What you're missing is that housing is not a normal good.
Sure, there is a housing marketplace, which can provide some correction. But houses are also homes. People are born in them. People die in them. They love them, they cherish them, they fight for them. There's a lot of truth in the saying, "Home is where the heart is."
What you're missing in that scenario is the large number of people who are displaced not just from their fungible, replaceable housing unit, but their home, their neighborhood, their family, and perhaps their city and their job.
Note also there are substantial class issues in the sentence, "Lower income renters move out, higher income families move in." The notion that poor people should take it on the chin because rich people covet their homes is not politically neutral. One could just as well say that it's the rich people, more able to cope, that should bear the burden of market fluctuations.
So I don't think, "is rent control even a good idea" is the right question. It's more like, "Are there more effective ways than rent control to reduce the harm?"
You can use the same argument for any good or service. Tear something away from a person and you can absolutely traumatize them. It can be a teddy bear for a little kid, a car for an adolescent, your laptop, you get the idea.
You can't legislate life into some gentle state. It is what it is. You can, however, smooth out the bumps.
Unfortunately, rent control does the exact opposite. It creates stupidity like this. Where a landlord has to use a lawyer to increase the rent 4X, which is insane on a number of levels. That is one hell of a bump in the road.
Get rid of rent control and prices will be stable. Yes, they will be higher for some, lower for others, but they'll be stable.
You can use the same argument for any good or service.
None of the things you mentioned have the universality of a home, which strikes almost everyone, regardless of demographic. Those who aren't adversely affected by not having a home are notable for being extreme outliers. As wpietri said, housing is not a normal good.
A better way for him to have put it would have been: "Just like the Indiana state legislature can't by statute declare pi to be 3.14, San Francisco cannot repeal the law of supply and demand".
Rent control or not, the law of supply and demand still applies; it just expresses itself in more dysfunctional and unproductive ways.
That's the problem with rent control. Reasonable people can disagree about whether the public policy goal of getting people affordable housing trumps the rights of property owners. But they can't disagree about how many digits are in pi, or about whether rent control works. It doesn't work. It harms everyone in the market except for a lucky subset of tenants.
"Rent control or not, the law of supply and demand still applies... or about whether rent control works. It doesn't work."
Without rent control, I'm pretty sure that a LOT more people would be pushed out of San Francisco. It seems to me that places like San Francisco, New York, and a few other places are not typical of what other areas experience. I know it's fashionable amongst the libertarian set to blame problems on regulation, but there is much more going on here than simple rent control.
The general response from economists seems to be that rent control suppresses growth in the supply of housing that could otherwise address the cost of housing.
Zoning suppresses growth in the supply of housing. Of course, that doesn't mean that zoning is bad by definition. Instead of artificially keeping building height low, you could mandate new buildings have at least so many stories.
San Francisco's problem seems to be that they can't possibly build enough housing to meet market demands without revising zoning restrictions in ways that would make current home owners angry.
I agree with you. But what does that mean? Why is it inherently a bad thing? It could have a dramatic effect upon other areas like Oakland (revitalization) Or maybe it spreads further and wider than the Bay Area or even CA. If those folks are driven out it would change the character of San Francisco. Suddenly it'll be just wealthy people side by side with wealthy people and lose it's appeal. That in turn might take the heat out of the market and recreate more affordable neighborhoods that draw back in future people at lower income levels.
This is an interesting topic. Eviction inflicts a disproportionate harm to those least-equipped to bear it. While rent-control inflicts a purely proportional harm to those best-equipped to bear it. But rent-control also inflicts a difficult-to-characterize harm in the form of stagnant rental construction.
I would be totally cool with a city deciding to make the first tradeoff as a public policy goal, if the construction stagnation (across all rates) could be mitigated. Have there been any successful experiments in that area (I'm only familiar with the craziness of NYC's implementation)?
In San Francisco (the subject of the post), houses built after 1979 are not covered by rent control[1]. This "new construction exemption" was designed to avoid stagnation in rental construction.
Regardless of whether rent control works or not, my point was that it's not pointless to legislate around things like this. 'Laws of nature' get legislated around all the time. Look at violent crime and the natural law of 'might makes right' as one example. Cigarettes here in Australia are another example of legislation changing supply and demand.
