Rent Control (1 Viewer)

[Juxtatarot]

I've been hearing about rent control quite a bit recently.  Oregon will soon have rent control statewide.  Illinois might be lifting the ban on rental control soon.

I know there has historically been rent control in California, New York and some other states but most states outlaw it.

This is an issue that I'm undecided on.  I understand why governments would want to protect renters but I can also see how it could upset the market for investors.

 

[IvanKaramazov]

As a person who occasionally teaches Principles of Microeconomics, I thank these folks for providing my colleagues and I of a real-life example of a price ceiling.  They're few and far between.

 

[parasaurolophus]

I've been hearing about rent control quite a bit recently.  Oregon will soon have rent control statewide.  Illinois might be lifting the ban on rental control soon.

I know there has historically been rent control in California, New York and some other states but most states outlaw it.

This is an issue that I'm undecided on.  I understand why governments would want to protect renters but I can also see how it could upset the market for investors.

As long as there are accompanying property tax hike caps and exemptions for if a property is drastically remodeled or torn down and rebuilt I dont have much of an issue. Its not my favorite idea, but I can at least see the other side of it. 

 

[Scoresman]

I'm in the Bay Area, and my town had a rather extreme ballot measure to implement rent control a couple years ago, that predictably failed.  They wanted landlords to pay exorbitant relocation fees, ridiculous rent caps.  Basically everything they wanted would have made it no longer financially feasible for landlords to continue to rent.  Thankfully, clearer minds prevailed. But boy, there sure were a lot of people who felt entitled to capped rents well below market value solely because they've lived there for years.  

I'm definitely in favor of letting the market dictate the prices, but at the same time some protection for renters need to be in place too (enough notice for no cause evictions, etc.)

 

[[scooter]]

For the most part, I believe that the market should dictate prices. I can see where rent control might seem to make sense in urban areas where land is not available, but I'd rather see the shortage addressed through incentives and tax breaks for new buildings.

The Oregon law is dumb. They're trying to use a short-term issue in the city of Portland, to justify permanent changes for the entire state.

Portland built a record number of rental units in 2017-2018. Vacancies are about to skyrocket.

 

[saintfool]

I've been hearing about rent control quite a bit recently.  Oregon will soon have rent control statewide.  Illinois might be lifting the ban on rental control soon.

I know there has historically been rent control in California, New York and some other states but most states outlaw it.

This is an issue that I'm undecided on.  I understand why governments would want to protect renters but I can also see how it could upset the market for investors.

Rental markets in major cities that I have lived in - NYC and Chicago (now) - are safe for investors. There are some price controls in place here to protect renters but developers make crazy money in this city. Luxury apartments in Chicago, for example, are being added to the market at a 3000-4000 unit pace for the past 4-5 years with no slow down expected for a few years. 

Rent control is crucial for major cities like mine.

 

[BobbyLayne]

Some NYC facts:

There are 3.469M housing units - that includes apartments as well as attached, semi-attached and detached houses.

Of these, 1.286M are owned units.

The number of rental units is currently at 2.183M.

Rent controlled (super rare) and rent stabilized units are currently at 960, 550, and declined every one of the first eighteen years I have lived here.

2017 (last year data is available) saw 4,600 net rent stabilized units added.

 

[Maurile Tremblay]

Rent control is a good way to cause a shortage of available rental housing.

"We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas [or housing]." -- Milton Friedman.

 

[prefontaine]

Rental markets in major cities that I have lived in - NYC and Chicago (now) - are safe for investors. There are some price controls in place here to protect renters but developers make crazy money in this city. Luxury apartments in Chicago, for example, are being added to the market at a 3000-4000 unit pace for the past 4-5 years with no slow down expected for a few years. 

When I read this, my thought was there is a lot of demand for higher-end housing in Chicago and the developers can't keep up with it. I'm not sure how this is related to price controls. So I don't understand your conclusion. 

Rent control is crucial for major cities like mine.

Are you suggesting that there would be more low end housing available if rent were controlled? Less? How does the preamble lead to this conclusion? 

 

[Maurile Tremblay]

What we want is for the number of willing renters to be equal to the number of places available to rent.

If there are 100 willing renters and 200 places available to rent, half the places available will sit empty, which is a waste.

If there are 100 willing renters and 50 places available to rent, half the renters will be out in the cold (or will have to relocate to a different city), which is also less than ideal.

Markets are really good at solving this problem. A perfectly functioning market will set prices so that the number of willing renters exactly matches the number of places available to rent. (There aren’t many perfectly functioning markets outside of economics textbooks, but imperfectly functioning markets work really well too in most cases.)

