely possible economically, but politically difficult) _and_ assuming the local populace doesn't throw whoever advocates for it out of office. Too often new construction is killed by NIMBYism (though, it seems just as often new construction blames NIMBYism for legitimate complaints about land compensation)... if you live in a city and treasure your quiet off the beaten path neighborhood... too bad.
First, I think most capitalists agree that regulation in some form is required, as totally free markets are inherently unstable.
Second, this ignores the governments role beforehand in encouraging subprime loans and afterwards during the bailout.
Third, it ignores the fact that by most measures, capitalism has increased the global standard is living too literally unheard of levels. In almost every part of the world, now is better than any other time in history to be alive. Not to imply that some things arent seriously wrong and require fixing, but let's give credit where credit is due and not throw the baby out with the bath water
You don't understand anything about either term you used.
Populism is not and has never been a right wing thing. Populism is the idea the the people should control society and their interests are more important than abstract concepts like the economy which benefit primarily the elite. The term has no political leaning.
Rent control is not a leftist policy. It's neoliberalism. Neoliberalism is not leftist in the slightest. It's simply a rebranding of right wing policy.
Life is short and problems are often immediate so in many cases people need short term solutions. I think what is really needed are approaches that provide short term relief while fixing the long term causes of problems.
I hadn’t realized you thought that. Will you then withdraw your claims in other threads that American style suburban sprawl is necessary for happiness and quality of life? That American cities far less dense than their European counterparts are full?
If I can’t have European sane labor regulations and universal healthcare, I’ll still take my suburban low density housing. So...no. I stick by my claims (Europeans have a different value system than Americans, which I argue is a substantial component as to why they’re happier with “less” than Americans).
Also, I am flattered (truly!) that our conversations have left a lasting impression wrt my opinion on American housing.
EU tops rankings for quality of life and standard of living every year. Sprinkle in some canadian, Australian Japanese and new Zealand cities an there is your top 50.
According to Mercer, who conducts -
'The quality of living survey is conducted to help governments and major companies place employees on international assignments. The survey also identifies those cities with the highest personal safety ranking based upon internal stability, crime, effectiveness of law enforcement and relationships with other countries. In this case, Luxembourg is top, followed by Bern, Helsinki and Zürich, all equally placed at number 2.'
'Countries with cities commonly ranked in the top 50 include Austria, Switzerland, New Zealand, Germany, Canada, Denmark, Finland, Australia, Sweden and the United States. Vienna (Austria) has been ranked first for ten consecutive years.'
I mean, sure, Germany has more cities on the list than the US; but Germany isn't the EU. Most of the EU has zero cities in the top 50.
The US has zero cities in the top 30 of that list, not really supporting your argument. (EDIT, it is also amazingly US centric and still doesn't rate US cities higher, NYC is given a base score of 100 and other cities are essentially compared to it).
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.
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.
Landlord profits don’t “slow down and stop”. They are like any other investment.
And until money grows in trees, you need capital from somewhere, either from investors or if the government pays for it, taken as taxes. There is no “magic” here.
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.
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?
Sounds like some are conflating housing-developer-investors with housing-buyer-investors. Discouraging the second need not discourage the first, if done right.
No, individual units would be subject to the restriction of being sold to direct owners and must be occupied or subject to tax. See recent laws in Vancouver for one example.
Once all units are sold, the building is co-owned between them. There is nothing left for the developer to sell. Perhaps a rental property management service, paid for by the owners.
This is just plain wrong. If it's less expensive the ordinary person could afford to fund it's construction rather than relying on a group of wealthy people to fund it construction. Who then control it an arbitrarily set rental prices.
As a thought exercise, free markets exist on the basis of everyone behaving like a rational actor, working in their own self-interest which results in the market becoming more and more optimized. Mind you, I'm talking pure free market theory.