As an aside, pi is a fixed constant, whereas 'rent control' is an incredibly complex concept that relies on many other complex concepts - for example, what does 'rent control' mean in a communist country? For a nomadic tribe? It relies on certain concepts around property ownership and capitalism. Which is fine to say it doesn't work as it is in SF, I'm just pointing out that there's a lot more flex in the concept than in the constant 'pi' :)
It is not a crime to take risks. Or to avoid them. Or to enter into contracts on mutually agreeable terms.
Owners risk their capital and defer their own consumption. The renters preserve their flexibility and get more house than they could have afforded to buy and avoid losing their shirts in housing busts.
Sounds like a win-win to me.
Ah, but if you can use the power of the state to give you the economy of renting with the rights of owning, without those annoying responsibilities, then you've really got something!
Making it illegal to be poor or homeless doesn't magically make the problem go away, or making it illegal to use drugs doesn't stop drug use -- in fact Portugal demonstrates that making drugs legal reduces drug use.
You know the single best way to reduce violent crime? It is to increase wealth, people don't risk bodily harm if they have enough money to eat and sleep under a roof.
"econometrics of rent control" brings here. The fairly consistent econ 101 conclusion about rent control is that it never works. If you're talking about another conclusion, what is it?
Huh? The idea was without rent stabilization or leveling, rent would magically be more stable then if mechanisms were in place.
We don't need to argue about this. Rent control has been removed from many communities, and the rent becomes much more volatile without the stabilization control.
There's lots of actual case study literature on this.
These things aren't mere untested hypothesis where our personal politics come in to play - they are well studied.
I think the problem here is assuming terms like stable and volatile equate to better and worse. A lack of rent controls will definitely result in price changes occurring based on supply and demand and therefore much more frequently than with controls. So in that respect they're more "volatile" At the same time that market is much healthier because the prices are transparent and all economic agents can act rationally (My rent goes up 10% each year I'm here that's going to be a back breaker in 2 to 3 more years if this holds up so I'd better start planning a change) Controlled prices might be more stable because they don't change but underneath the surface that volatility is still there and building as it has no pressure valve for release. I'd rather my volcano constantly releases gases and shakes my house occasionally than sits under a cap and gives me no warning sign until it blows after 10 years of building up.
The claim was that markets without stabilization eventually stabilize. However, from what I've read, the markets studied continue to be more stochastic for the long term.
I really think you should look into the research. There's a lot of tested hypothesis and survey analysis in them.
We tend to not treat economics like a science - as if our general education is enough to have an informed opinion. We certainly don't do that with psychology, chemistry, biology, or even softer sciences like sociology and anthropology.
But yet, when it comes to economics, we all have a pretty solid opinion and think we are all fairly well informed.
I encourage you to look deeper into the topic. Attend proseminars at your local university. Watch some graduate level lectures online. And, this is just an encouragement, revisit statistics and calculus --- you'll find out why if you look into 21st century econ.
I've never heard it claimed that getting rid of rent control was a way to stabilize the housing market until this thread. I have heard that rent control creates severe housing shortages, insane competition for existing apartments (like having a renter's resume in SF), and lower quality housing for everyone. To me, it seems you've defeated a strawman.
Sorry, I'm not making this out to be competition. We all come to this discussion with different backgrounds. I'm fascinated by economics. So when I see claims that really aren't backed by the literature I feel obliged to bring it up.
As far as your other claims ... those are harder to measure really.
Rent amounts is a pretty easy number but things like lower quality (how much lower, what kind, where, is it predominant) and higher competition (amongst whom, using what process, which strategies aren't in play any more) ... well those are much harder questions. The microeconomic topic here is called Welfare economics: http://en.wikipedia.org/wiki/Welfare_economics and in economic theory is the social welfare function: http://en.wikipedia.org/wiki/Social_welfare_function
I'm not saying those broad ideas don't hold ... but defining things like quality and competition can be a much trickier business than price.
And unfortunately, if you are going to approach it as a science, you can't really go off anything other than definition, observation, and measurement.
Sane argument for free-form enterprise. Trauma enterprises are from a gross gap legal sanitizer function that forces markets to change. Tearaways you can take from logical systems that try to sense problems with random, arbitrary math(tied) category .