Artificially setting prices above market would land us in the first situation above (units sitting empty), while artificially capping them below market would land us in the second situation (a housing shortage).

Markets are the Goldilocks solution.

 

[Maurile Tremblay]

Another thing worth considering is that markets are inherently resistant to being messed with, so trying to mess with them tends to cause unintended consequences.

In the housing market, a market arrangement might be monthly rent of $500, with the landlord agreeing to repaint and recarpet every five years, and to have a handyman make repairs immediately when the toilet or anything else malfunctions. If the government requires an adjustment to one term (say, capping the rent at $450), the parties will adjust the other terms (say, renters being responsible for their own repairs) to rebalance things so that they are returned to the equilibrium where number of renters = number of units available. It’s really hard to keep things out of that equilibrium for long. And then as the parties adjust, the government has to start regulating more and more things (such as how often to replace the carpet) and you end up with thousands of pages of regulations to micromanage things that would have otherwise been automatic. And both renters and landlords are generally made worse off (as measured by their own preferences) in the long run by these adjustments and workarounds.

 

[caustic]

Not a good idea to view every policy through the lens of an econ 101 textbook, but rent control is one issue where real world outcomes seem to match the textbook theory. Best solution is to just build a lot more housing IMO, especially in more affluent areas so poorer areas don’t get totally gentrified with longtime tenants left out in the cold. That takes a *lot* of political will though, between changing zoning laws and fighting with angry homeowners who don’t want their property values to fall. For politicians, it’s way easier to just slap on a rent control and consider the problem solved.

 

[saintfool]

When I read this, my thought was there is a lot of demand for higher-end housing in Chicago and the developers can't keep up with it. I'm not sure how this is related to price controls. So I don't understand your conclusion. 

Are you suggesting that there would be more low end housing available if rent were controlled? Less? How does the preamble lead to this conclusion? 

luxury rental market here in Chicago is not being matched by the affordable housing market. developers in Chicago of multi-unit buildings are required to set aside a small % of their units for affordable housing. developers can waive this requirement by paying a fee, which is less than the market rate for the units they would be renting as "affordable". 

rent control/stabilization protects tenants, neighborhoods, and whole communities from being pushed out by developers that want to make the most money.

 

[supermike80]

What we want is for the number of willing renters to be equal to the number of places available to rent.

If there are 100 willing renters and 200 places available to rent, half the places available will sit empty, which is a waste.

If there are 100 willing renters and 50 places available to rent, half the renters will be out in the cold (or will have to relocate to a different city), which is also less than ideal.

Markets are really good at solving this problem. A perfectly functioning market will set prices so that the number of willing renters exactly matches the number of places available to rent. (There aren’t many perfectly functioning markets outside of economics textbooks, but imperfectly functioning markets work really well too in most cases.)

Artificially setting prices above market would land us in the first situation above (units sitting empty), while artificially capping them below market would land us in the second situation (a housing shortage).

Markets are the Goldilocks solution.

LOL!!!!   Yeah but you're kinda forgetting one little thing.....more people are coming...some by the secks, others cause they are moving to more temperate areas...they need housing....and there isn't enough space to put all the people that need homes...so the market will not be able to sustain the increase---you cant make more land.  Prices will therefore RISE....unless there are some controls in place.

So as wonderfully simplistic as your dissections of these things usually are, you have to consider the entire story.   

 

[Maurile Tremblay]

LOL!!!!   Yeah but you're kinda forgetting one little thing.....more people are coming...some by the secks, others cause they are moving to more temperate areas...they need housing....and there isn't enough space to put all the people that need homes...so the market will not be able to sustain the increase---you cant make more land.  Prices will therefore RISE....unless there are some controls in place.

So as wonderfully simplistic as your dissections of these things usually are, you have to consider the entire story.   

If more people are coming, we'll need to build more housing. Normal market mechanisms will encourage this while rent control will discourage it.

 

[prefontaine]

If more people are coming, we'll need to build more housing. Normal market mechanisms will encourage this while rent control will discourage it.

I believe his argument is there is a finite number. Someone is going to have to live farther away, it's just a question of whom. Thus the question is how we decide who gets that number - those willing to pay the most or those who already live there.

This position ignores capital but I think this is where he is coming from. 

 

[Punxsutawney Phil]

Upping the minimum wage would solve the rent increase problem.  

 

[supermike80]

If more people are coming, we'll need to build more housing. Normal market mechanisms will encourage this while rent control will discourage it.

