Update: this post originally linked to the wrong state law that showed rent control as illegal. Thanks to Stephen F for the pointer.
Kshama Sawant has come out for rent control, as you can see in the debate against Richard Conlin above. The pro-rent-control debate is rather confused in my mind: in the video Sawant mentions San Francisco as a place where rent control as worked, which I think the facts don’t bear out, and I’m not sure it matters anyway because rent control is illegal at the state level and Sawant is running for city council. Still, rent control has been proven as such a terrible idea that I feel like it’s worth calling out that idea specifically, and rather than write one 2,000 word behemoth, I’ll spread it over a few posts. In this post, I’ll go over the basic theory with some data to show why it’s a bad idea.
It’s true rents have gone up quite a bit in Seattle over the last decade or two, from a little more than $700 in 1997 to about $1438 today[1]. In response to that, a tremendous number of units have been built, and more units are going to be built. So far, these units have not been enough to bring supply in-line with demand, which is one reason rents have increased so much[2]. One idea to combat rising prices is to put price controls on rent of some or all of the housing, limiting either the total price, or the rate prices increase. Both of these policies are usually referred to as “rent control”, though limiting the rate of increases is sometimes specifically referred to as “rent stabilisation”. At first glance these seem like an okay way to stop price increases, however, over time, they actually worsen the situation by reducing new housing construction and the create a perverse system of preferential treatment and descrimination.
Rent control reduces the incentives to build new apartments by reducing the amount of money that can be collected from current and apartments. This is rather obvious, for someone who wants to build an apartment, if that unit will be rent controlled, that means less money in the future. Furthermore, rent control on some units creates a possibility that at some future date the non-rent controlled units will switch to be come rent-controlled. This happened several times in New York, where housing units that were exempt from earlier rent controls were brought under the previsions later. Both of these aggravate the affordability situation long-term by decreasing the incentive to create new units. Investors will find other places to put their money (maybe apartments in Portland or Vancouver where there’s no rent control), maybe cheap weekly hotels for those who can’t find apartments.
Renters in rent-controlled units are less likely to move – there are long waiting lists at the other rent controlled places – this means they may be unwilling to take jobs that are farther away from their current apartments, this is bad for the economy. According to this review of the literature around rent control, tenants in New York stayed an average of 18 years longer in rent controlled units than non-rent controlled. Landlords in turn will become scared of long-term tenants – whose rent cannot be raised – and will prefer a string of short-term tenants – between which rents can go up. So they’ll discriminate in whatever way they can against the tenants most likely to stay long-term: families, the elderly, etc. Landlords will also become more eager to evict bad tenants. This article describes the old lady effect, which is a less-than-politically-correct-way of illustrating the perverse incentives when an apartment is worth more than its rent:
Consider the case of a two-parent, four-child family that has occupied a ten-room rental dwelling. One by one the children grow up, marry, and move elsewhere. The husband dies. Now the lady is left with a gigantic apartment. She uses only two or three of the rooms and, to save on heating and cleaning, closes off the remainder. Without rent control she would move to a smaller accommodation. But rent control makes that option unattractive. Needless to say, these practices further exacerbate the housing crisis. Repeal of rent control would free up thousands of such rooms very quickly, dampening the impetus toward vastly higher rents.
Demand outpaces supply because new units aren’t being added. Landlords can’t raise prices, so they begin to create strange standards for renters and stop responding to renter’s complaints. This isn’t just a theory, here’s a New York Times article titled “In San Francisco, Renters Are Supplicants” about the hoops renters have been asked to go through in San Francisco, where a significant portion of the apartments are rent-controlled.
Rental agents are suggesting that prospective tenants come armed with renters’ resumes detailing their credit and job history, credit reports and references. They also suggest that renters wear professional attire and show enthusiasm for the apartment, as though the $1,800-a-month junior one-bedroom walk-up overlooking the freeway were their dream pad, the place they wanted to make a home for life.
Next, bribes and a shadow market become common place. From the previous article:
”In 22 years, it has never been this crazy, this good,” said Don DeShon, who co-owns 13 rental properties in San Francisco. Last week, he was offered $5,000 just to hold an $1,800-a-month one-bedroom apartment in an industrial neighborhood that he had yet to advertise.
It’s worth asking who, in these stories, is getting the benefit of the rent control? Renters in “professional attire” with $5,000 cash for a bribe don’t strike me as the people rent control is supposed to help. Worse still, several studies have shown that landlords racially discriminate significantly more in rent controlled units than non-rent controlled units. And don’t fool yourself into thinking this is something that is easy to police; if it were easy to root out discrimination in housing, the discrimination wouldn’t show up as statistically significant year after years in market after market.
Rent control goes against basic economic theory around price controls. If we want more affordable units, we should do the obvious things. We can increase supply by increasing zoning, reducing red-tape and removing expensive barriers to housing construction such as parking quotas. We could figure out ways to increase the number of subsidised housing units through incentive programmes. We could create or expand voucher programmes for those who with low incomes. Rent control has been tried and has been shown not to work well, and many jurisdictions have been working to remove rent control and rent stabilisation laws and have shown no obvious ill-effects (Massachusetts comes to mind). We admit a long list of mistakes urban planning and regulation made in the 20th century: huge highways, sprawl, parking quotas, etc. We wouldn’t want to repeat any of those mistakes today. Rent control is one of those, let’s not repeat it.
[1] Adjusted for inflation, $700 would be a little more than $1000 today.
[2] Another reason is that new units are expensive to build, and many groups are actively fighting against cheaper units (those without parking, apodments, etc.)
Frankly I am surprised to see this post on this blog as it sounds a lot like the specious libertarian supply and demand argument for road construction and against transit, I.e.; just build more lanes to meet demand.
Even if one were to follow this logic, in both cases (housing and traffic) there are limits to the amount that can be built. As to housing, there can be more density than there is now but at some point there are limits which will affect the quality of life that characterizes Seattle. The connection between density and transit is well understood but most people live where they do because of a balance between the quality of life and what they can afford. There aren’t any easy, or even simple solutions to this problem and I don’t think that rent control OR the lack thereof is a solution in themselves.
Ironically, New York is a frequent example in this post. That is a city which is hard up against the limits in terms of housing and that is reflected in both the lack of affordability and rent control as a means to provide some affordability.
Of course, they could just build their way out of it.
There’s nothing inherently “libertarian” in thinking that:
a) some forms of interfering in markets may produce undesired and unfortunate outcomes, and b) we can learn from empirical studies of past efforts at a particular market intervention to see how it turned out. The record on rent control is there, for all to see, and it’s pretty problematic. (I do think a pretty good case can be made for mild stabilization measures).
But it’s all beside the point because it’s illegal. I want to hear from Sawant ideas about what the council could actually do.
The illegal point is salient. If Sawant wants rent control, she’s running for the wrong office
I don’t think anyone here has argued against the idea that building more roads drops the price of driving (per commuter, ignoring the initial construction cost). The argument against more roads is that this cheaper commute adds more driving and sprawl. There isn’t an a good analogy here for housing – we actually want cheap housing, and cheap housing in the city decreases sprawl.
A 125 sq. ft. room is not House-ing. It is a kennel.
Why do you care if someone lives in a 125 sq ft apt if it’s not you? I wouldn’t do it now, but I had a 11 m^2 apartment in Tokyo years ago. I was happy. Does that bother you?