> Tear something away from a person and you can absolutely traumatize them. It can be a teddy bear for a little kid, a car for an adolescent, your laptop, you get the idea.
I don't understand the point: none of those things are being torn away from people due to market forces.
Then lets say someone's house due to foreclosure from a variable-rate mortgage.
Happened all the time a few years ago, and its the same situation. The interest rates rose, people couldn't afford their mortgage anymore and were forced out.
While there is definitely a lot of blame to be placed on the creditors, don't you hold the homeowners to any standard of responsibility? They signed the mortgage.
So you want to blame people who probably didn't fully understand what they were signing up for (not least because they probably weren't responsibly disclosed to) for having been fleeced by crooks peddling predatory loans?
I'd bet real money that almost every applicant for one of these mortgages was reassured up, down, left, and right by the broker (whose interests were most definitely not aligned with the applicant's) that everything will be fine. "When the variable rate kicks in, you can just refinance. Rates will be lower than ever!"
Many of the families who lost their homes to foreclosure signed into a mortgage under the assumption that they would be employed/in-business for the next 20-30 years.
Unfortunately, when one economic domino falls and sets of a chain reaction leading to a market crash, a lot of hard working and responsible people get caught up in and swept away by the ensuing tsunami.
It was an example of how people place bets against the "Free Market" and lose sometimes.
Even if people are rational about this, the 1980s saw an increase of interest rates above and beyond 14%. If 1980s style stagflation ever hit today, I can assure you that even the "rational" home-buyers who fully understood the clauses would be forced out of their homes.
In any case, being forced out of your home, even if it is a situation you set yourself up for, is a traumatizing situation. I think we all can agree to that.
> none of those things are being torn away from people due to market forces.
You can end up owing money without the ability to repay fairly easily due to to market forces.
If you have a judgement against you, in other words a court has determined that you owe somebody money, they can seize your property and auction it off to settle the debt. Cars, laptops, anything worth $$$ is a target.
Life can suck. You can't legislate the "suck" away. You can, however, smooth out the bumps. In the scenario above, bankruptcy is a legal construct to smooth out the bumps.
Unlike bankruptcy, rent control makes the bumps worse. That really sucks.
They should realize that not everyone can live in a good area of the city. A city, by its structure, has a center and periphery. The good zones are good by relation to the other zones, otherwise, space is just space. So, valuable property will always be limited in quantity.
> They should realize that not everyone can live in a good area of the city. A city, by its structure, has a center and periphery. The good zones are good by relation to the other zones, otherwise, space is just space. So, valuable property will always be limited in quantity.
And who lives in the good parts of a city should not be determined solely by the depth of their pockets.
Why? Isnt this the free market at work? Allowing the people who work the hardest for it (of course this always the case, but you get my point), to choose their place of residence.
Markets are mechanisms we use to accomplish goals. They are not ends in themselves. They are certainly not universal moral guides. If you think in this case a market is the best mechanism to achieve a particular social goal, you'll have to make the case.
If we were to give houses to the people who worked hardest, every single immigrant construction worker I have met would get the houses, and comfortable office-dwellers like me would be out of luck.
I certainly cant argue with that, but wouldnt the people buying them be the hard workers in industries that reward them for that work (the reward values are a whole different issue imo).
But there are many examples of goods that are not considered "normal." The state has always regulated such vital goods, usually ensuring supply. The Farm Bill is a perfect example. Housing is another.
(This is mildly unfair to SF, which actually has a higher population density than Minato-ku, principally because Minato-ku is not a residential neighborhood. But if SF was serious about affordable housing, it would look like Minato-ku rather than "miles of two-story buildings.")
Well, you've got to tear a bunch of stuff down first. And I've read before that the city doesn't want to build up too much because they want to retain some of their character or something.
> I've read before that the city doesn't want to build up too much because they want to retain some of their character or something.
That's kind of the point. The city has several conflicting goals: make it an affordable place to live, don't allow new growth to change the character of the place, attract high paying jobs, don't widen the roads, attract new residents without kicking out old ones, etc.