This means if you were to consider renters, land owners etc within a free market, the rational option is to take actions which improve their lot. This may be short term solutions, but it's the result of people behaving in their own rational self-interest. If a city has 50+% of people renting; then they will take action to lower the costs of renting. Similarly, if a city has a large amount of people owning property, then people will take action to increase the value of their property.
The only action to stop this would be...government intervention. Which means then the government is responsible for regulating the market against the whims of the people it's supposed to represent. In the case of renting and home ownership, I don't think a free market can ever truly exist.
I think this general sort of approach is highly flawed due to the difficulty you'd find in allocating and expecting new property demand. I, personally, would love to see a working command economy and look forward to the day we can actually accomplish one though technology... but we're not quite there yet.
In the mean time... I have difficulty pointing out specific reasons this always fails due to the weird involvement of racism in public housing in the US tainting my primary experience of such a system, but I believe it does have flaws even if implemented in a manner that isn't intentionally trying to ghettoize portions of a city.
There really isn't any difficulty in allocating resources.
I'm talking about eliminating real estate investors, not property ownership by end-users. There would still be a fine market economy but it would be much less common for someone to be buying real estate they weren't intending to use themselves.
Command economies are ridiculous because human nature. They aren't stable because they involve a small number of people being in control of resource allocation and the benefits for "cheating" and making those decisions to benefit yourself and your goals make it far too likely that the power will be abused.
They don't need to have their finger on the scale to a higher degree. They just need to remove the finger on the scale that makes housing an attractive investment.
You do this by taxing land. Cannot be passed on to the renter as they are already paying the monopoly price. It just takes what was private profit and captures it for public spending.
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.
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.
>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.
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.
On the contrary, I claim there is no causal relationship. In particular, no actual evidence that it hurts a city.
For example: on what evidence would we say NYC was hurt by rent control? Rent control started in the 1920s and was quite strong for decades, yet NYC continued to out grow dozens of potential competitor cities without it. Therefore at worst, rent control had no measurable effect on growth.
Here is a relatively famous study on rent control in Cambridge, Massachusetts. It identifies billions of dollars that resulted from the end of rent control in 1994, controlling for other economic trends.
Although the year 1994 in a city a few miles away isn't exactly the same as New York, it seems far fetched to argue we wouldn't observe the same thing if we ended rent control here today.
It raised land prices by billions of dollars, it did not produce wealth or additional housing (as seen by a flat population growth). The economy did not leap forward and far from easing housing shortage, it simply raised the cost of existing stock. The only change was a spurt in home owner improvements likely financed by mortgages against increased valuation
It is indeed a fine example of how eliminating rent control does not result in new housing.
So yes, if you eliminate what rent control there is in NY (which is limited to old buildings), their value would sky rocket along with rental income and the incentive to replace them with larger buildings would disappear.
The point isn’t about the supply of new construction but rather about supply of open leases. Rent control incentivized renters to stay put thereby reducing supply for potential residents. Limiting supply increases prices which further incentivized renters to stay put. And on and on.
Removing rent control hurts current renters in the short term. It also removes restrictions on supply that improve the overall health of the market over a longer time horizon.
>Removing rent control hurts current renters in the short term. It also removes restrictions on supply that improve the overall health of the market over a longer time horizon.
I'm just seeking proof of that. There are limitless alternative even contradictory theories. Why, other than matching preconceived world views, do we choose one over the other without evidence? In the Cambridge example 25 years have passed but there is, as you say, no additional housing and prices have risen further. Nor was there any burst of economic growth. In what way and to what end has the market become healthier?
And if it does not increase supply of new construction then it is zero sum gain. It merely benefits one group, in this case landlords and new residents, over old residents and tenants generally. And the harm done is not temporary, the increased outlay in housing is permanent regardless of who is paying it. And wealth is transferred to unproductive literal rent seeking from productive activities such as consumption, employment and businesses (who now have bigger payrolls just to pass through employees to housing).
And now, with transient population replacing a permanent one, interest in long term undertakings such as mass transit and community undertakings such as environment, homelessness or even economic stimulus also wane.
