Rent control, as flawed as it may be, aims to solve a real socioeconomic problem: people being driven out of their homes and neighbourhoods by rapidly rising costs.
Proponents of a free market solution to this problem point out the disincentive effect it has on building new rental housing by depressing possible profits. Getting rid of the price control should encourage building and thus, by increasing supply, keep rental prices low... BUT. Won't profits be kept low then, perpetuating the disincentive to build? I mean, If depressed profit opportunities are the problem, housing cost must rise for them to become enticing.
So, as I understand it a free housing market, all other things being equal, cannot provide a solution to the "people being driven out of their homes" problem.
All you need to understand: if rent control or price ceilings worked, why not apply it to clothes or food? I mean food should affordable to all right? This is the problem that we don't teach basic Austrian economics in high school.
>Rent control, as flawed as it may be, aims to solve a real socioeconomic problem: that I was here first.
FTFY. It really boils down to that. Is it a hardship? Sure, but really insidious way that rent controls hurt society is stealing from future generations to benefit folks in the present who already are being given a sweet heart deal. It does so by creating incentives to block any redevelopment. The problem with rent control is that, where it is in effect, it is the primary cause of the exact problem it is trying to solve (but only for incumbents).
If we really cared about people's stability, we could simply create a system where maximum rent increases are limited, but the percentage increase goes up every year. E.g. max rent increase year 1: 1%. Year 2: 2%. Year 3: 4%, Year 4: 8%... etc. If the rent ever doesn't double, the percentage increases start over. You get prevention against wild changes in rent, and you've got about a decade before seeing potentially dramatic rent increases, but rents can still get back to market levels given enough time.
> Maximum rates of increase per year is a type of rent control. It is, where I live, based on inflation, tax increases and investment in the building.
Where I live, we would call laws that allow rents to return to market-rate eventually "rent-stabilization," and laws that keep below market rates indefinitely "rent controls." I think in most of the examples we are talking about, especially in the case of Sweden, we are talking about the latter.
>Do you think people being driven out of their homes and neighbourhoods by rapidly increasing housing costs a problem?
They aren't being driven out of "their homes." They hold a lease to temporarily occupy a residence that is the property of someone else. Nobody likes to frame it this way, but it's what's actually happening.
I want to keep people in the cities they want to live in, but not just for this generation. If we want to let people live in cities they want to live in (even people who already live there), we need to just supply the amount of housing to bring the cost down... which is doing exactly the opposite of "protecting" people in their current housing by locking it down in perpetuity.
Rent-control makes perfect sense for people who receive it. When viewed through Rawls' veil of ignorance, it is obviously, wildly unjust. If we want to deal with inequality in housing, we need to deal with the monetary inequality, and not create a band-aid, like rent-control, that actively makes the problem worse in the long run.
I think the main reason why rent-control is used is that people don't want their city to change, but they don't want it to become more expensive. Rent-control allows people to have their cake, and eat it too. It just comes at the price of creating a type of informal aristocracy.
> They hold a lease to temporarily occupy a residence that is the property of someone else. Nobody likes to frame it this way, but it's what's actually happening.
> Rent-control allows people to have their cake, and eat it too. It just comes at the price of creating a type of informal aristocracy.
So somebody who inherited property which their grandparent bought 40 years ago (for super cheap) and never had to worry about anything because of that is OK. But laws that try to limit speculation and exploitation of people who were not so lucky… that is creating informal aristocracy.
Sorry to break it to you but the aristocracies are already in place and rent control is one of ways how societies try to tackle them. I personaly dont think rent control is very effective one but somebody is atleast trying to do something.
I'm not here to argue "capitalism good" ... I'm here to argue that indefinite rent-control is not only an ineffective solution at solving the very problem it intends to solve (it makes it worst), but it also morally objectionable from a Rawlsian perspective.
As I said before:
>If we want to deal with inequality in housing, we need to deal with the monetary inequality
So when you say things like:
>So somebody who inherited property which their grandparent bought 40 years ago (for super cheap) and never had to worry about anything because of that is OK.