Rent control is one of the tools they use to try to balance between these conflicting goals. The fundamental problem is that every serious economist says that rent control is a losing battle, and it never truly works anywhere it's been tried. There really aren't any rent control success stories from anywhere in the world. At some point, the city has to realize it can't achieve its conflicting goals, and it will need to prioritize: is it more important to have affordable housing or more important to limit the number of places to live in the city?
It's worse than a losing battle; it actually makes the housing problem worse. It's good for the lucky few who end up in rent-controlled housing, but most of the people who can't afford $4k/mo rents also aren't that lucky.
How does it make the housing problem worse in San Francisco?
If we assume that the NIMBY crowd will continue to block new development and other interests will continue to block increases to the high limits for new construction across much of the city, then what would elimination of rent control do, other than ensure that every renter in the city was paying ~$2500+/month per bedroom?
I have this idea that the monthly payments on the mortgages required to purchase a condo are a pretty good approximation of where rents would be without rent control. With pretty much every condo sale price sitting at or north of $1 million, it doesn't look pretty.
Rent control isn't the only thing distorting San Francisco's market. But San Francisco won't get any more affordable until it gives up on the policy.
However, looking at the original post, I strongly suspect that the landlord isn't planning to rent out the apartment after the tenant is evicted. I think the letter looks a lot more like a landlord trying to get out of the business. Rent control, and other regulations, discourage people from offering places for rent. Sometimes that is intentional, for instance, as a policy to get rid of tenements. But often it's a surprise to the people writing the regulations. They honestly don't realize that each additional form they want people to fill out discourages people from being in business in any way.
Getting rid of rent control would get rid of some of that disincentive and put some places back on the market.
I recently moved from the Reno area to the New York area (well, New Jersey; but I work in New York). I spent a lot of time in the Bay Area over the last few years. I really would like to see it stop pursuing economically backwards policies, but I think it's more likely that economically illiterate politicians will finally manage to kill what makes Silicon Valley unique, and people will move to other places.
Even if no new housing could be built, rent control leads to underutilized housing.
When people pay $500 for something that could be rented out for $5000, they are more likely to keep it for weekend trips after they moved to LA, or at least not take any room mates.
Also, I don't know that there is any official numbers, but I've heard estimated that 10% of the SF rental stock is not rented out, because landlords don't find it worth the pain.
The "NIMBY crowd" also must stop blocking new development. SF desperately needs new housing development at a scale unprecedented in its recent history.
In the meantime, all rent control does is create an arms race between property owners and tenants, one the tenants will all gradually lose. It also eliminates incentives to renovate or even more productively use existing housing stock.
Rent controlled apartments are effectively removed from the supply of housing in the market. Thus, anyone who isn't lucky enough to get a rent controlled apartment (which are most people) faces a market with decreased supply and thus higher prices. It's one of the economically proven ironies of rent control -- higher prices for everyone else.
In a free market yes, but not in a speculation market that does not respond market demands (combined with macroeconomic mechanisms and manipulations from the Federal Government). Going beyond simplistic supply/demand, high speculation markets have constrained economic growth, and many governments, such as HK or South Korea, have taken measures control it as well. It's not that the cost in the area rise, but also startup cost for new enterprises becomes to high, making it difficult for startups and new innovations they create.
Your comment missed the irony, which is that rent control is an effort to mitigate the impact of scarcity for tenants that increases scarcity and reduces market outcomes for tenants.
Rent control is a deliberate tradeoff between price stability for existing tenants and supply (and therefore market clearing price for new leases.) So the supply effect isn't an irony, it's part of the chosen tradeoff.
Can you find a source that acknowledges that rent control is a deliberate attempt to trade additional scarcity for price stability for incumbent residents? I can't find one. I'm a little concerned that this is an instance of retconning.
San Francisco's rent control, at least, doesn't apply to building built after rent control was passed. [1] I believe that's a deliberate attempt to solve for the scarcity concern.
Well the geography and political climate of San francisco and its surrounding towns make this pretty difficult. It's a small city in a major earthquake zone, with tons of hills, surrounded by water and suburban neighbors who consistently vote down any expansion of the existing rapid transit system. Any new transportation infrastructure would take literally decades (see California's coming high speed rail line).
Only problem is politics. Japan has all that and pulled it off a bit too well. Similar goes for the crazy sandcastlers like Singapore.