This is incorrect.

 

[Maurile Tremblay]

This is incorrect.

I can't tell which part you disagree with or why, but it's all fairly textbook. If more people are coming, the reason we'll need to build more housing is to accommodate them. The reason market mechanisms will encourage building additional housing in that scenario is that, when more people come, the quantity of rental units demanded will increase, which will increase prices, which will move us to the right along the supply curve, which slopes upward, so the quantity supplied will increase. The reason rent control will discourage additional housing is that it drives rents downward, which moves us to the left along the supply curve, so the quantity supplied will decrease.

 

[Sabertooth]

I'm in the Bay Area, and my town had a rather extreme ballot measure to implement rent control a couple years ago, that predictably failed.  They wanted landlords to pay exorbitant relocation fees, ridiculous rent caps.  Basically everything they wanted would have made it no longer financially feasible for landlords to continue to rent.  Thankfully, clearer minds prevailed. But boy, there sure were a lot of people who felt entitled to capped rents well below market value solely because they've lived there for years.  

I'm definitely in favor of letting the market dictate the prices, but at the same time some protection for renters need to be in place too (enough notice for no cause evictions, etc.)

Still the best avatar on the boards.  

 

[supermike80]

I can't tell which part you disagree with or why, but it's all fairly textbook. If more people are coming, the reason we'll need to build more housing is to accommodate them. The reason market mechanisms will encourage building additional housing in that scenario is that, when more people come, the quantity of rental units demanded will increase, which will increase prices, which will move us to the right along the supply curve, which slopes upward, so the quantity supplied will increase. The reason rent control will discourage additional housing is that it drives rents downward, which moves us to the left along the supply curve, so the quantity supplied will decrease.

I already explained why you are incorrect.  Listen, I appreciate your 5th grade explanations, I do...There are many that need that, but there is far more to it than that

 

[Maurile Tremblay]

I already explained why you are incorrect.  Listen, I appreciate your 5th grade explanations, I do...There are many that need that, but there is far more to it than that

Dude.

 

[whoknew]

I can't tell which part you disagree with or why, but it's all fairly textbook. If more people are coming, the reason we'll need to build more housing is to accommodate them. The reason market mechanisms will encourage building additional housing in that scenario is that, when more people come, the quantity of rental units demanded will increase, which will increase prices, which will move us to the right along the supply curve, which slopes upward, so the quantity supplied will increase. The reason rent control will discourage additional housing is that it drives rents downward, which moves us to the left along the supply curve, so the quantity supplied will decrease.

I understand this and am not disputing this but two questions:

1) What happens in a city like SF (I think) that has natural boundaries and limited size and so, even if they didn't have rent controls, they could not build enough housing to meet demand? I don't know if that's the case in SF, but lets say theoretically it is. I suspect your answer will be that only the people who can afford the rents will get to live there. Well ...

2) What happens if you add a goal of wanting to provide at least some housing for lower income tenants? So the city's goal isn't just for supply to meet demand, but also to include diversity in the city. 

Is there a solution then? Are government vouchers better than price controls? I reckon they are a lot more expensive than price controls.

 

[Maurile Tremblay]

I understand this and am not disputing this but two questions:

1) What happens in a city like SF (I think) that has natural boundaries and limited size and so, even if they didn't have rent controls, they could not build enough housing to meet demand? I don't know if that's the case in SF, but lets say theoretically it is. I suspect your answer will be that only the people who can afford the rents will get to live there. Well ...

2) What happens if you add a goal of wanting to provide at least some housing for lower income tenants? So the city's goal isn't just for supply to meet demand, but also to include diversity in the city. 

Is there a solution then? Are government vouchers better than price controls? I reckon they are a lot more expensive than price controls.

I believe there are plenty of builders who’d like to create more residential housing in SF but can’t due to zoning laws.

But yes, vouchers would be better than rent control, IMO.

I don’t think that vouchers would be more costly than rent control. The cost of vouchers is the deadweight loss associated with taxation, plus administrative costs. The cost of rent control is places becoming dumps because it’s no longer in the landlords’ interests to maintain proper upkeep (plus, non-hypothetically, a housing shortage), plus administrative costs. (I don't count transfer payments as costs because they are zero-sum, so not net costs. But even if we counted them as costs, they're the same in either scenario -- with vouchers, it's a transfer from the tax base to renters, and with rent control, it's effectively a transfer from landlords to renters.)

