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.
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.