The correct solution is to add more housing which evidently is unconnected to rent control. Certainly on existing units.
There is ample research supporting the notion that rent control increases prices and gentrifies neighborhoods [1][2][3]...
The reason I believe this is economics 101. People want simple solutions to difficult problems. If prices are too high, we create laws that keep them low (so simple!). Problem is that supply is finite, even with new units being constructed cities have been unable to keep up with the influx of new residents. In many cases this is due to other similar suffocating regulations around building height, density, inability to pay out current residents for new construction etc. When supply is sparse and prices are often 50% less than market rate for long term renters, you increase their incentive to stay. That further restricts supply and prices go up for anyone not under contract. If you have an alternative theory of how this would work, I'm curious about it. What are the dynamics, beyond "prices are cheaper"? How does rent control reduce or solve a housing crisis?
>And if it does not increase supply of new construction then it is zero sum gain.
That's a hard thing to prove but I'd wager that isn't the case. Playing forward the rent control dynamic, it's likely that landlords could extract more money per unit on average than they would have in a less supply restricted market. The housing market is far from perfectly competitive without rent control. Landlords have many tools at their disposal to jack up prices beyond what the fair market value is with and without rent control. If the turnover rate is lower, those tools become easier to use. There are fewer comps and almost zero competition. That leaves a wider lane for price gouging on everything from rent to parking to laundry.
No one with think to bother with rent control in a "failed city" where no one wanted to live in the first place. Why would a city where rents were falling or there was a huge vacancy rate enact rent control?
Should we therefore think that the lack of rent control caused them to be miserable or vice versa? (Is that not what you're implying?)
Honestly it doesn't really matter. The title is even factually incorrect, rent control worked in Sweden for much of the 20th century producing a better standard of living at a lower cost and very likely contributing to probably the most successful startup scene in Europe. Vienna would probably be another example, regularly ranking as the most livable city in the world. But the economist is a political publication. They are in support of free markets and against government intervention. That is why they see no problem with foreign investments, cheap credit or private interests. They don't mention the relation between rents and property values, or anything to do with how to actually lower rent. That you can't keep up with rapidly increasing demand by supplying a hard to come by resource like housing isn't weird from an economic perspective. Which is exactly what we have seen repeatedly in the cities that have tried. But it is of course from a political one where markets can never be free enough. So that is what their anonymous author is going to tell us. They should really call themselves the ideologist at this point.
If we're going to go by these types of correlations, let's add another market with rent control, San Francisco, and you have the two most expensive rental markets in the U.S. Amsterdam, Paris, and Berlin are the top 3 out of 4 on this list of cities with the fastest growing rent prices in Europe: https://www.businessinsider.com/the-7-european-cities-where-.... It seems that a stringent rent control law was only imposed in Barcelona this year.
Indeed, NYC rent control has been weakening since the 70s.
And the annual rental increase 1970 to now is roughly double what it was 1920 to 1970. Yet for housing, 1920 to 1970 saw roughly 50% growth while 1970-now saw roughly 20%
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.
TBH, I'm very surprised (disheartened?) that your comment has been downvoted. Your last sentence is very true - economists on the most "conservative" and "liberal" sides of the profession all agree that rent control is counter productive.
You know where housing is still pretty affordable and you can make a decent living even if you're poor? Houston, which famously doesn't have zoning. Granted, this can cause lots of other problems (many attribute a lot of the flood damage caused by Hurricane Harvey to overbuilding), but it seems very clear that if you want to have affordable housing, you have to build an f-ton of housing, and Houston has done that, while all of these over-regulated housing-crisis cities clearly have not.
> Your last sentence is very true - economists on the most "conservative" and "liberal" sides of the profession all agree that rent control is counter productive.