 

[prefontaine]

I already explained why you are incorrect.  Listen, I appreciate your 5th grade explanations, I do...There are many that need that, but there is far more to it than that

Wow. I seriously regret trying to help you explain your opinion here. 

 

[prefontaine]

Upping the minimum wage would solve the rent increase problem.  

Generally speaking this is just creating more arbitrary price controls to deal with other arbitrary price controls. It's not really a fix. Higher min wage leads to inflation or unemployment.

If it's unemployment, it's obviously not going to help deal with higher rent and if it's inflation, it's going to be hidden but rent will increase at a faster rate than without inflation, creating a cycle. The challenge here is that price controls are rarely long-term solutions because the market will adjust around them. Many times it will adjust in hidden ways, but it will adjust. 

Sugar quotas in the 30s were instituted to protect sugar farmers in the US. The net result was creation of sugar substitutes (notably HFCS) since the price of sugar was artificially high. It ended up being a short term fix for sugar farmers paid for by American consumers. 

 

[supermike80]

Wow. I seriously regret trying to help you explain your opinion here. 

If you want the simplest explanations...Maurile is your guy.  Not knocking it at all...

 

[Juxtatarot]

If you want the simplest explanations...Maurile is your guy.  Not knocking it at all...

LOL!!!!   Yeah but you're kinda forgetting one little thing.....more people are coming...some by the secks, others cause they are moving to more temperate areas...they need housing....and there isn't enough space to put all the people that need homes...so the market will not be able to sustain the increase---you cant make more land.  Prices will therefore RISE....unless there are some controls in place.

So as wonderfully simplistic as your dissections of these things usually are, you have to consider the entire story.   

I'd like to understand your position better.  I'll try to flesh things out a bit more assuming I'm following along.  Let me know where I'm wrong:

There will be some areas that are in such high demand that without government intervention, prices would rise and rise until they are only affordable by the wealthy.  This is undesirable for cities for several reasons including having nearby labor for lower paid jobs such as in the service sector.

The controlled rent could be high enough that landlords could  maintain the property reasonably well and still make a decent return on their money.  Property values would be held in check since revenue is restricted more than what the market could naturally bear.  

 I have some follow up questions, but do you agree so far?

 

[Maurile Tremblay]

This is very long, but an essential read if you’re interested in the (rather ugly) history of the San Francisco housing market:

https://www.collectorsweekly.com/articles/demolishing-the-california-dream/

 

[-fish-]

too lazy to google.  OP refers to rent control in California.  As I understand it, California rent controls fall to municipalities, and only apply to properties that are 25+ years old.  Is there a problem with California's current rent control laws?

 

[-fish-]

LOL!!!!   Yeah but you're kinda forgetting one little thing.....more people are coming...some by the secks, others cause they are moving to more temperate areas...they need housing....and there isn't enough space to put all the people that need homes...so the market will not be able to sustain the increase---you cant make more land.  Prices will therefore RISE....unless there are some controls in place.

So as wonderfully simplistic as your dissections of these things usually are, you have to consider the entire story.   

not sure where you're referring to, but I'm assuming since your directing this at MT you're referring to California, where more people are leaving California than coming in.  been happening for years (and the people coming in have more money than the people moving out). 

setting that aside, if rental prices rise, more multifamily housing gets built.   are you arguing that everyone should be able to live in the cities (where there is no more land to build) and not the suburbs?  if this is a problem, wouldn't market forces drive more efficient transportation?

 

[AAABatteries]

Man, if Maurile’s explanations are at a 5th grade level I must be a lot dumber than I thought.

 

[Warrior]

I already explained why you are incorrect.  Listen, I appreciate your 5th grade explanations, I do...There are many that need that, but there is far more to it than that

No...there really isn't.

 

[supermike80]

No...there really isn't.

Okay

 

[Sand]

Upping the minimum wage would solve the rent increase problem.  

I'm not sure that minimum wage changes would move the needle at all on rental prices.  In fact, if history is any judge, it may tend to increase rental prices, on average.  People with more money will want better digs and the market will respond with improvements to provide those.

 

[Gr00vus]

not sure where you're referring to, but I'm assuming since your directing this at MT you're referring to California, where more people are leaving California than coming in.  been happening for years (and the people coming in have more money than the people moving out). 

setting that aside, if rental prices rise, more multifamily housing gets built.   are you arguing that everyone should be able to live in the cities (where there is no more land to build) and not the suburbs?  if this is a problem, wouldn't market forces drive more efficient transportation?

