Like all informed people, I've always taken it for granted that rent control laws, while obviously nice for the occupants and rent controlled apartments, are ultimately quite inefficient and harmful to the overall housing situation in an area. But Tyler Cowen's evil twin Tyrone turns out to be able to mount a pretty decent case for rent control. At the end of the day, this still probably isn't very good policy, but the proposition that if we can get "everyone into a lower price, lower quality equilibrium for residences, that's for the better" is certainly something I can endorse. Of course before we go around trying to accomplish that by means of rent control, the simplest thing would be to scale back (or eliminate) the mortgage interest tax deduction which has everyone in a higher-price, higher-quality equilibrium than they'd otherwise be in.
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Rent Control
08 Dec 2007 03:21 pm
Comments (35)
The main point of rent control is NOT to increase the supply of affordable housing. Other policies are needed for that.
The point of rent control is:
- To preserve diverse neighborhoods, i.e. ones with a mix not only of people of different incomes but also age and occupation. This is actually quite important for healthy local economies, not to mention to the chracter of cities of like New York and San Fransisco.
- To allow long-term renters to remain in their apartments. Economists tend to think that the only signifciant right to a peice of property is owenrship, but most people recognize that long-term residence creates a moral right to continued residence that should be recognized by law.
When property values increase in a neighborhood and the long-term residents (and the businesses and amenities they supported) are all forced out, taht's Bad Thing. And that's what rent control prevents.
What lemuel said. I can't believe that the security of knowing your family can't be kicked out of your house because your landlord decides to double your rent is so callously thrown aside here.
your landlord decides to double your rent
Hmm, there are two different policies. One, called "rent control", is when the local government decides what the amount of rent is. The other one says that the tenant can't be kicked out and the rent can't be increased more than X% yearly as long as it's the same tenant. That, as far as I understand, is not 'rent control'.
Abb1,
Don't know how things work in Switzerland but in the US the second thing is what's called "rent control." Direct setting of rents by local gov't does not exist in this country, as far as I know.
"everyone into a lower price, lower quality equilibrium for residences, that's for the better"
We have this, it's called Oklahoma.
Forget Switzerland, it used to exist, in Boston in NY for sure. I think maybe it was repealed in most places in the 1990s.
But the second kind of policy is just common sense, I don't know why he thinks that it's obviously "quite inefficient and harmful to the overall housing situation".
Er, Boston and NYC, obviously.
lemuel -
No, abb1 is right. Rent *control*, in which cities either formally set rents or freeze existing rents, was implemented in a lot of US cities mid-century. This proved to be a complete clusterfuck, and these cities mostly shifted to "rent stabilization", in which the city sets a maximum allowable yearly rate for rent increases, though pockets of the old systems remain here and there.
I'm not sure that this idea of raising taxes to put people in lower quality housing is going to be a big winner with the voters.
Senescent, when is the last time a city set rent? Decades ago? What you call stabilization is what most people call rent control. At least they did in Boston when they yanked it ten years ago.
I'm not sure what Matt thinks he's talking about here.
For more economic analysis on the circumstances when rent control can be efficient, see this article. Rent control might well be inferior to tax and transfer programs, as R Johnston suggests, but it's often better than nothing -- and nothing is typically a far more realistic alternative than is a tax and transfer program.
Living in Cambridge, MA before and after the period in which rent control was repealed (1995-- I admit, I voted to end it), I got a chance to see how real life compared to what we were taught in our econ 101 textbooks. Econ 101 is correct that rent control creates a shortage of housing-- it creates a shortage of expensive housing. There was plenty of low-quality places available to live in, if you were so inclined (as I was, being a student). If you were a well-paid professional looking to spend money on a nice place, you found yourself in a bind and naturally blamed rent control for the shortage.
The end of rent control increased the housing stock for those who had a desire to move into $1500 - $2000/month apartments that previously hadn't been available. If you weren't in this group and were looking for a cheap, run-down place to live, you got screwed, unless you could leverage some of your social connections to find openings in inexpensive units, and even then, you were at the mercy of the whims of a landlord who might decide to boost your rent by 50%.
Part 2 of Abb1 analysis says the renter "can't be kicked out as long as . . ." This has nothing to do with rent control but has to do with what is called "eviction control." Say the landlord raises the rent lawfully and the tenant pays his rent. What if the landlord wants to evict the tenant not for non payment of rent, but because he wants to rent it to his son or daughter or just because as long as he is not discriminating against the tenant or retaliating against him for his complaining to the govt about conditions of his premises. So why can't you just give the tenant a 30 or 60 day notice to quit? Well, eviction control laws say you can't evict the tenant who is paying his rent timely unless you have a "just cause"(he is violating a term of the lease etc.) Otherwise he or she can stay for a long time unless you go out of the rental business or say your property is foreclosed on and the buyer evicts you.
the simplest thing would be to scale back (or eliminate) the mortgage interest tax deduction which has everyone in a higher-price, higher-quality equilibrium than they'd otherwise be in.