I'm confused, because the issue of property ownership and inheritance is it's own issue. Trying to solve the property ownership problem with a make-shift scheme like perpetual rent control, again, makes things worse. This problem is notable, and particularly tricky, because the soviet union (urban russia, afaik), had housing problems very similar to the ones of Stockholm on account of the fact that it was politically unpopular to redevelop city centers to increase housing capacity, and instead you get large undesirable housing blocs on the outer edges of cities, simply because all the incumbents wanted to keep their valuable properties, even though they weren't technically owned.
The problem of unaffordable housing is solved by creating and incentivizing oversupply.
Let's say I accept your phrasing and naming of the problem & solution.
Given that one big consequence of managed housing economics is depressed profits, how can "free market" supply increases lower housing costs? Won't profits suffer then? Reducing incentives to build?
As I see it, and said in the original comment, for supply to increase, price cannot decrease. It can only increase for building to be more enticing than with rent stabilization/control.
Not sure how this is beneficial to future generations.
People seem to think I'm arguing for "free markets" because I'm arguing against rent controls. I'm not. In fact, quite the opposite. I'm just recognizing that people respond to incentives, and we need the incentives to be aimed at lowering housing costs and not just "protecting" incumbents.
The problem of unaffordable housing is solved by creating and incentivizing an artificial oversupply of housing.
There are many ways to do this. Vienna, for example, did this with public housing. Econ nerds will argue for a land value tax. Houston, Texas, does it in the worst way possible... by creating an unsustainable sprawling mess that will collapse in exactly the way that Strong Towns predicts.
>how can "free market" supply increases lower housing costs?
Ultimately, if we eliminate the political/regulatory constraints for the sake of argument, the cost of housing is just the marginal cost of building the next unit of housing. There isn't any way around that, so if you want to live in Manhattan, say where high rises exists, the marginal cost of housing will be more expensive than, say, a tiny house in woods somewhere.
If that marginal cost of housing becomes unaffordable, even for the government, then we have a real economic problem that needs to be solved apart from housing. We are dealing with that in California, as simply the cost to actually build something is has become so inflated, that it is unaffordable for the city to even build public housing.
How we can get people to create an oversupply of housing in a private market, we could do in various ways. Property taxes is the easiest: land value taxes, or say, high property taxes with a large discount for each resident that lives in the taxable area. Ultimately, in this view, housing should be a cost... not an investment. Because under the rubric I put forward, there is no reason housing should appreciate in price in real terms far beyond the marginal cost of the housing itself.
While there are ways to do this practically, the problem is that they tend to be politically unpopular for the reasons I listed earlier... people don't actually like change, or density, and will often vote against it whenever they can. Dealing with this is a political problem... one that requires having difficult conversations with both capitalists and socialists about what we actually want, and whether we want affordable housing, or whether we want a "kind of place" to live in, because we usually can't do both in the most desirable areas to live.
It's a tough problem, and it's one I've thought deeply about for decades as I've unfortunately grown up in, and live in since, high-demand areas with increasingly unattainable housing situations, and I've heard all the argument, and think most people are not typically concerned about creating sustainable solution over quick-fixes.
And do you think prices have to increase so that you can have an "artifical oversupply" of housing?
And I thought you were advocating for free markets, yes, since you talked about "market rate". Sorry for the wrong inference.
And just to be clear, I'm not a proponent of rent control, maybe rent stabilization as you said. I think, in general, people being able to keep living where the lived for a long time is a social good of great value and that we should try to implement housing policies that will make that possible.
>And do you think prices have to increase so that you can have an "artifical oversupply" of housing?
No, prices and rents in the most desirable areas should creep down toward "the marginal cost to create housing" as we create an oversupply. It will never actually get there, because people will need/want to create a profit, but it should find its way toward an equilibrium near there.
The only reason why they might bump up temporarily is only that new housing is more expensive than "used" (existing) housing, so when new housing comes on the market it, it becomes the most desirable, and is priced the highest, but that should reduce the price of existing housing.
This is your basic supply curve, though many people will argue (without much sense), that supply curves somehow don't apply to housing.
>And I thought you were advocating for free markets, yes, since you talked about "market rate". Sorry for the wrong inference.