I lived in a room that size through most of my college years. Worked fine for me, and allowed me to live where I could roll out of bed and be in class less than 10 minutes later.
The size of units is a whole other issue. American culture has dictated a certain range of sizes that most people are comfortable with. Most people are pushing the high boundaries to get more space, while a few people are pushing the low boundaries due to environmental concerns, to live closer in, or a personal satisfaction with “small is beautiful”. In any case, only a tiny fraction of the housing is 125 sq ft, so raising that as an argument about horrid city living or sprawl is a red herring. If you wanted an apodment, you would not find one vacant and would have to look hard for an opening, while you would readily find several 1 BR and 2 BR units vacant.
The difference is that everyone should have the option of a decent apartment they can afford, and frequent/fast transit to the other urban centers where other apartments, jobs, and other things are. They can take it or leave it, but at least they have the option. But this doesn’t extend to highway lanes. People can’t expect an uncongested freeway lane at every time in every direction. Cars are larger than people, so if you build lane capacity for every car and a parking space everywhere it parks, you end up taking up more space for cars than for people and everything else. That’s why half the land in our cities is taken up by roads and parking lots, which is the major reason why housing is so constrained and so widely scattered.. Of course, apartments are larger than people too, but apartments don’t move (they don’t need roads or parking spaces), and shelter is a human necessity.
If rent control is density control than I’m all for it.
So Sawant’s total stance makes sense.
She is saying, you give us neither the affordable apartments or the robust dispersed transit system to get to the centralized facilities.
You have basically built a high priced, walled castle, and thrown everyone out of it! And you did it with our own (taxpayers) money!
People should be yelling and screaming about this!
What “specious libertarian supply and demand argument” are you talking about? I’ve never heard a libertarian argument for more road construction. You either don’t know what the words you’re saying mean or you are being obtuse on purpose.
Do you have any arguments for rent control other than “it will lower rents for some people”?
The libertarian argument is for the reduction of government regulation to allow the efficiencies of the free market to provide for economic growth and well-being. That is a specious argument and just as overly simplistic as the argument against rent control as a bad thing that once removed, together with the removal of all zoning restrictions that restrict density will bring us a golden age of affordability for all who want to live in this city.
I did not say that rent control was the answer because that would be just as simplistic as saying rent control is the problem. Plenty of posts have made the point better than I could about affordability in this city and how the growth of the tech economy is changing the character of this city.
A big part of this is managing change, both the rate of change and the kind of change while maintaining a relevant connection to the history and traditions that define Seattle. Sometimes, as mentioned below, rent control can play a positive role in managing change.
How is it specious? You can’t just say “specious” and then it’s so, by fiat. Show me how I’m wrong.
Obviously rent control cannot be the problem in Seattle, we don’t have rent control…
I honestly don’t know what you are talking about.
It is really depressing to see the degree to which market ideology has taken hold among transit advocates. When people are having to leave a transit-friendly place for car-dependent suburbs we should be up in arms and embrace every tool that can help people. That includes whatever form of rent control we believe will most effectively stop these rising rents.
If people were fleeing and the transit-friendly apartments were left vacant, that’d be one thing. But that’s not happening. The apartments are full – in fact, demand for them is so high that rents are going up and developers are struggling to meet demand within zoning laws! And transit ridership is up! So I don’t think this is quite as urgent a matter as you’re trying to make it.
It is very urgent because what is happening is that transit, walkability, and urban living is becoming something the working class cannot afford. That goes to the heart of the point Sawant made that was the subject of the earlier STB post. Urbanism and transit should be for everybody. So should the city. Without rent control, or at least rent stabilization, we are saying that low carbon living is for the privileged and everyone else can just go rot in the suburbs. I think that is wrong and that transit advocacy should reject that approach.
And what form is that?
Rents going up don’t drive people out of the city – or you’d have vacant apartments (and what crazy landlord would raise prices if they can’t rent the place out?).
I like to take the edge cases to examine market dynamics. What would happen if every home in Seattle had their rent fixed forever at $1 a month? Landlords would all cry, and tenants celebrate at first, certainly. But would anyone ever build a single new unit in Seattle? Of course not – actually, many would be demo’d for warehouse space or anything that would generate some income. The number of people living in Seattle would shrink, not grow, and more housing would be built out in the far suburbs to meet housing demand. Nobody would ever move from their apartment, even if they had to commute very long distances to their new job. And in a cruel twist of fortune, the median rent would actually be higher than it is now, since there’s less total housing supply.
We’ll of course never get to anything so extreme, but any step toward rent control is a step toward that model. The less profit a developer can make building units the fewer units that will be built. The more profit a developer can make, the more other developers rush in to build and get a piece of that profit. That’s what’s happening with aPodments right now, but to a lesser extent that’s what happens every time new housing is built.
Yes, it should be available for everybody who wants it, which is why I want the zoning laws opened up to new development. Rent control, though, doesn’t create more apartments; it only enables lower-income people to rent some of the apartments already available. Yes, that’s a good thing for them, and it increases the financial diversity of rent-controlled neighborhoods. But at the same time, some higher-income people are not able to rent in that neighborhood because apartments are now taken by lower-income people on the basis of rent control. As you say, “urbanism and transit should be for everyone” – I agree, and take that to mean every individual (who wants it), not just every income level. Rent control doesn’t achieve that.
There’s nothing wrong at all with people being able to afford to stay in a place they like living for as long as they choose to do so. With stable and predictable rent increases there will still be demand to develop new housing. There just won’t be demand to gouge people.
We obviously won’t convince each other, but I do think it’s important that there’s at least one voice here that believes urbanism and transit should be available to everyone, and not just the highest bidder. Dumping the working class in car-dependent suburbs is not an answer.
You are repeating a satire of my post, surely. Where did anyone advocate dumping people in car dependant suburbs
urbanism and transit should be available to everyone, and not just the highest bidder. Dumping the working class in car-dependent suburbs is not an answer.
Ideally, yes. But dumping the would-be-higher-bidders in car-dependent suburbs isn’t an answer, either. The answer is to build enough transit that there’s room for everyone.
Exactly, William C. We need a policy regime that makes space for everyone, not just those here now
It is really depressing to see the degree to which market ideology has taken hold among transit advocates.
This inference isn’t warranted. We should a) democratically agree on some end goals, and b) assess the value of markets for achieving that end empirically, not ideologically. If rent control had a better track record, I’d be happy to advocate it (But again, even if it were effective, it wouldn’t matter because Seattle isn’t legally permitted to do it.) The effects of both markets and attempts to control them are complicated and difficult to predict; we should trust the evidence first. The evidence on rent control is pretty bad. It’s not evidence of “market ideology” to admit that, any more than disdain for Soviet style central planning is evidence of “market ideology.”
I want actual solutions, so I study the areas that show where the solutions actually are, and don’t jump on board the first easy way out.
So fuck me, right?
Wouldn’t a libertarian have the roads auctioned off to private entities, who could then put tolls on them and choose to buy up additional properties to convert into roads at whatever the market rate for those properties was, or conversely tear up the road property and develop it into buildings to sell or rent if that were more profitable than the tolls?