I can't blame them (SF-dwellers) they had someting rare in the US for a little time. And general ignorance in, general ignorance out, that's local municipal politics, due to short-term incentives and big "costs" of initiating any kind of change or shift to a longer term horizon, nothing will change fast enough, so a lot of people will get bitten by these problems.
This is already happening: the area just north of Bay Bridge looks like Berlin after the wall came down. In my opinion, it has positive feedback and will increase prices even further. Money attracts more money. See New York or Hong Kong- they've built up too.
As the economy becomes global, the rise of super expensive cities is inevitable: London, New York, Hong Kong, San Francisco.
Oregon has plenty of charming and cheap real estate for non-participants in the global economy.
On Mission street in my neighborhood alone there are at lease 3 large lots with derelict buildings on them and they've been that way for years. There are quite a few other smaller parcels on Mission and smaller streets.
If we want to take housing seriously, let's start with a law that says "If the building is abandoned for 5 years, you lose it, it becomes housing."
Unless SF eliminates its insane height restrictions, the very few buildings that would be repurposed in this fashion would immediately become $4000 apartments.
It's a few drops in the bucket, yes -- but if we can't even bring ourselves to turn derelict buildings into housing, it's hard to claim that we're serious about solving the problem.
In all seriousness though, I'm fairly certain that a repurposed cruise ship turned luxury condo building anchored off the coast with a free, regular speed boat shuttle could be a profitable business given the bonkers prices in SF proper.
Some cities actually do stuff like that. You can can anchor large, cheap boats in Paris on the Seine (you pay a rent for that of course,but its much cheaper - closer to a parking spot).
Then these boats are made into single apartments. They're larger than most apartments in fact. There is electricity and water included, the only thing you need to get wirelessly is internet (which is rather easy).
I don't understand this argument. _Quality_ housing seems to me, to be a normal good, because when income increases the demand for such housing increases. Even crappy places in SF seem to be quality housing. Whether or not there are class issues, or your house is sentimental is irrelevant.
Apparently "normal good" is an economic technical term, and apparently you are using that technical definition here and not the normal use of "normal". I have no idea why you'd do that; as you point out, that technical term bears no relation to what I'm talking about.
What you're talking about is the idea that economics shouldn't apply because there are a lot more emotions involved in house than in most other markets. Do I need to point out that that is silly, or is it sufficiently self-evident that economics applies anyway?
The real answer tends to be building enough housing for everyone. That also tends to be politically unpalatable, because the people with all the emotional attachments want their neighborhoods frozen in amber. So low-income people get pushed out by increasing rent and high-income people move in.
Economics is not value-free. Actually, economics already has a way of dealing with exactly the problem GP cites: externalities.
Taking away someone's home involves potentially massive negative externalities (emotional and otherwise). Therefore, if you want to maintain the political theater that says capitalism is designed to benefit everyone, you have to accept that it may be preferable, optimal in fact, to incur some deadweight loss. Rent control is one strategy that does just that: as long as a person lives in a place, the rent can't go up.
Is it naively optimal? Nope. But it is (or can be, if you get the implementation right) actually optimal. It is a guarantee that a house can be a home, if the tenant so chooses, and it could be used to balance the aforementioned negative externalities.
Does it? Who knows, maybe, I'm not familiar enough with San Francisco's housing laws. Just because they implemented it poorly doesn't mean the concept is unsound or irrational and it doesn't mean that anyone in favor of the concept is "silly" or deserves to be condescended.
Even without NIMBY-ism, rent control keeps new housing from being built, because it makes the return on investment for new housing uncertain. People generally don't build apartment buildings out of the kindness of their hearts.
That's a bit of a snarky way to put it, but this is correct; the parent comment is abusing the term "externality". The consequences of rental contracts for tenants in a free housing market are not an externality; the tenant is a party to the transaction.
In this case, the tenant isn't a party to the transaction, the tenant can't afford to be a party to the transaction at $8,000+ per month, that's my whole point.
They perhaps they should consider building more housing. With the bonkers prices there, I bet even with a portion dedicated to low income housing, stuff would still get built, as long as the rules were clear.