It's tough to do in southern california somewhat due to the geological makeup (earthquakes), mostly due to a lot of the municipalities being designed 60 or so years ago under the notion that everyone will have a car. Retrofitting rail is a very hard thing to do here. That said, the residential density of some areas has been continuously increasing over the last 25 years or so, with a lot of vertical building. We may not get to a lot of mass transit any time soon, but it seems walking/biking within neighborhoods is increasing (or at least being encouraged). I think it'd be awesome if we could approach something like the NYC subways, but I don't know if it will be possible logistically.

Maybe it'll require self driving cars + car shares. But Southern California is painfully dependent on its road/highway infrastructure (which we're doing a very poor job of maintaining by the way).

 

[-fish-]

It's tough to do in southern california somewhat due to the geological makeup (earthquakes), mostly due to a lot of the municipalities being designed 60 or so years ago under the notion that everyone will have a car. Retrofitting rail is a very hard thing to do here. That said, the residential density of some areas has been continuously increasing over the last 25 years or so, with a lot of vertical building. We may not get to a lot of mass transit any time soon, but it seems walking/biking within neighborhoods is increasing (or at least being encouraged). I think it'd be awesome if we could approach something like the NYC subways, but I don't know if it will be possible logistically.

Maybe it'll require self driving cars + car shares. But Southern California is painfully dependent on its road/highway infrastructure (which we're doing a very poor job of maintaining by the way).

I was referring more to Northern California.   San Diego, Orange County and LA are already just a whole bunch of suburbs.   

 

[Maurile Tremblay]

Upping the minimum wage would solve the rent increase problem.  

I'm not sure that minimum wage changes would move the needle at all on rental prices.  In fact, if history is any judge, it may tend to increase rental prices, on average.  People with more money will want better digs and the market will respond with improvements to provide those.

I don't think he's saying that raising the minimum wage would cause rents to fall. I think he's saying that raising the minimum wage would make everyone wealthy enough that affording rent would be no problem.

 

[Sand]

I don't think he's saying that raising the minimum wage would cause rents to fall. I think he's saying that raising the minimum wage would make everyone wealthy enough that affording rent would be no problem.

Ignoring the macro effect of mandated higher minimums leading to fewer worked hours (Seattle example), I would tend to believe that rental costs will hover around 35% of available income (or some similar number).  I don't think raising the minimum wage will make rents more affordable - they will rise in response to the available money to pay for them, likely with some improvements.

All this goes out the window if we're talking section 8 or other subsidized housing - like most of these program they tend to warp markets a bit.

 

[BassNBrew]

I've been hearing about rent control quite a bit recently.  Oregon will soon have rent control statewide.  Illinois might be lifting the ban on rental control soon.

I know there has historically been rent control in California, New York and some other states but most states outlaw it.

This is an issue that I'm undecided on.  I understand why governments would want to protect renters but I can also see how it could upset the market for investors.

It's a confusing article, but I think Illinois is lifting the ban on the ban, but please correct me if I'm wrong.

 

[BassNBrew]

Ignoring the macro effect of mandated higher minimums leading to fewer worked hours (Seattle example), I would tend to believe that rental costs will hover around 35% of available income (or some similar number).  I don't think raising the minimum wage will make rents more affordable - they will rise in response to the available money to pay for them, likely with some improvements.

All this goes out the window if we're talking section 8 or other subsidized housing - like most of these program they tend to warp markets a bit.

Section 8 isn't impacting the markets in my woods.  More demand for vouchers than supply.  More demand for housing that would accept section 8 than supply right now in a good economy.

 

[Grace Under Pressure]

From a purely economic standpoint, price controls obviously warp markets and throw supply and demand curves out of whack. That said, housing being somewhat unique based on it's level in Maslow's hierarchy of needs, the need for subsidized housing in certain cities to avoid having only the wealthiest of the wealthy being able to live there is a compelling factor in the discussion.

But I really came here to post this. Maurile Tremblay is one of the top things that Footballguys has going for it, not just on the boards, but for the whole company. Reading some of the posts denigrating Maurile was too much for me to take without offering a response on that front. "No offense though".

 

[Sand]

From a purely economic standpoint, price controls obviously warp markets and throw supply and demand curves out of whack. That said, housing being somewhat unique based on it's level in Maslow's hierarchy of needs, the need for subsidized housing in certain cities to avoid having only the wealthiest of the wealthy being able to live there is a compelling factor in the discussion.

Interestingly there have been some articles I've read lately that talk about this in California.  The state is seeing an influx of the wealthy and an exodus of those at the lower end.  I'd suspect a huge amount of this behavior is associated with housing costs.