This is completely and utterly wrong. Rent stabilization, at least, is a necessity right now. People are being socked with unaffordable rent increases they cannot afford. More supply is part of the solution, but that won’t help someone facing a huge rent increase right now. SF’s example isn’t quite applicable because it was matched with much more restrictive policies on new development. A law limiting rent increases to 3% or 5% or even just CPI would be fair and reasonable.
So we need both more supply AND rent stabilization to protect people today. I’m sorry, but we need to be focused on preventing people from being evicted because they can’t afford to live here. That should be our priority and rent stabilization has to be part of the discussion. Your economic theories don’t help people make their rent.
This is also a key issue for transit. Bike Portland has a great post this week on rising rents squeezing out low car lifestyles. We are going around touting density, transit, and urban living but that won’t help us if people cannot afford to live in those kinds of places and instead have to live in car-dependent suburbs.
Rents are rising too quickly right now. The only way to address that in the immediate future, to help people not lose their homes and have to move to less transit-friendly places, is to get the state to allows Seattle to pass a law that limits the annual increase in rents to affordable levels. And then we push for as much construction of new supply as possible.
LOL
All that sort of “rent stabilization” would accomplish would be to stifle any mobility into the city. Existing residents would all hold on to their stabilized apartments for dear life, drying up the supply overnight for new arrivals. The market for anyone who didn’t already have a stabilized apartment would look like the market in SF or NY, practically overnight.
And… what Bruce is saying can also be expressed like this: “How likely is Rodney Tom to consider allowing rent control?” LOL indeed.
Working class people want, and deserve, security. We should be prioritizing economic security for everyone, rather than mobility for a few. There is nothing wrong with someone being able to choose the neighborhood in which they want to live and having an assurance they can remain there. The trick is to also support new supply so more people can join in. Rather than look at SF and NY and say “well it obviously cannot be done” Seattle’s attitude should instead be one of figuring out how to protect renters from unaffordable increases while also promoting new development.
I guess I’m confused – I was pushed out of my apartment due to a 15% increase in rent. Why should I be the one who sacrifices the location and quality of life to move further away so that someone else can come in who can afford it. I had no problem finding a new apartment, but I had to move quite a bit away from where I really wanted to be, so I guess I’m having a hard time saying there’s more demand than supply in the Seattle market right now. Why can’t those who want to enter the Seattle market take up those rentals instead of moving those who are already settled to the outskirts of the city? Oh right, convenient locations are for the rich and well to do only while the rest of us can be pushed out.
Cyclistmike, do you think your rent went up because demand went down? Or supply went up? I am confused
Will: I understand your desire to protect the working class from exploitation. But rent stabilization is a policy failure. It doesn’t even succeed at its goal of helping the poor. If you read the paper that Andrew linked to, you can see that people who live in rent-stabilized apartments are no more likely to be poor than people who live in uncontrolled apartments. Much of the benefits accrue to rich and upper-middle-class households.
In addition, the fact that prices are uncontrolled during vacancy neutralizes much of the possible benefit. Again, take a look at the paper. One of their findings was that rent-stabilized apartments have a starting rent which is significantly higher than an equivalent uncontrolled apartment. Effectively, landlords know that they will be limited in their ability to raise the rent, and so they price the first few years’ worth of rent increases into the initial rent. Because of this effect, tenants have to stay in an apartment for many years just to break even.
I encourage you to read the literature, and to read my other comments on the matter. I think that you would have a better shot at achieving your policy aims if you pay some attention to the counterarguments to your claims, rather than supporting any policy that purports to align with your objectives.
I had to move quite a bit away from where I really wanted to be, so I guess I’m having a hard time saying there’s more demand than supply in the Seattle market right now.
This sentence directly contradicts itself.
I encourage you to read the literature, and to read my other comments on the matter. I think that you would have a better shot at achieving your policy aims if you pay some attention to the counterarguments to your claims, rather than supporting any policy that purports to align with your objectives.
THIS, a million times this. Will Douglas and others are trying to paint sensitivity to empirical findings about the consequences of policies as actually practiced as blinded by ideology. This is 180 degrees wrong.
“There is nothing wrong with someone being able to choose the neighborhood in which they want to live and having an assurance they can remain there”
I want to live in Queen Anne….with a view….
Did you read the post? I link to quite a bit of data, not just theories.
Will,
that’d be the fast way to kill every project to build apartments in seattle.
on the plus side, we’d see a many more condo conversions over the next five years.
and skyway, burien, and shoreline would appreciate the land rush.
Sadly no new transit is making its way to skyway
I want to live in Medina, I have a below average income. Should there be a place there for me?
Psst.
Nobody forces you to live in Seattle if it cost too much.
Tacoma is nice, Everett is revitalizing. oh wait they don’t have all the food trucks and gourmet mead taverns, got it.
Rent control, snicker.
Many of the non-profit housing groups (Capitol Hill Housing, Seattle Housing Authority) have rent control already. My friend signed a lease on an apartment with one of these groups and they told him his rent would never go up, no matter how long he lived there.
I mean, if you live in an apartment that charges you 30% of your income, and your income never goes up, then of course your rent never goes up.
But income-contingent rents don’t really scale. It’s great for the people who can live there, but we can’t afford to offer these apartments to nearly as many people as would benefit from them.
They said specifically if he started earning more, his rent would still never go up. Those apartments are pretty easy to qualify for. If anything the city should continue to support them through housing levies, I see no need for the city to get into rent control. It doesn’t work in SFO, NYC or anywhere else.
Barman, the way Aleks put it is correct. My former housemate is an SHA and we talked in depth about this. If one is required to pay SHA for housing, they must pay 30% of their income for housing. They even have to pay for their own damn water! And no, it’s difficult to qualify. The waitlist is endless. Good luck.
Did he get it in writing? Probably not. McGinn said he wouldn’t fight the tunnel too.
Rent control?
People are actually arguing for rent control here?
LOL. No better way to eviscerate your apartment stock then rent control.
“What couldn’t be accomplished by bombing can be done by rent control…”
Yes, that famous warzone devoid of development that is New York City.
The built up parts of new York are low development. Manhattan peaked in population nearly a century ago
When was the last apartment building built in NY that had rents below $2,500, the cutoff point??
Yeah, here’s the result of rent control. http://www.youtube.com/watch?v=Tuo-DKlxyls
For once in his existence BigDonLives has a point.
Rent control as it has been implemented thus far has been uniformly terrible for the quality of housing stock.
Andrew,
During the course of your education, I’m guessing that you took a physics course.
In my physics courses, there was the math part, and then there was the laboratory part, where we could see the real-world effects of the theories we learned about.
Of course, the vast majority of our experiments failed miserably. The joke is that, in physics world, all surfaces are perfectly flat, and air is frictionless, and … etc. That is to say, the real world is complicated, and there are so many “imperfections” that the simplified theories we learn will often lead us to dramatically incorrect conclusions.
The basic economic theory that you cite only holds in complete markets with perfect information, and where there are an infinite number of buyers and sellers, and no short-term stickiness. In other words — it only holds in a world that bears almost no resemblance to the one that we actually live in.
Joseph Stiglitz, a Nobel laureate economist, was honored for his work on understanding information asymmetry in markets. Information asymmetry plays a huge role in housing. When a tenant moves into a building, the tenant knows much less than the landlord does about the quality of the building, the conscientiousness of the landlord, the decency of the other tenants, etc. As a result, the housing market has behaviors that might be called market failures, in that they lead to outcomes that are permanently suboptimal.