I'm a strong believer in markets generally, though not necessarily "free" markets, because I think incentivizing and disincentivizing things we collectively want/don't want is one of the best ways to create general welfare for most people.
The reason I advocate for markets in housing is two-fold.
Firstly, housing is notoriously easy to hoard and sublet, which makes it ripe for abuse in a subsidized system. If we give people housing at significantly below market prices (that is prices below what they could get an equivalent unit for today), we should expect "dishonest" people to sublease that housing to capture that value. This is commonplace in San Francisco, where I live, that folks with rent-controlled units regularly bring in roommates or subtenants and charge them market rates, and just pocket the difference. Yes it's illegal, but it's a civil matter, and would require an expensive lawsuit against your roommate to solve, which would then likely end up with you looking for another unit at market rate anyway, so it's impractical to enforce.
The other reason is land-hoarding. As we see in Stockholm, and in long-term rent controlled tenants in San Francisco, we see people paying below market rates, and then they tend to have more space than average. This is simply cause by the fact that, all things being equal (in price), more space is desirable to less. So this is a major inefficiency for everyone else who needs housing and would be willing to settle for less space. My utilizing markets, we will see people more willing to use space efficiently being allocated more units.
This is why I want to see markets (or at least lotteries), with at least semi-regular lease renewals, even in socialist systems. When housing isn't perpetual, people will vote to provide that good to everyone, and not just themselves (especially when difficult trade-offs must be made to do this). I want people to have skin in the game, where they know that if we aren't taking care of everyone, they themselves are at risk of being left behind.
My question still lingers: since housing prices as they are now disincentivize building because of poor profit opportunities, how can removing rent control spell more profit opportunities for private interests without increasing price?
If prices stay somewhat the same without rent control, where is the incentive to build more housing?
>since housing prices as they are now disincentivize building because of poor profit opportunities
I'm confused by this. Housing prices are high, exactly because it's effectively impossible to build housing in the most expensive cities. Building housing in these cities is extremely profitable, it's just difficult, if not impossible, to build.
>The typical applicant currently waits a staggering 627 calendar days before obtaining a full building permit from the city to construct a multifamily housing project, and 861 days before gaining the same approval for a single-family residence, the analysis found.
This has little to do with poor profit opportunities insofar as housing is concerned, and everything to do with incumbents (both home-owners and rent-controlled renter) explicitly trying to thwart new construction wherever possible. Home-owners want shortages to protect their property values. Rent-controlled renters want to block development because it might incentivize their landlords to redevelop the property they live in (this is specific to California laws).
>how can removing rent control spell more profit opportunities for private interests without increasing price?
>If prices stay somewhat the same without rent control, where is the incentive to build more housing?
The answer is volume. If I have one unit that rents for $4000/month, but I redevelop to create 3 units that rent at $3000/month, I effectively increase my profits by $5000/month, while lowering local rents by $1000/month. Everybody wins.
Now, if someone has rent-control at $1000/month, then I'm not going to argue that their rent isn't going to go up. It will, but it should. Because someone somehow living at a price that is artificially $3000/month cheaper than their neighbors is obviously unjust, I see little reason to preserve this inequality beyond political practicalities. Were these volume discounts don't exist, rent-controls are generally benign, however, as discussed before, they won't be benign for long, because the cause a lack of development, which will create a shortage over time.
I obviously think these systems are entrenched, and should be phased out. I don't think that rent controls should be preserved indefinitely, but even if we were to completely change the system tomorrow, I understand that people have built their lives around these inequalities, and should have 5-10 years (minimum) for these inequalities to be eliminated.
So yes, prices will go up, displacing people. You don't need to have 2000$ more in rent per month to be driven out of your neighbourhood. 200$ may be enough.
And then, if gentrification, immigration, tourism or any other external "shock" brings new, richer or more desperate demand for housing, landlords can raise prices as high as they can go, making housing precarious for lots of people.
As per your comment, I'd say zoning laws and NIMBY are bigger fruits hanging lower than rent stabilization.