I'd rather like to see a credible explanation of why Britain has been swept up in the real estate bubble along with Sweden, Spain, etc. despite having phased out mortgage interest deductions in the 1990's.
http://www.foreignpolicy.com/story/cms.php?story_id=3976
Has MY ever done one of these opposite day things? They look like fun.
jenny
For "rent stabilization" to be fair, there must be an equivalent "property value stabilization" for property tax purposes, I would think.
One caution here would be that, even if we assume "rent stabilization" to be a good policy, it needs to take into account changes to the costs incurred by the landlord. If rents are stabilized at 5% increase a year and costs go up 10% a year, then eventually you are forcing him to run a charity.
"Hmm, there are two different policies. One, called "rent control", is when the local government decides what the amount of rent is. The other one says that the tenant can't be kicked out and the rent can't be increased more than X% yearly as long as it's the same tenant. That, as far as I understand, is not 'rent control'."
This is rent stabilization, which is much more intellectually defensible than rent control.
I live in a rent stabilized apartment in NYC, and I'll admit that the longer I live here the better rent stabilization looks. Its one of those things that are terrible in theory, but for which repeal would create worse problems in practice.
Arguments against repealing rent regulation:
1. Legally, if the vacancy rate in New York rises above 2%, much of rent regulation here is null and void. So its not rent regulation that is distorting the rental market here nearly so much as the low vacancy rate.
2. There is a fair amount of government manipulation of the real estate market in New York separate from rent control/ rent regulation. The city government pretty much functions as an arm of the real estate industry, as is the case in San Francisco, plus the construction unions are a factor. This means addressing rent regulation, alone, would likely backfire.
3. Rent regulation in New York has tended to be relaxed since World War II. It at least is a constant factor. Therefore it can't explain the increase in housing costs that has taken place in the last five years. If you want to get housing costs in the city down to 1990s levels, you have to explain why they skyrocketed after the 1990s, and address that.
4. If you were designing a housing policy in a city from scratch, you would want to promote long term tenancy, and the ability of teachers, police, firefighters, and people who fill other useful middle income jobs to live within the city limits. This in term implies either a robust public housing program or some form of rent regulation.
The city and state has been phasing out both rent control and rent stabilization, by expanding the instances where apartments are decontrolled, and approving larger rent increases. I would continue with this approach, and alsoI ban any transfer rights to rentals (ie you couldn't "inherit" a rent controlled apartment). Ultimately, I think existing rent regulation bears little blame as to why middle class people increasingly can't afford to live in New York.
This post is supposed to be from a raving liberal? No wonder our country is going down the tubes. Rent control or stabilization, whatever you want to call it, is important for just the reasons that Mr. Pitkin outlines above. Seems like the free market kool aid drinking liberals who are the ostensible voice of the left in the US forget some basic things about what makes a humane society.
We have agreed to subject ourselves to government for the common good. As in the predatory lending crisis, read sub-prime crash, the bottom line motivation of a landlord, like a money lender, is to get the most money for their property. The worth of their service is basically intangible above and beyond operating expenses. With rent control the year to year increase of the return for that service is tied to an economic index. There used to be similar regulations for the lending industry. I think we can all see how well getting rid of those rules worked out.
In a market like San Francisco, where I have chosen to remain in the same flat for 20 years, there is no 'affordable new housing' available. For some unknown reason developers prefer building million dollar condos... I just can't quite figure that one out. The other flats in my building have turned over many times and are rented at the very high market rates of one of the world's most expensive cities. My landlord knew the law when they first rented to me and I have upheld my rental agreement ever since. Left to unregulated market forces there would only be rich folks living in my city.
Thankfully some civic leaders understand that a city needs people from the complete economic spectrum to be livable. It seems our college educated liberal idiots do not share this enlightened viewpoint. I guess I'm not surprised but I'm kind of shocked to see the 'law of the jungle' economic model given such an offhand amount of respect among the faux progressives on this blog.
PS. To answer the above point about increasing costs in SF there is a mechanism for passing on those increases and building maintenance, i.e. new roofs, plumbing, electrical, etc.
One reason that developers don't build low income housing in "liberal" cities is because it is difficult to evict "difficult" tenants.
Imagine if restaurants/fast food places were not allowed to "evict" patrons - e.g. suppose that if a patron eats breakfast at a restaurant once, that restaurant is committed to serve him for the rest of his life at the same price.
How many restaurants would open under these conditions?