There are other ways that the housing market is not a perfect market. Moving is expensive, and most people don’t like to move more often than they have to. This stickiness gives landlords yet more power, making the information asymmetry situation worse. And the number of tenants is far higher than the number of landlords, which means that landlords have some amount of oligopoly power.
Note that all of these factors also apply to another market, namely the market for labor. As a consequence of those realizations, we have regulated the labor market so as to correct the market failures that would exist without such regulation. We provide protections for workers, such as a minimum wage (the dreaded price control!), safety rules, payroll rules, paid sick leave, etc. And most economists who have studied the labor market agree that the resulting situation achieves greater welfare than if the market were left to its own devices.
All of this is to say that it’s not sufficient to reject rent control because “price controls are bad”. We have lots of theoretical support for the idea that price controls can improve outcomes, *and* we have lots of *empirical* support for the idea that price controls *have* improved outcomes in the labor market.
Now, having said that, I happen to think that rent *stabilization* is an extremely poor policy decision. The Jenkins paper that you cite does an excellent job of explaining the theory and evidence as to why this is the case. But you can see from the paper that the argument is much more complex.
As the paper shows, much of the danger of rent stabilization comes from the fact that rents are uncontrolled when a unit is vacant. Imagine if this were the situation with the minimum wage. All current employees would be guaranteed to be paid at least $9/hour, but if you left your job, then your new employer could pay you whatever you want.
Effectively, people would be trapped in their current job, and employers could treat their employees horribly, knowing that they couldn’t afford to leave. This is why rent stabilization is a failure, and this is why the minimum wage doesn’t work that way.
There is comparatively little economic research on the form of rent control that controls rents across vacancies, presumably because this system is not in active use in any US jurisdiction. So I don’t think it’s correct to say that such a system violates basic economic theory. People said that about the minimum wage, until the evidence proved them wrong, and the theory eventually caught up with the evidence. In this case, we simply don’t have enough evidence to say.
[standing ovation]
thank you, this was waaaaaaaaaaay more well thought out than my planned response.
Aleks, how exactly would rent control that controls rents across vacancies work?
It seems to me like it would only solve one problem of the rent control schemes used up to this point: the division of residents into “blessed” and “non-blessed” categories based on who is lucky enough to get into the system. It would not solve the incentive faced by landlords to allow housing stock to decline; the substantial rise in rents for non-controlled properties; or the issue that rent control makes development of new housing much less attractive.
I’m absolutely in agreement that we need market intervention to allow people at all income levels to live in the city. I just think rent control, based on its record so far, is the worst form of intervention. Zoning incentives (removal of zoning requirements that increase housing costs, addition of zoning requirements where only super-expensive housing is built without them), more publicly funded and charity-funded housing (provided that it’s decently designed), and housing assistance for low-income people all have better track records.
A better system would solve this. With rent stabilization, there are two different factors that cause housing stock to decline. The first is the inability to raise rent to a level that allows the landlord to afford maintenance and renovation. The second is the incentive to push current tenants out the door so that rent can be raised.
I’m sure you can see why the second problem is solved if rent can’t be raised during vacancy.
As far as the first system goes, a better system of rent control would take into account the capital value of the unit being rented. Declines in the value of the unit lead to declines in the rent that can be charged; increases in the value lead to increases in the rent. Therefore, landlords would have an incentive to invest in their unit to maximize the amount of rent they could charge.
Controlled and non-controlled properties shouldn’t coexist. That one seems pretty straightforward. The job market isn’t divided between “minimum wage applies” and “minimum wage doesn’t apply”.
That’s only true to the extent that landlords aren’t currently monopolists.
Imagine a market in which there is one private party — a true monopoly — which controls all housing. In this market, the monopolist charges every household exactly the amount that they are willing to pay for housing, even if that amount is far higher than the equilibrium price for the unit they’re renting.
Now, imagine that the government steps in and puts a ceiling on the amount that can be rented for each unit. The monopolist still makes a profit on each unit, and so supply doesn’t decrease; the price ceiling simply reduces the profit that the monopolist can take.
The rental housing market is neither perfectly competitive nor completely monopolized. It’s somewhere in between. That suggests that establishing generous price ceilings for rental housing will reduce the amount of new housing development, but that it will not reduce it by nearly as much as you would expect if the market was perfectly competitive.
So basically, I’d say that I agree with you 50%. Yes, there will be a decrease in welfare because less housing will be built. But there will also be an increase in welfare because housing will be cheaper. Frankly, I think the jury is out on which of those two effects will be bigger. The vast majority of economic research on rent controls is about rent stabilization, not about price ceilings, and especially not about price ceilings that increase over time. We just don’t have enough data to say.
I apologize; I should have paid more attention to this remark.
Roughly speaking, the idea is that the government assesses the value of any rental housing unit (in much the same way as the value is already assessed for property tax purposes).
It then creates a formula which takes into account that value, the costs of owning/operating/maintaining the unit, and a reasonable profit margin.
This formula serves as the maximum rent. It is reassessed/increased on a yearly basis, or at request of a landlord/tenant, whenever there are major changes to the value of a unit. Landlords are free to charge any rent up to this amount.
The closest US analogue to this system is the Maximum Base Rent system used in New York City. The principal difference is that MBR goes away as soon as you move out, and also that MBR limits the yearly increase to 7.5% every two years, regardless of how much the unit increases in value during that time.
In physics 101 we also only talked about billiard in a frictionless vacuum. In physics 401 we were dealing with all the complicated frictions and and fields, etc.
same thing with econ, trust me, rental control shows up as a bad idea even with more complicated economic models.
in your system nothing at all is getting built, not even non rent control. Or if rent control follows the person, those poor people eill find they can’t rent anything.
minimum wage is not salient to this conversation. Saying “people once said the earth was flat, so of course the earth doesnt revolves around the sun” doesn’t make either right. Furthermore the minimum wage is a price floor while rent control isna price ceiling!
Forgive me if I ask for a better response than that.
This remark makes me think that you didn’t actually read my comment.
I agree with you that rent stabilization does not work. The economic literature is very clear on this point.
There is much less economic literature which studies the effect of rent ceilings, especially if those ceilings are allowed to fluctuate based on changing economic conditions, changes in the landlord’s costs, and changes to the value of the rental unit.
However, there is plenty of economic literature on price ceilings and floors in other markets, and the research has found that those ceilings and floors often improve total welfare. It strikes me as bizarre to dismiss this out of hand simply because the markets are different.
If you know of any papers which specifically address the issue of rental price ceilings that are allowed to increase over time, but that do not get lifted when a unit becomes vacant, please let me know. I’ve read the links you provided in the article (actually, I read most of them a long time ago), and all of them talk about rent stabilization and fixed-for-all-time rent freezes, rather than flexible rent ceilings.
I’m not teaching a 400 level econ course in a comments thread. If you don’t trust me, do a google search and see what 95% of economists say about rent controls. You can’t say “my vaguely sketched model is fine” and then turn around and say “you need to thoroughly and conclusively disprove my model”.
This sounds like a perfect place for bureaucracy, lobbying, corruption, etc. even if it worked in theory, it wouldn’t work in practice.