In theory, yes. In practice, local activists tend to demand new buildings be 100% affordable, and the result is generally gridlock where nothing at all gets built.
It does. When you choose to pay a price or not, every emotion you feel is factored in.
Is a place "home" to you? You're probably willing to pay for it. Don't like a place much? You'll be less willing to spend.
This runs out after a point, though. Warm fuzzies are great, but I can't eat them, wear them, or sleep under them. I also can't trade warm fuzzies for any things I can do those with.
I don't follow, privately owned housing is a normal good. It's a Textbook case, as average living standards rise, the total demand for housing expands, as does the demand for more expensive properties as people look to move "up market".
I am misunderstanding your point?
Edit: I think I understand, my degrees in economics so I assumed you were using the term as its used in economics. Apparently you were not.
Words have meanings. In the context of a discussion of economic activity, you really have "no idea" why someone would assume you were using the economic meaning of "normal good?
Yes, because that reading obviously conflicts with what I wrote. Words do have meanings, but they have multiple meanings. If one reading makes no sense, skilled readers will try another.
to be fair I was confused to, because you were making an economics argument so I would presume you were using economics terms. Not saying that you should have or whatever, it's completely realistic that you wouldn't have heard of it, but it is something some people are going to bring in as context, so its understandable why they're confused.
So why not create a lifetime rent control that is tied to the occupancy of the current tenant? One they're gone, it's fair game for anyone at any price and you protect the "right to a home" for the existing resident.
That said, I don't think a rental can ever be a home in the way you describe it. The fact that the property is owned by another party means the resident will always be limited in their sense of place during their tenancy. This example is egregious but as an example, there's nothing to force a landlord to rebuild a property with after a disaster for the tenant with the insurance money.
I'd love a simple explanation as to how rent control is any different than any other form of redistribution. Forcing someone to provide access to an asset they've invested in below market prices seems bad to me.
Generally speaking, that's how rent control is managed. The people who dream up rent control somehow never realize that property owners will change their behavior based on how they expect rent control to affect them. So, when a tenant moves out, for whatever reason, the property owner doesn't set rent based on the current economy, instead rent is based on what the market might look like years down the line.
So, after a few years, rent control effectively guarantees that no apartment is available at an affordable price. At least, you have to live in a controlled apartment for a few years for inflation to erode the value of money you send your landlord every month enough that you can feel like the apartment is affordable. And, of course, the people moving from one rent controlled apartment to another are affected by the market distortion as much as anyone else.
And places all over the world manage to provide affordable housing without rent control, so long as they allow their housing markets to work.
That goes both ways. Nobody will pay if its too high (you will pay another slightly cheaper landlord, then) and thus landlord has to lower prices. Thus rent control apts are, in fact, at market rate. Its just that market rate is higher than you think it is.
When the market is exploding prices will rise regardless of rent control to crazy amounts.
People should disclose if they have an interest in this thread, since last I remember, all landlords are pretty wealthy people without that problem. (they own their place + other places, so, yeah)
Yes rent control apartments are at market rate. But rent control discourages people from ever moving, so the market of available housing is significantly smaller, thereby driving up prices for the few units that are in the market. It is an artificially distorted market.
That's how any sensible rent control ordinance would work, but that's not how it works in San Francisco. Units remain under rent control even if a tenant voluntarily moves out, dies, etc.
It's not your home if you're renting. We're not talking about booting people out of their homes here, were talking about raising rent. You shouldn't expect to be able to stay in your rental in perpetuity, that's why you signed a lease.
Sure, there is a housing marketplace, which can provide some correction. But houses are also homes. People are born in them. People die in them. They love them, they cherish them, they fight for them. There's a lot of truth in the saying, "Home is where the heart is."
What you're missing in that scenario is the large number of people who are displaced not just from their fungible, replaceable housing unit, but their home, their neighborhood, their family, and perhaps their city and their job.
Note also there are substantial class issues in the sentence, "Lower income renters move out, higher income families move in." The notion that poor people should take it on the chin because rich people covet their homes is not politically neutral. One could just as well say that it's the rich people, more able to cope, that should bear the burden of market fluctuations.
So I don't think, "is rent control even a good idea" is the right question. It's more like, "Are there more effective ways than rent control to reduce the harm?"