"Imagine if restaurants/fast food places were not allowed to "evict" patrons - e.g. suppose that if a patron eats breakfast at a restaurant once, that restaurant is committed to serve him for the rest of his life at the same price."
What are you smoking dude? This is the most absurd argument against rent regulation I've ever heard. Please explain to me how these two situations are at all equivalent. Imagine if you could reason beyond the 3rd grade level. Sheesh, what an idiot.
Developers don't build low income housing because there is no one to buy it you tool.
Please go back to Free Republic where people will pat you on the head for putting "liberals" in their place with juvenile genius logic like this. I'm afraid you've stumbled onto a grownup discussion and you're too dumb to realize it.
I think one of the reasons why limiting the annual rent increase makes sense is purely economic.
It's usually very expensive to move. Not only money-expensive, but it's also a lot of work, hassle. You don't want to change your children's school, etc.
This is an excellent opportunity for your landlord to prey on you. He/she can increase your rent just as much as she knows it'll be worth for you to agree to pay to avoid moving. If most landlords do it and if they do it every year (and why not, they will if they can), then prices will go too high too fast and the system will inevitably collapse.
It's not THAT expensive to move.
From the landlord's perspective, it's expensive to look for new tenants and to keep apt. vacant during the search.
I've been on both ends of the tenant/landlord side and you want to keep good tenants happy.
A lot of time renters come to you by word of mouth and establishing a reputation as a jerk isn't helpful.
"The main point of rent control is NOT to increase the supply of affordable housing. Other policies are needed for that.
The point of rent control is:"
That renters greatly outnumber landlords, so screwing over the latter in favor of the former wins you net votes. People, enough with the economic rationalizations, we're talking about a policy implemented by politicians here, not economists.
Rent control might, hypothetically, represent an attempt to achieve a valid public policy, rather than just buy votes. It would still fail a fundamental test of fairness, in that the government's efforts to achieve public benefits are supposed to be paid for by public taxes.
It might, for instance, be 'efficient' for the government to simply seize office buildings when it needs office space, instead of buying them at "market value" and paying the expense out of general revenues. But we don't do it. In rent control we do.
Psj, I suppose it depends on the supply/demand situation and individual circumstances. Still, I think it would be a fair generalization to say that the landlord usually has far more leverage. To balance it out you either need some tenant organization or government regulations.
Matt's first good economic point! (that I've read at least)
the mortgage interest deduction and similar policy encourages overconsumption of housing!
Houses are simply too nice, too large,amenities can be extravigant
In rent control areas, when people build new multifamily housing it is very high-end (condos or lux rentals) Of course there is low-income/slum housing built- I'm referring to what real people do with their own money. People want to keep new units away from the rent control market.
It is perverse cycle that the newer housing is ever more expensive and the perverse hand of government is steering this outcome
It's not THAT expensive to move.
Have you checked out the rates of a reputable moving company, lately?
It would still fail a fundamental test of fairness
As Republicans are so fond of explaining to the poor or anyone else who suffers some kind of economic hardship or dislocation, life is not fair.
"It's not THAT expensive to move.
Have you checked out the rates of a reputable moving company, lately?"
That's like responding to a statement that it's not all THAT expensive to clean your house by asking if somebody has checked into the prices of reputable maid services. People DO manage to move themselves, you know.
R Johnston: I would assume that you're talking about something like Section 8 vouchers, which are all fine and good. Like subsidized student loans, though, subsidizing rents as such increases the demand for housing, which increases rents. Now, this may not matter if there isn't much demand for housing in the particular market you're trying to find housing in, but that's not the case in NYC.
Jim: the problem with the distinction that you draw between rent regulation (the term I prefer, because the legal distinction between "rent control" and "rent stabilization" is determined locally and thus hard to talk about on a national scale with some consistency) and "eviction control" is that without rent regulation, eviction control would be utterly meaningless. Written leases rarely exceed two-year terms, and oral landlord-tenant relationships are only month-to-month. This gives a landlord the option of getting rid of, let's say, a tenant who we think should be protected from eviction by just raising the rent a huge amount when the lease or tenancy expires.
Glaivester: in NYC, the percentages that landlords are allowed to raise rents every year are set by a body called the Rent Guidelines Board. The Board is to consider the costs of landlords in setting rents, including property taxes, insurance, oil prices, etc. In addition to that, landlords are allowed to apply for what's called a "hardship exception" to rent regulation under certain circumstances. Finally, it bears noting that the only landlords subject to rent stabilization are those who own buildings with six or more units, so we're not talking about a homeowner who needs rental income from the unit upstairs to make mortgage payments, but someone (most often development companies) who are in it as a business.