I’d show all the fancy work that got done by my brother the builder, and then my rentals’ price would go up. I’d show how much it costs to maintain my fancy water grotto/”gym” and keep it stocked with all the modern amenities – I’d provide receipts and everything – and then jack rents, up.
That system wouldn’t work any better than today, other than it’d be a lot less transparent and trustworthy.
From “Rent Regulation: A Conceptual and Comparative Analysis”, by Haffner et al. in the European Journal of Housing Policy:
From “A review of empirical evidence on the costs and benefits of rent control”, by Turner and Malpezzi, in the Swedish Economic Policy Review:
I guess it’s too bad that none of these researchers took any 400-level econ classes.
Yeah, that’s why that never made it into the econ mainstream. Qualitative arguments are fun and all, but show me how they actually work.
You realise this is idiotic without a quantitative model? “Ultimately, rent regulation is a compromise between protecting the tenant, the landlord’s yield requirements, and the anti-density crowd. On balance, rent regulation will be advantageous for society if the benefits for tenant and the anti-density crowd are greater than the costs for the landlord”. That’s a bromide no worse than the one you quoted.
Insults definitely make you right, btw, you win!
Luckily, I don’t have a monopoly on insults :P
The quote (which is from a paper published in 2013, by the way) is a little bit misleading. It’s not that the quantitative results have disproved the theoretical findings. It’s that the theoretical findings haven’t been empirically studied at all. That’s more than a bit odd, given that the theoretical framework was first published by Hans Lind in 2001.
I’m not saying that Seattle needs to immediately sign itself up for rent control. It’s an unvalidated theory, and we don’t need to be a guinea pig, especially when we have lots of other great options available to us.
I’m just saying that we shouldn’t act like rent control has been categorically rejected by economists, when the most current economic research suggests that [a] there is a theoretical justification for certain kinds of rent control improving welfare, and [b] such systems have not been empirically studied yet.
Aleks, I wasn’t insulting when I said I didn’t want to teach a 400-level course, and, of course, I’m sorry if it came off that way. I really like the debate; it’s the most fun I’ve had discussing housing issues in a long time and I thank you for engaging with me.
Wait for my next post, I have data to show how widely it’s been rejected by economists. I’m not saying there’s not an exotic form of rent control that is less bad than standard rent control, it’s just 1) not what people think of when they think of “rent control” and 2) worse than doing the obvious things to combat affordability (housing vouchers, increasing density, reducing the costs for new construction, etc).
The challenge with the more complicated polices is that they are harder to enforce: people try to cheat and the more complicated the rules, the more steps in the process, the more chances to cheat and the more people will do so.
Thanks for your apology. I apologize as well if any of my comments came off as insulting; it wasn’t my intention. And thank you for engaging with me as well. :)
I actually agree with both of the points you’ve just brought up. It’s clear that there’s an academic consensus that NYC/SF-style rent stabilization is a failed policy, and it’s also clear that there’s consensus that the other types of interventions you’ve listed are effective ways to reduce housing costs.
I look forward to reading your next post. :)
That’s certainly true. However, that doesn’t completely preclude intervention. Again, consider the situation in which a market (any market) is completely monopolized by a single seller. Even if you assume that there is a certain amount of cheating, it’s still possible (likely, even) that total welfare will be higher if the government takes action to reduce the amount of consumer surplus that the monopolist is allowed to capture.
I’m sure you understand this, though. Your policy prescriptions — which I agree with — are essentially designed to make the housing market more competitive and less monopolistic. I think your policy changes would have a significant positive effect on welfare, and by making the market more competitive, I think they would also decrease the potential welfare gains from even a hypothetical ideal system of rent control.
On a more practical level, I don’t think the system would be as corrupt as you suggest. My understanding is that the system used in NYC calculates the maximum base rent only from publicly available information, such as the assessed value of a unit. We already assess the value of real property for property tax purposes, and while people often complain about their assessments being too high, I don’t think there’s widespread cheating. I didn’t mean to suggest that landlords would provide documentation of their actual expenses for the purpose of raising rent, just that the formula would take into account the usual and customary expenses that a landlord would be expected to incur, based on the assessed value of the unit.
I like this comment a lot. We should reject rent control because a) it’s not politically viable given state law, and b) empirical evidence suggests it’s a poor way to achieve its goals. We should be empirical not theoretical about markets.
STB dangerously is running off a cliff of supply side economics here. The folks with $5000 bribes and professional jobs will never be at a disadvantage. They can pay whatever the market will bear, because that is how much it costs to them. The old Victorians and flats in ideal locations will always be at a premium. You can’t build an Edwardian flat anymore. No matter how many units are built, there is no possible way that SF could satisfy the truly world-wide demand for an affordable house there. I consider it an enormous gift that most of the City was built out pre-WWII.
What isn’t mentioned in the article is the DEMAND. SF is expensive because people want to live there. I’m sorry, but anywhere outside the City is ‘settling’ for a true urbanist. I just moved here from SF, and yes my rent is cheaper here. But its 42 degrees in the morning here in October, at its in the mid 70s in SF right now, with much clearer days.
Besides, renters staying in their homes is a good thing. There is no possible way that there would be as nearly as diverse of a city if SF repealed rent control. Yes, the elderly would be run out of town overnight. Artists will be pushed out. Plus, you get to have a sense of community because people are invested in their neighborhoods. Right now in Seattle, my landlord could raise the rent by hundreds with a 30 day notice, and I would have to move. That uncertainty makes people buy a homes, and usually the only place affordable is a suburb.
Many of the points brought up in this article are pure 14th amendment and Equal Housing Opportunity violations that deserve to be in a federal legal discussion, not city land use planning. If you are discriminated against, FILE A COMPLAINT, dont trash talk rent control.
As much as people here seem to think that the wild west economics is a good thing, remember that only rewards landowners and the wealthy who can afford to pay those rents. I would personally defend rent control with every resource I had if it was ever in danger in SF. Now Prop 13, that’s a horse of a different color.
The folks with $5000 bribes and professional jobs will never be at a disadvantage. They can pay whatever the market will bear, because that is how much it costs to them.
People with professional jobs can’t afford to live in most of Manhattan, Brooklyn, or SF unless they are part of a couple living in a studio or one-bedroom apartment. The huge portion of the housing stock that is subject to rent control is a big part, although not the only part, of the reason why. Longtime residents and the very wealthy win. The losers are everyone else at a low, middle, or even high (but not absurd) income level.
What isn’t mentioned in the article is the DEMAND. SF is expensive because people want to live there.
Well, yes. High demand is definitely there. But it’s not everything. SF is considerably more expensive than Boston or Washington, DC even though lots of people want to live in those similarly prestigious cities too, and even though DC in particular is wealthier than SF. The reason is market distortions imposed by rent control and extreme restrictions on development, both of which choke off supply beyond any reasonable point. Again, the winners and losers are easy to see. The winners are longtime residents, many of whom are not at all poor or working-class, and the very wealthy. The losers are everyone else, including lots of lower-income people.