If you are willing to maintain laws that perpetuate artificial shortages and therefore high rents, and the decades long wait lists that this type of policy creates, and tens of thousands of lives, if not hundreds of thousands of lives that this will make worse in every city, all to prevent people who have been living at far below market rates, likely for decades, then I would say we have a different moral calculus.
I see robust public housing as only sustainable solution for people getting priced out of a neighborhood.
>As per your comment, I'd say zoning laws and NIMBY are bigger fruits hanging lower than rent stabilization.
Again, I support some form of stabilization, but my entire point is that the NIMBY policies are, in large part, caused by the policy of rent-control itself. I could go into how 'golden handcuffs' cause this, but I feel like I've talked your ear off too much already.
You obviously care a lot about this, I only wish I could communicate my complicated position better.
In the end, I think we agree more than we disagree. Heheh.
I also think that rent control that fix a price without any way to increase it are harmful. I'm definitely not willing to maintain any of these.
Not sure about rent control and NIMBY, though. Property owners, be it condos or houses, are pretty much also in thrall of this pernicious mind disease.
And yes, I do care a lot about this. Did it show? Heheh. I think we made great strides here and thank you for your time and patience.
> They hold a lease to temporarily occupy a residence that is the property of someone else. ... it's what's actually happening.
That's not what's actually happening.
In Sweden, a first-hand rental agreement is effectively for life ... actually, even longer as the tenancy be inherited by your spouse and children. The regional rent tribunal can and do override a landlord's decision to terminate the lease.
I do not think you are using the term "aristocracy" correctly.
If you are talking metaphor, the "lord" in "landlord" is a far clearer sign of aristocracy. Capital can be passed down through multiple generations, as the Wallenberg family well knows - now in their fifth generation of ownership.
Up until 2003 the Kingdom of Sweden had an actual aristocracy.
You are arguing semantics, I am arguing equivalence. If you have a piece of property, that is reserved for your exclusive use, at a price that is below market value, in perpetuity, that can often be passed to your children… then I think we are talking about a distinction without a difference.
Perpetual and especially heritable property use (regardless of technical ownership), that exists well below market rates, is a form of landed aristocracy, just without the pomp and titles.
I would say the very same thing about property owners who have perpetual and heritable property tax exemptions or perks, and I do in the case of California.
I don't think you understand what aristocracy means, I don't think you understand what the equivalency is supposed to be, and I don't think you understand what rights you have with a first hand contract in Sweden.
I know you don't know what a first hand contract means, because you incorrectly asserted leases let someone "temporarily occupy a residence", when in Sweden it can be for the life of the renter.
Furthermore, while that right can be extended to your wife or children, technically speaking it isn't "inherited" and it isn't simply passed on to your children like a title of nobility would be. You must have lived together for several years, making your home actually your wife/child's home too.
Instead of "inherited" like I wrote, it's more like your landlord is required to recognize that additional resident as a new leaser, even if that name isn't on the original contract.
And unlike aristocracy, as a renter, you have only limited abilities to remodel. You can't decide on your own to convert the living room and dining room into a great room, or to tear down and replace the bathroom. Only the landlord can make that decision.
So, how this is like an aristocracy?
> If you have a piece of property, that is reserved for your exclusive use
That's another way I can tell you are not Swedish.
In the US you can buy up 160 acres, post "no trespassing" signs, and have the government help enforce your exclusive property rights.
In Sweden, that prohibition is illegal - most of your land (except that closest to your home) is not for your exclusive use. Others have the right of public access, and trying to enforce exclusivity would considered distasteful, if not immoral.
> very same thing about property owners who
You may not like the obligations under the Treaty of Guadalupe Hidalgo, and probably don't like various perpetuity clauses in treaties made with Native American nations, but that doesn't make it meaningful to say those property owners who have perpetual and heritable property tax exemptions are therefore members of an aristocracy.
Firstly when I say a kind of aristocracy, I mean exactly that a kind of one.
I mean I'm not really finding anything I disagree with here. I'm familiar with right to roam laws, but to say they allow "access" is in someone passing through, is still, for practical purposes "exclusive use."
