Rent control, why people think it works, why it doesn't ever work and why you should fight tooth and nail against it this November.

2021.10.21 12:22 Pixlr Rent control, why people think it works, why it doesn't ever work and why you should fight tooth and nail against it this November.

The rent control argument should’ve been dead and buried ever since someone made this model of price caps on goods. Alas, as cities around the world have faced affordable housing crises, people have flocked to the simplest solution they could find, and they found rent control and/or rent stabilisation. However, as with many of the simplest solutions to complex problems, it's plain wrong and here's why.
Why people think it works.
"greedy landlords backed by greedy bankers are profiting off increasing rents on people in their area, forcing people to move out and threatening social cohesion and destroying the fabric of our society"
Basically, they want rent to be cheaper in areas with low supply but high demand and their chosen policy to achieve that aim is rent control. What better solution to the housing affordability crisis than stopping landlords from increasing rents?
Why it doesn't work.
Rent controls have long been known to economists as a bad solution to the affordable housing problem. We've had studies ever since the 40s showing how they lead to housing being overconsumed, left to rot, turned into condos, or end up causing shortages which lead to price increases for the unlucky majority not in a rent-controlled home.
We also know that when you have rent-control or stabilization for long enough you'll end up with 2 classes of renters like in Berlin or NYC. Wealthy, longer-term residents who have a 3-bedroom rental in the inner-city for less than 1.5K a month while new students are struggling to get a studio for that same price.
For almost as long as we've known these things, they've been championed by some as the solution to our housing affordability crisis when it obviously isn't.
Not only does rent control fail to solve the affordable housing problem, it also incentivizes people to not move to better job opportunities because they will lose their rent-controlled home and have to pay the real market value for anything that they rent from then onwards.
Empirical studies have shown that rent control reduced the mobility of tenants by 20% in San Francisco, and because labor mobility is closely linked with productivity which is linked with wages, it probably reduced their wages too.
Why you should fight tooth and nail against any attempted implementation of rent control in your city/state/country.
Why? Because rent control is the most effective way to destroy a city other than bombing, that's why! Have a shot at this quiz and see how many you get right.
That's a huge exaggeration, but it really is quite a destructive policy and if you give a damn about the future of your city, you should oppose it.
Rent control creates vested interests and is therefore extremely hard to undo. To understand this point, think of rent control as one giant transfer from the renters of tomorrow to the renters of today. Those renters of tomorrow will pay higher prices so that renters today can enjoy both cheap rent and well-maintained housing. But you've got to remember that "renters of tomorrow" cannot vote and therefore are not represented at all in the discourse around rent control.
Like with many other restrictions, it's mostly self-interested people building up a castle and pulling up the drawbridge behind them.
Rent control is also hard to fight as people are trying to implement it because rent control is a politician's favorite kind of policy. As shortsighted as it is, its benefits to current voters will last for a decent amount of time. Enough time for a politician to have moved on from city-council and as mentioned before, current renters do see a short-term benefit. But when voting on policy and deciding which side you should fight for you should be considering everyone, including people who don't live there at the moment. They deserve housing too. What right do you have to take it away from them?
But hey, my city's rent control policy exempts new housing. How could it ever effect housing supply?
There are a couple ways in which this could happen, and I'll outline 2 of them quickly.
It could decrease the new supply by creating an expectation that rent controls will be expanded, meaning that people who own new buildings will demand an adequate return for bearing that risk leading to an increase in rents for those who aren't in a rent controlled apartment. Rent controls in Berlin did lead to an increase in rents for apartments that weren't even regulated and that's with an exemption for new buildings. Berlin also serves as an example of rent control being expanded afterwards, as does San Francisco.
Also, it serves regulators a problem that's impossible to solve. They must pick between providing new housing and attaining one of the main aspirations of rent-control (keeping long-term residents). When rent control applies to all housing built before a certain date, what's to stop landlords from bulldozing housing built before then and building more homes? There could be clauses stopping landlords from doing that, but that would impede the supply of new homes which is the only long-term solution to affordability pressures. If the government mandates that the landlord must provide housing for long-term residents in their new development, less homes will be built as a result of it lowering the expected RoR on investment. A conundrum for rent-control supporters to think about.
But hey, my city isn't implementing rent controls, they're implementing rent stabilization. Aren't they different?
Rent stabilization in the long-run is just rent-control in another form. Just like a wolf in sheep's clothing, it has all of the drawbacks of rent control which have already been mentioned in this post, just dressed up to look prettier and more acceptable to your average voter.
When you implement rent stabilization, you're really just making the price ceiling slightly higher than it otherwise would be. It's less inefficient than rent control, but the RoR on housing investment is still lower than what it would be without price controls, and therefore the amount of investment (supply of housing) will be lower too. On the margin, you may have more investors than a city with full-blown rent control, but that's only because the price ceiling is higher, leading to a higher expected RoR.
Alternative solutions that actually work, and that you should push for.
Support for rent control is based off the premise that we want more affordable housing so that long-time residents aren't pushed out of their homes as a result of rents going up. A solution to that would be allowing people to build affordable housing in the first place! To put it simply, the less we constrain the supply of affordable housing, the more will be built.
Rents rise because the demand for housing outstrips supply. Same as any other good, except stringent regulations impede new supply from coming onto the market. If those rules are still in place, rent control becomes a glorified city-wide game of musical chairs. It may let you play around with who gets to stay in the city, but it sure as hell doesn't solve the damn problem.
An RBA paper found that:
"Zoning raised detached house prices 73 per cent above marginal costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth. Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney."
We could solve it by abolishing zoning, perhaps?
Another policy we could implement if we want to help long-standing residents stay in their neighborhoods is offering partial, short-term subsidies for low income people if they satisfy a number of prerequisites. I've quickly drawn up what it would look like, policymakers have to fill in the variables and patch up the holes.

To prevent this subsidy from getting too expensive, we also need to implement some carrots/sticks for local councils when it comes to housing supply and prices like California's RHNA minus the garbage bits. If an area has had an unusually large run-up in home values, it will have to grow its housing supply by a large amount too to cool down the run-up. The state government could fine councils if they don't meet those targets, but if that's unconstitutional, we could try carrots like parks and other amenities built for the area to cope with the increased population. This would also help garner support for increased development, because long-term residents would also have access to these amenities.
This will also help achieve the goal of keeping long term residents in their neighborhoods and prevent gentrification and displacement, especially in the short-term while supply cannot catch up quickly to demand as is the case with housing.
To put it quite simply, you can legislate and repeal all you want but no rent control law, no matter how smart the people drawing it up were can legislate away supply and demand.
Thank you to our Aussie friend, u/Globalist-Shill for this writeup.
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Is that an available service anywhere? thank you
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