No, I wouldn't say it is true. The things is most people on hacker news would agree that it is so because you have read it so many times before. But they can't actually specify what that actually is because that isn't really known. All that economists really agree on is rent control is unsurprisingly a worse way to allocate resources based on money. But that says little to nothing about the political and social costs which makes the economic discussion largely irrelevant. If rent control decreases market efficiency by 5%, but increases political efficiency orders of magnitude because people no longer fear that building more will force them to move, it is a worthy trade off. Similarly to achieve affordable housing without rent control in an already hot market requires the government to implement changes to the direct detriment of landlords and land owners, which usually isn't popular.
Economics isn't a field like others. It is very overtly political. Unless you know exactly what they can and can't prove, and to what degree they can prove it, it might not be relevant. Which isn't something you will actually find most of the time, because it often isn't.
It's a well-known observation among behaviorists and economists that people usually act based on their selfish interests, as opposed to the best interests of society. If you stand to benefit personally from rent control, you're much more likely to be in favor of it, regardless of its negative net consequences. This is especially true if you're not impacted by those negative consequences.
A recent turning point is that the number of adult renters in major U.S. population centers is beginning to exceed the number of homeowners. As they age, they begin to participate more in the political process (despite the voting age being 18) and carry more clout. You end up with two major blocs of political power: (1) city council members vested in the status quo who want to strictly regulate new housing to preserve "neighborhood character" (i.e., property values); and (2) renters demanding rent control.
Strange bedfellows they may seem, but the two kind of go hand in hand in the sense that they've already got a sweet deal and want to protect it.
Why is it rent-control OR building new apartments?
Houses don't appear immediately and isn't it a good idea to keep people in their homes while the supply grows (building new houses) and the economy stabilizes?
California housing discussions are common here. Plenty has been said about it in yesterday's Approaching Peak Housing Dysfunction in California thread:
If you want a simple answer, carapace's comment stood out to me:
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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?
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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.
I personally think that a lot of it is because, other than preventing all development there is no way to insure that the building next to your house won't be some soulless, concrete eyesore or something else that lowers property value.
I'd like to see less efforts to demonize NIMBYism and more efforts to eliminate the factors that make NIMBYism necessary.
>> I personally think that a lot of it is because, other than preventing all development there is no way to insure that the building next to your house won't be some soulless, concrete eyesore or something else that lowers property value.
Primus, the people with the 20 million dollar Malibu mansions don't want their view spoiled by a 20 story affordable housing tower. So they use ecological impact studies and similar tools to enforce an impenetrable NIMBY shield.
Secondus, the people with the 20 million dollar Malibu mansions are the ones who pay for the politicians' campaigns.
This is because economists are shills that collect their paychecks from the rentier class or their cronies. People that actually understand markets and business don't work as economists, they are too busy getting rich by trading or creating.
Unearned income is obviously a net economic drag. I'm not saying there shouldn't be any, I want to retire some day too. In fact in German the word for retiree is "rentner." The problem comes when there is a permanent rentier class that simply extracts rents from the working economy. They are parasites. Most of the valid criticisms of capitalism are actually just criticisms of excessive rent-seeking. And that can exist under any economic system.
If you take the worst version of a policy then it is very easy to criticize and get a consensus. That doesn't mean it's not possible to have a rent stabilization policy that can both enhance housing stability without dramatically distorting the market.
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.
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.
This particular constraint seems poorly thought out, any property that has suffered from poor maintenance will need to seek approval before renovating - including issues that will compound depreciation. Bad pipes in a building significantly lower the value of a building (since that's super pricey to fix) - but that value drop is multiplied over time as water damage becomes more frequent and widespread.
I would hope that any board would provide no resistance when health related renovations are on the table - slum lord apartments with mold problems can have life long effects on any occupants forced into the living situation by their income.
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.
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.
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.
So rent control is cheating? Let's keep prices low without allowing supply to grow to meet demand by zoning for larger buildings and cheaper dwellings.
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.
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.
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?
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.
. 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.
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.
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.
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.
I mean, if you present rent control as something that just happens in isolation, as the last policy ever, then sure, it wouldn't work. Otherwise you might have to confront the idea that government might, say, establish rent control _and_ build houses. Shocking.
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.