In addition to what David said, this:
Many of the points brought up in this article are pure 14th amendment and Equal Housing Opportunity violations that deserve to be in a federal legal discussion, not city land use planning. If you are discriminated against, FILE A COMPLAINT, dont trash talk rent control.
is a terrible way to think about dealing with the problem of racial discrimination. The costs of lawsuits, combined with the high standard of proof necessary, make is a wildly implausible approach in 99%+ of all cases. If we’re trying to be serious about eradicating racism, we have to be sensitive to the extent to which policies that create conditions that increase racial discrimination.
If someone is pointing to SF, the most impossibly and inaccessibly expensive city in the country, as evidence of rent control’s success, I think we’re done here.
Increase the area of TOD and have feeder buses. People may pay a premium to live very close to the LINK station but as the bus ride gets a bit longer they may not be so excited to pay that much. People with lower incomes could use these feeder buses to still enjoy the benefits of TOD while still living a few miles from the LINK station. I took a bus about 3.5 miles to the metro when I lived in Korea and it worked great.
I don’t know if we can replicate this exactly here, but I see no reason why the general idea can’t work. TOD doesn’t need to stop 4 blocks from the LINK station.
There’s been next to no building in the Rainier Valley. Columbia City is the exception. Plenty of land and room down towards Rainier Beach but for some reason next to nothing gets going there.
Feeder buses can work well if they are frequent and direct. Unfortunately, they are extremely difficult (and expensive) to get right. The key is that you need a route to the station that is both frequent and direct, while in practice, it ends up being neither frequent nor direct.
Rent control and building construction are two different things that are and aren’t intertwined. The classic economic argument against is that rent control => less profit for landlords => less demand for new apartment buildings => fewer new buildings (supply) => higher prices for everyone. It’s pretty self-explanatory, but it’s far from the whole story.
The cost of construction in New York and San Francisco is high, but still just a fraction of the market rents. In New York, almost all new construction on private land that conforms to zoning has no rent regulations. Perhaps in the past NY has applied rent regulations to existing buildings, making the investment in a new building less certain, but that hasn’t happened in decades and the number of regulated units has decreased. The very high rents in SF and NYC have much more to do with the restrictions on land use and development than they do on rent regulations. If you can build in Manhattan for $700/sf and sell units for $2000/sf, does it really seem logical that the $1300 difference is because owners are nervous about future rent regulations? No. Things are expensive because there is little easily developed land left in prime areas and any developer that is lucky enough to build such a unit gets to win the lotto every now and then. The best way to decrease prices in these cities is to make it easier to buy properties, demolish what’s there and build bigger. However, depending on how that’s done exactly, the new construction can induce its own kind of demand and lead to higher rents.
Rents aren’t only arrived at by the intersection of supply and demand for the privilege of living in a neighborhood, they are also affected by the quality of the housing. For example, let’s take a hypothetical older neighborhood that’s gentrifying. Part of the reason it’s affordable is because the older housing stock doesn’t have modern appliances, elevators, insulation, central air, new doors or windows, etc. If there are no restrictions on rent and landlords can kick people out, tear down and build higher, what happens? The affordable housing stock gets replaced with much more expensive new construction. Perhaps this increases supply which lowers prices somewhat, but it also replaces affordable dingy buildings with nicer ones that are inherently more expensive. In the same way rent regulation can restrict the supply of housing and lead to increases in price, it also makes properties less valuable and therefore less capable of charging higher rents. Read this article in the Economist for what happened in Boston when rent controls were done away with http://www.economist.com/node/161526. Rents increased even faster than before as properties became that much more lucrative. The same thing has basically happened in South Lake Union. If construction were restricted or affordable units were required, it would slow down this change and force developers to provide some new units at the same price as the removed ones, allowing new residents with higher income to share these new buildings with the previous residents and allowing the social change to be more incremental and organic.
In some gentrifying areas, rents can increase 20% per year or more. That may be great for the property owners, but it can be very destabilizing for residents and lead to overly homogenous communities. Take a look at the neighborhoods in NYC that have undergone these rapid transformations. In Soho, contrary to what you might think, the average age of residents in the neighborhood is quite high, in the 50s and 60s. This is because a ton of artists moved into the area in the 60s and 70s and never left. This has been repeated all over the city as previously undesirable neighborhoods “arrive” on the market. The Upper West Side has a ton of people in their 40s and 50s because that area became desirable in the 80s and 90s. All the people of a certain income in their 20s and 30s are now moving to Williamsburg Brooklyn. This is an economic reality, but is it desirable? Just the way the homogeneity of the 1950s Levittowns was stifling to many, I think many people would say that’s not the city they want either. With slightly different policies, South Lake Union could have been re-developed in a way that included the poor, middle class, the elderly, and the retail that serves these populations. Rent regulation can slow and modulate gentrification to produce a more varied and diverse population.
If you want cheap market rents, cities have to allow development, have to build a lot of transit, and have to allow dense walkable development in suburban areas. People who want walkable lifestyles shouldn’t be restricted to a small handful of older neighborhoods. Rent regulation, unless it’s hugely restrictive, is only a minor player in rent increases across the country and can actually be very useful in maintaining a minimum level of continuity that modulates the built results of rapid increases in the cost of land. Part of the reason rent regulation was so harmful in the 40s, 50s and 60s was because landlords could not shoulder the burden of having to provide housing so cheaply and eventually abandoned their properties. For most economically healthy American cities, that is not as big a worry as too little housing supply and the negative externalities of population displacement, income homogenization, and the removal of cheaper older buildings. It is rational and reasonable to have landlords and developers bear some of the costs of these externalities by regulating the rents they can charge.
If there were large opportunities, ripe and ready for picking, where you could turn $700 into $2000 you could make a tremendous fortune beating the stock market. You could retire if you could fine 4,000 sqft – four apartments maybe? If you could find 4,000,000 sqft, or 4,000, the number of apartments that go up a year in Seattle (presumably a small amount for new york), then you’d be a billionaire.
Your maths don’t check out.
AlexB I totally agree with:
“If you want cheap market rents, cities have to allow development, have to build a lot of transit, and have to allow dense walkable development in suburban areas. People who want walkable lifestyles shouldn’t be restricted to a small handful of older neighborhoods.”
But I’d like to respond a little further to Andrew Smith’s comment with a full explanation:
I don’t mean to get too real estate wonky in a highly theoretical discussion with STB commenters… ok, fib, I’m about to… Construction cost at $700/sf might be plausible in NY, although still very very high nationally. But construction cost is different than residual land value (which is actually an invalid technique of land valuation for certified appraisals because it often neglects to make valid market and cost assumptions in its methodology, but in practice it is still generally how many developers decide how much to pay for land). In effect, what residual land value does is take into account how much rent developers THINK tenants will pay—Never EVER $2,000/SF/yr. rent, but perhaps rarely $2,000/SF for a purchase. For a crazy-stupid-hell-no test: Amazon paid Vulcan about $640/ft for their campus, highest office trade in the Seattle market—and then the developers bid up the price of the land to the highest price that satisfies: gross income – operating/holding costs – construction costs – investor return requirements = land price developers are willing to pay. This will rarely allow for land prices to avoid being bid up so that IRRs remain greater than 5-15%. In some cases it’s possible. Just really unlikely.
So while Andrew is correct that your general theory doesn’t work at those numbers, he didn’t really say why it doesn’t happen in practice.
My math does check out. That’s what the going rates are. The reason people aren’t building isn’t because there isn’t a thriving market for new space, it’s because the government has greatly restricted where and how much can be built. Those price differences are emblematic of a housing shortage, not rent regulations.