When you say it isn't "technically" inherited, I mean only that it is de facto inherited, again, a kind of aristocracy.
I cannot say I am super familiar with the Treaty of Guadalupe Hidalgo, as that is from nearly two centuries ago, and was the result of war. But I generally agree with your point about Native American nations. I see the argument that Native American nations as generally more reasonable in that, they are treated as at least quasi-independent states, but I wish that that independence were either more fully recognized or eventually sunset, because, yes, I see having a special class of people within a nation as inherently problematic, and while I wish the circumstances that brought us to a the place we are were different, we are born into the world that we are born into.
When a system of de facto privileges, especially when heritable, is set in place in a society, I'm not going to in support of it, especially when, those privileges make life more challenging for those who weren't in a place to take advantages of them when they were conferred.
Repeating myself, you do not know what aristocracy means.
In late Middle Ages England, I could be a copyhold tenant to the mesne lord, with the copyhold passed on by inheritance to my heir, following the traditional inheritance scheme of the manor.
I do not own the land - the mesne lord does. Yet I have the right to live there, and the right to pass on that right through inheritance.
According to you, that makes me - a copyholder - part of the aristocracy?!
No. That's an absurd re-definition.
You may want the equivalent of new enclosure laws so that complicated traditional land use practices which give a peasant the inheritable right to graze a few sheep in the local commons is replaced by the simple exclusive control of a local lord. That's how lords and capital holders traditionally gain more power and control.
That still doesn't mean it's meaningful to say those peasants were part of the aristocracy.
You grew up in a culture which prioritizes a certain view of land ownership that dates back the feudal system, then over time the local lords gained strong control over the land and government, followed by the imperial era where land possession and exclusive control brought in untold riches. You and I come from an ex-colony of that imperial system, which respected private land and exclusive ownership only when it involved certain people - for others it could be taken by force. "A man's home is his castle" was only valid for rich white men, and those with implied fealty to rich white men (aka "real Americans").
Sweden never had a feudal system, nor (despite being a kingdom) a strong form of aristocracy. Socialism has a much stronger history here than in the US. Its traditions are therefore different. Don't try to interpret it all through what appears to be an understanding of 19th century English aristocracy.
And even if I'm completely wrong, who care? Inheritable land ownership and nepotistic transfer of corporate ownership lead to extreme centralizations of power which cannot be matched by a Swedish rental agreement. The Wallenberg family controls a substantial fraction of the Swedish economy. A first-hand rental contract had limited use of about 80 square meters.
I will just point out that most everywhere i know housing has been unregulated and in hands of free market like forever. And its not like it works.
In bigger european cities gets to wierd situations because investors buy houses/flats as investment and know that they will make big $$$ just over time as the price of the flat increases. Renting it out is work, flat gets used (looses value) and whats worse if you (and all other investors) keep it empty you increase prices of rent/property everywher. In other words you might hurt your investment. So people keep it empty or set insanely high rent prices exploiting the desperate people looking for anything.
Its crazy how many empty flats around me there are yet we are in “housing crisis”.
Instead of price control first regulation we would need is not allow empty flats just laying there. Also we should accept that housing is human right and not allow it to be tool to exploit masses. So stop home speculation by for example progresively more taxing owning every home after the first one. Companies that own/manage rentals should be under extra scrutiny just like energy/water companies are. Having safe space to sleep is as much human right/need as access to water.
If mom and pop own a building and live in the building, then I don’t agree with this.
But if an investment firm owns multiple properties, then yes. This seems like a useful regulation in a housing crisis. There are rules in finance specific to finance markets. Why not rules specific to housing that regulate perverse situations?
Proponents of a free market solution to this problem point out the disincentive effect it has on building new rental housing by depressing possible profits. Getting rid of the price control should encourage building and thus, by increasing supply, keep rental prices low... BUT. Won't profits be kept low then, perpetuating the disincentive to build? I mean, If depressed profit opportunities are the problem, housing cost must rise for them to become enticing.
So, as I understand it a free housing market, all other things being equal, cannot provide a solution to the "people being driven out of their homes" problem.
But, please, enlighten me if I'm mistaken.