Psj: in the absence of rent regulation or a lease, landlords are allowed to evict tenants for no reason or any reason. If there's a lease, it's drafted by the parties and they set the terms by which a tenancy may be terminated (and the leases are boilerplate forms written by landlord's attorneys). Regulatory schemes give landlords an obvious incentive to evict tenants just to get rent increases, so they provide that evictions are only allowed for "cause." So it's simply untrue that landlords cannot evict tenants who approximate bad restaurant patrons.
Brett Bellmore: Tenants do exert some political clout (in NYC at least). But the real estate industry is also immensely powerful. If you analyze rent regulation in this context, you also have to take that into account. And you should also take into account that the government enables real property ownership and the possibility of making lots of money off of real property ownership. Isolating rent regulation as the one instance in which government involves itself in real estate either ignores the whole context or assumes that the government should get just as much involved as to insure that real property developers and owners make lots of money, but not so much involved as to offer protections to tenants.
R Johnston: I would assume that you're talking about something like Section 8 vouchers, which are all fine and good. Like subsidized student loans, though, subsidizing rents as such increases the demand for housing, which increases rents. Now, this may not matter if there isn't much demand for housing in the particular market you're trying to find housing in, but that's not the case in NYC.
Jim: the problem with the distinction that you draw between rent regulation (the term I prefer, because the legal distinction between "rent control" and "rent stabilization" is determined locally and thus hard to talk about on a national scale with some consistency) and "eviction control" is that without rent regulation, eviction control would be utterly meaningless. Written leases rarely exceed two-year terms, and oral landlord-tenant relationships are only month-to-month. This gives a landlord the option of getting rid of, let's say, a tenant who we think should be protected from eviction by just raising the rent a huge amount when the lease or tenancy expires.
Glaivester: in NYC, the percentages that landlords are allowed to raise rents every year are set by a body called the Rent Guidelines Board. The Board is to consider the costs of landlords in setting rents, including property taxes, insurance, oil prices, etc. In addition to that, landlords are allowed to apply for what's called a "hardship exception" to rent regulation under certain circumstances. Finally, it bears noting that the only landlords subject to rent stabilization are those who own buildings with six or more units, so we're not talking about a homeowner who needs rental income from the unit upstairs to make mortgage payments, but someone (most often development companies) who are in it as a business.
Psj: in the absence of rent regulation or a lease, landlords are allowed to evict tenants for no reason or any reason. If there's a lease, it's drafted by the parties and they set the terms by which a tenancy may be terminated (and the leases are boilerplate forms written by landlord's attorneys). Regulatory schemes give landlords an obvious incentive to evict tenants just to get rent increases, so they provide that evictions are only allowed for "cause." So it's simply untrue that landlords cannot evict tenants who approximate bad restaurant patrons.
Brett Bellmore: Tenants do exert some political clout (in NYC at least). But the real estate industry is also immensely powerful. If you analyze rent regulation in this context, you also have to take that into account. And you should also take into account that the government enables real property ownership and the possibility of making lots of money off of real property ownership. Isolating rent regulation as the one instance in which government involves itself in real estate either ignores the whole context or assumes that the government should get just as much involved as to insure that real property developers and owners make lots of money, but not so much involved as to offer protections to tenants.
Matt, your neolib roots are showing.
Two anecdotal free market models:
Orange County, CA, has a crashing real estate market because of the mortgage crisis. Since so many (middle class) people are being evicted from their houses, they need to rent apartments. The resulting increase in demand has paved the way for landlords to double rent prices. Financially, this is great, because so much more money is being spent. Humanistically, it blows goats.
In Cincinnati, the same happened about 70 years ago in the downtown area. The rental market priced out all but the rich, who took advantage of the decrease in mortgage prices and fled to the suburbs. The market, which exists in real-time, was too slow to create middle class housing options downtown, causing landlords to hold out too long on dropping prices. Thus, by the time the market caught up, the housing stock was run-down and nearly worthless, making it a slum.
So the free market here will a) fuck the consumer in the short term and b) hollow out the urban core in the long term.
Or zone for mixed use density, darnit.
Punditus,
You're exactly right. In most real estate markets, the economic effects of rent control or tax deductions are dwarfed by the effect zoning law have on property values.
http://www.heartland.org/Article.cfm?artId=10635
Isn't this less a question of "rent control: good or bad?" than a design issue? Some ways of designing rent control policies would probably have bad impacts, and others might have good ones.
Finally, at the end of the thread, Munditus and beowulf got to the heart of the matter. The lack of low-income housing in most areas is driven by the fact that building low-income housing is illegal.
Comments closed December 22, 2007.
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Heads in the Sand
Even if rent control works it's bad policy. Rent subsidies better accomplish the same goal and are uniformly superior. Of course they involve direct taxation and spending rather than hidden taxation through devaluation and degradation of property, but the sane among us would consider that a relative merit.
Posted by R Johnston | December 8, 2007 3:36 PM