Oh and in New York most people live in some sort of non-market housing:
http://ny.curbed.com/archives/2013/07/29/five_facts_about_new_york_city_rents_and_renters_incomes.php
Read what you quoted. Your statement is incorrect. About half of NYC renters live in regulated or subsidized units, not most New Yorkers. About a third live in market units that they own and another third live in market rate rentals. That means only about a third of people live in regulated units and that number is decreasing every year. New apartments today are required to be stabilized only if their initial rent is less than $2,500. Even studios usually start higher than $2,500, so basically that means the rules don’t have any affect on new construction. The law as it exists does what it can to protect people who have been living in regulated units, but does absolutely nothing for new construction. So if you can make such a high profit off of building something new, the only reason people don’t do it is because the supply of land and legally allowed square footage is restricted. One could argue that if you added all the subsidized units to the market, the market rate would decrease. Based on empirical evidence of what happened in Boston, I think it’s safe to say removing rent regulations would not lower rents in NYC.
After having read through this thread I have to say I agree with rent controls probably not being a good idea (imagine what would happen if we put controls on food pricing.. it has happened before in world history you know).
I personally think we should take the height restrictions off on corridors that are already destined to be full of large apartment complexes (Greenwood North of Phinney for example). That way when the apartments that are going to be built anyway start coming to fruition, you get much more “bang for the buck” on density. If its going to be dense anyway, why not double the density coming and saturate the rental market. That is more likely to provide more housing for everyone then trying to fix the rents for current residents.
I think you’ve got a good idea. That’s a lot like the Vancouver model.
….and we’ve got something similar in that developers get more height for paying for/building some affordable housing.
the problem is that the neighbors are violently opposed to additional height in most Seattle neighborhoods.
the Vancouver example may be a good one in that – per one of the mayoral candidates – developers there were forced to build neighborhood amenities – sidewalks say – to get permission to build.
something similar could actually work here.
building 10 “affordable to 80% of AMI” units helps almost no one.
building sidewalks in lake city would help everyone who lives there.
I believe the developers are already being asked to do this. Up near 105th and Greenwood the new buildings put in new sidewalks on the block their buildings are going into.
Maybe the offer of increased transit service to neighborhoods could be a reasonable bargaining chip for increasing density? High capacity transit does help get around the issue of not enough parking at least.
Of course… the people in that community would actually have to want high capacity transit (I think this is true, but someone would need to actually do polls in the individual neighborhoods to get a real feeling for this).
I think a lot of people get angry when they see increased density with no solutions for transit apparent in the pipeline.
Greenwood is my go-to example for the silliness of Seattle’s current zoning policy.
All along Greenwood Ave, you have a long, narrow strip of commercial zoning, mostly commercial 40 and neighborhood-commercial 40/65.
A mere block away, on 1st Ave NW, you’re in SF5000. And the same is true on the other side.
I’m sure that lots of people would love to live near 85th and Greenwood. It’s a nice, walkable neighborhood with decent transit options. And yet, if you drew a map of all of the parcels within a 1/4 mile walk of this intersection, the vast majority of those parcels would be single-family homes.
How is this a good use of our limited land? How is this a good way to make housing more affordable?
Yeah, I agree the single-family zoning is a bit overzealous in that area. This is especially true when you consider there are a fair number of grandfathered duplexes, corner stores, etc. on minor arterials and side streets in that area. Under current zoning, these would have to be replaced by single-family homes if they burned down. At a minimum, each parcel should be zoned for replacement buildings no less dense than what’s already there.
On the other hand, the whole stretch of Phinney/Greenwood Ave is already zoned for 40-65 ft. buildings, but most of the parcels still contain one-story commercial structures or even single-family residences (many of which have been re-purposed for commercial use). I can see the argument that there’s no need to re-zone the blocks next to Phinney and Greenwood until the buildings on the main street are approaching the limits of existing zoning.
I know that you’re not making the argument, just repeating it, but I’m not really convinced.
The fact that there’s a single-family house at (say) 70th and Greenwood doesn’t imply that there isn’t any demand for an apartment building at 84th and 1st NW.
In general, I don’t think that the existence of excess capacity in one place makes up for the lack of capacity somewhere else. Location matters.
However, I do think that your example suggests something else: namely, that the fear that upzoning will lead to rampant overdevelopment is a bit misplaced. Our single-family neighborhoods will not turn into Manhattan overnight if we upzone. Developers aren’t going to build in places where people don’t want to live.
I’ll bet state law is silent on a city ordinance limiting all multifamily residence construction to tenant-owned non-profit cooperatives- which would be perfectly free to charge whatever the housing market will bear.
Would certainly tone down the screaming-monkey-on-methamphetamine atmosphere of current housing market, and improve the nature of the relationship between landlords and tenants.
Of course there’s the other proven free-market alternative to rent control: a union movement strong enough to assure the majority of our people an income sufficient to pay fair rent for good places to live.
One, while market values are important tools for commerce, commerce is not the only value in society- especially for things that no one has the choice to do without.
And in any market, it makes a lot of difference not so much whether you’re the buyer or the seller, but mostly whether you’re the creature hanging on the hook.
Mark
You’re speaking my language now, Mark.
Excellent points. There’s also nothing stopping the city from exercising eminent domain over all rental stock and then renting it back out under its own rules limiting rent increases.
Really? There would be nothing stopping it except the courts.
And the fact that eminent domain still requires the city to pay fair market value. I’m not sure how much it costs, but it’s probably more than a generation’s worth of the city’s budgets.
Sadly, the law of unintended consequences may strike again.
If these buildings are truly tenant-owned, then they are essentially housing cooperatives. New York City is one of the only American cities to have constructed a significant number of multifamily buildings before the creation of the regulatory structure that permitted condominiums. As such, it has more than its share of co-ops; in fact, I believe that the vast majority of apartments available for purchase in NYC are co-ops rather than condos.
It turns out that there are several problems with co-ops. The biggest problem is the consensus problem. It’s hard to get a large group of people to agree on anything. It’s really hard to buy a share of a co-op (since you have to get the board to agree), and it’s really hard to sell one, for the same reason. If you aren’t able to live there, you can’t rent out your share. In fact, I think you can even be evicted, if the other members decide that they don’t like you.
Also, co-ops aren’t really a substitute for affordable rentals. You have to buy your share (by definition, since otherwise it’s not tenant-owned). You also have to pay a huge monthly fee; enough to cover all of the common area expenses, including things like building insurance, property taxes, etc. Because of these costs, a share of a co-op is generally cheaper than an otherwise equivalent condo, but a $100,000 co-op share with a $500 monthly fee still isn’t a great solution for the poor and working-class.
As an alternate approach, there are community land trusts. CLTs are effectively charities. They buy housing, then sell the buildings — but not the land — to income-screened private buyers at below-market costs. The buyers pay a small fee for the right to use the land. The CLT uses the income from the sale of buildings to buy more land. Because the CLT is incorporated as a nonprofit, it generally avoids paying tax on the land it owns, and so its expenses are very low.
CLTs are able to provide housing at a very low cost. Buyers pay below-market rates for the buildings, pay nothing for the land, and pay lower-than-usual property taxes (by virtue of not owning land). However, it’s disheartening to note that the success of this model is largely due to the fact that the CLT does not pay tax on the land. If you imagine a world in which CLTs owned most homes in Seattle, that’s a world in which Seattle has lost 50% of its budget.
I do think there’s a solution in here somewhere, but I don’t think we have it yet (aside from the obvious, such as building tons more housing).
Andrew, you cited the wrong RCW. http://apps.leg.wa.gov/rcw/default.aspx?cite=35.21.830
You’re right. I’ve updated it!
But so good for so many other things.
How so? If the jobs are already far away from their current apartment it limits their mobility, and there’s obviously limited office space in the city for jobs to move close to the controlled apartments.
I don’t like STB’s free-market triumphalism either, but it doesn’t come up that much. Even Roger Valdez is toning it down.
Rent control has been tried lots of times and it’s never been a huge success. It’s a weird lottery for old-timers, like prop 13 in California.
What I’d really love to see tried is some kind of automatic stabilizer like a housing buffer stock. For example, if the median rent to median wage ratio gets too high, the city uses eminent domain to build a bunch of market-rate transit-oriented development. Upzoning would be automatic.
I love this idea.
I don’t. For starters, buying up all that property would be obscenely expensive. And the process of choosing which property to buy up and convert to TOD would be extremely politicized. As would the process of deciding what housing ultimately gets built there. Any “TOD” built by the city is going to be extremely toned down in both height and number of residents due to NIMBY considerations. City governments have also had bad habits recently of thinking that TOD means building a housing unit wherever the land is cheapest and getting the transit by forcing an existing bus route to detour to its front door, delaying everyone else.
Your proposal is also a flat-out abuse of eminent domain and an unwarranted government intrusion in the housing market.
Ultimately, the best way to prevent the city from becoming unaffordable is for government to get out of the way and let the free market work. This means no rent control. No parking requirements. Fewer density restrictions (FAR, height, etc.).
As apodments have shown, affordable housing for low income people in urban villages is possible for those that are willing to forego parking and make compromises on space. If that’s not enough space, you can either pay market rate for more space more live elsewhere where land is cheaper.
apodments may indeed be affordable housing for low income single people, but they don’t work well for families.
Reasonable housing for families is the great mystery of urban public policy at this point. It’s just a very difficult problem because families need at least some space (unlike singles who often can get along very well in 200 sq ft), and space is inherently expensive where demand is high.
But cheap housing for singles is good too. Students and transient visiting workers are a large part of the population that needs cheap housing, and they’re good for the local economy, even though neighborhood activists usually distrust them severely.
Oh, but I want to abuse eminent domain! All the problems you describe with nimbys also apply to your libertarian solutions. With the housing public option you can get the sustainable urban housing you want without counting on the market to give it to you. We can’t count on developers and banks to deliver what we need. We especially can’t count on them to coordinate all the things we need for livable, transit-based placemaking. Making a lot of big changes at once is easier to coordinate than lots of little incremental changes. There are a ton of positive externalities to be had that private developers can’t capture that the public can: attractive design, sustainability, improved public health, lower-cost public services, etc.
Here’s an excellent argument against subsidies and for public options in general:
http://slackwire.blogspot.com/2010/09/public-options-general-case.html
Rent control laws will discourage new apartment construction when a developer can pencil out that he won’t be able to make a profit building an apartment complex, or can make a larger profit building something else.
If the owner can charge as high of rent as he wants to when the units are first rented, and can then raise rent at a rate above inflation, then that shouldn’t remove the profitability of the development. Ergo, that form of rent control should not reduce rental unit construction.
Indeed, that is the way the rental laws work in Seattle. And they actually do work. I’ve been a beneficiary.
No. Sometimes, for a development to pencil out, the long-term profitability is based on what the developer expects renters to be willing to pay 10-20 years from now, not what renters are willing to pay right now, plus inflation.
A landlord’s profit is supposed to be rent minus expenses, not a guaranteed return above inflation. Otherwise the units will become steadily less affordable, and tenants will be replaced by wealthier tenants, and the former tenants will have to repeatedly move to lower-quality units until they’re finally homeless — exactly the same problem we have now.
Never mind, I confused a steady return above inflation with an ever-increasing return. The latter is what’s causing instability.
Goldy is going to start ripping STB a new one today. You can’t say anything negative about one of his female obsessions (see Burner, Darcy) without him going on a multi-month rant calling you a conservative who has sex with pigs.
I find ironic to argue against rent control in the name of renters.
Rent control exists because some people can’t afford higher rents. Yes, if rents were higher, there would be more investments in more apartments, BUT THESE APARTMENTS WOULDN’T LOWER THE RENT, they would only keep it from going even higher. Higher rents increase investments because projects that are more expensive than the earlier rent become profitable.
For example, if a project would need 1 000$ rent per unit to make ends meet, if the rent is kept (by the market or by the laws) lower than 1 000$, it would not be built. But if the rent increases above 1 000$ and is expected to stay higher, then the project will get built. But this project will not lower the rent lower than 1 000$, because if the rent goes below that, the project gets canceled.
The rule in the market tends to be: the price paid for a commodity is equal to the highest production cost of the commodities available on the market.
Let’s take an example, let’s say, oil. Imagine you have conventional oil that you can extract 100 million barrels of at a cost of 10$ a barrel. You could also extract oil at 100$ a barrel (from tar sands), which can add 100 million barrels to the production amount.
Here’s what happens, if the demand for oil at 10$ a barrel is below 100 million barrels, the cost of oil will be more or less 10$ a barrel. When the demand for oil increases over 100 million barrels, then the price of oil will increase, which will suppress demand, some who would want oil will have to do without because it’s too expensive. This will go on until the price reaches 100$, at which point it’s now profitable to produce more oil from the more expensive sources, so production will increase. However, this production will NOT lower the price of oil below 100$, if it threatens to do so, they will close the faucet on the expensive oil and wait for prices to increase again. Meaning that prices will remain above 100$. Demand remains suppressed by the price, people who couldn’t afford oil at 60, 50 or 40$ still can’t afford oil, even if production increases. The price will remain above 100$ as long as demand remains over 100 million barrels at 100$.
As an analogy to apartments, it means that even if higher rents lead to the activation of more expensive projects, the rents will still remain higher than the threshold for the activation of those projects. So rents will still be unaffordable for a lot of people, even if more apartments are built.
If all you care about is to have more people in the city, then yes, that doesn’t matter and rent control is bad. Better to get rid of it and have more investments, so what if only professionals with six-digit salaries can afford it? The poor will just have to make do with lower priced apartments in the suburbs (where they will need cars or be trapped in suburban prisons with nowhere to walk to).
If you care about keeping poor people in cities with good transit and more job opportunities, rent control may be a lesser evil.
The real problem is that building new apartments cost too much because the urban area is limited in space by the presence of suburban zoning regulations on the periphery. The urban center can’t spread out, so it needs to build up, which is much more expensive. The ideal solution is to lower the cost of the build of new apartments, by using rapid transit and breaking zoning laws to allow the urban center to grow and to transform old suburbs into part of the urban fabric.
in Vancouver, rent control only limits rent increases on existing tenants, not new tenants, so how does that reduce the incentive to build new units, which can then be rented at anything the developer wants? That doesn’t make sense.