Patterico's Pontifications

11/1/2018

Against Rent Control

Filed under: General — JVW @ 3:53 pm



[guest post by JVW]

Long-time reader and commenter aphrael left a detailed and thoughtful comment with respect to my opposition to California’s Proposition 10, which would remove restrictions imposed by the Costa-Hawkins Act of 1995 and allow localities throughout the state to impose and/or expand rent control by applying it to buildings that were formerly protected by the legislation. I am against rent control and will endeavor to explain why, but I also want to give aphrael’s comment the consideration that it deserves and maybe use this as a launching point for a productive debate.

Costa-Hawkins restricted rent control to apartment buildings built before 1995, declared that owners could raise rents to market value once the unit became vacant, and mandated that single-family homes and condominiums would be exempt from the requirements. Because of these restrictions, rent control only exists in fifteen cities throughout the state, but unsurprisingly the large cities of Los Angeles, San Francisco, Oakland, and San Jose are counted among them. There’s no doubt that these cities are some of the most expensive rental housing markets in the U.S., with the average one-bedroom apartment in San Francisco now exceeding $3,500 per month. Clearly this prices out young people and families of moderate means, and makes these locations affordable mostly to the entertainment and tech elite of the state. aphrael sums this up succinctly:

What this means is that working class people can’t afford to live in the state’s big metro areas unless they were lucky enough to buy houses decades ago or are lucky enough to inherit houses. Instead, they live far away from the metro areas and have hellish commutes — which means traffic sucks everywhere. And *even so*, in the urban areas, it’s becoming difficult for high end restaurants and yuppie food stores (both of which pay more than average) to attract staff, because the staff can’t find a place to live.

Quite true. And this begets additional problems. As young families are priced out of our large urban areas, those cities see troubling drops in the enrollment of school-aged children (San Francisco here, Los Angeles here), which leads to the closure of schools, which in turn leads to fewer teachers finding jobs. California as a whole is scheduled to get older in coming years, as the replacement birthrate and addition of young residents fails to keep pace with the greying of the population and the exodus of young adults to more affordable states. This growth in retired workers will also place strains on our social services budget and force us to continue raising taxes on the working population of the state, largely because we are pushing out middle-class families.

So there is a general consensus that our cities could really use more families, more people of working age, and shorter commutes for middle-class workers who populate the non-glamorous jobs that keep a city functioning. The question comes, then, how to go about accomplishing this goal. Basic economics tells us that the best way is to combat scarcity is to increase supply, but that presents its own problems. Environmentalists and NIMBYs have worked for the past few decades to thwart the creation of new housing developments, citing urban congestion, traffic problems, and (often specious) ecological concerns. Urban utopians dream of large apartment complexes located near metro train lines and large bus centers, but residents of pricey neighborhoods worry about holding on to the value of their homes and the reputation of their school districts, both of which could easily be impacted by bringing in “outsiders” to their twee communities. People already living in crowded middle-income communities worry about overcrowding, and residents of lower-income communities complain about “gentrification” and changes to the current ethnic or racial identity of the neighborhood. Here is aphrael’s summation of the problem:

The problem is that this solution is politically impossible. To *existing* homeowners, who exercise effective control over local politics in most jurisdiction, building more housing means increasing density in their neighborhoods, which means giving up some of their quality of life. It means more traffic, more noise, more people around. Smaller lot sizes, tall buildings casting shade on their homes and their lawns. It means giving up the California dream as they understand it. And to anti-gentrification activists, it means the destruction of their communities (never mind that their communities are being destroyed by rising rents *anyway*).

So if we accept the idea that we simply won’t be able to build enough housing to stabilize rents, we’re left with three choices. The worst one of these as far as I am concerned is imposing rent control. It sounds benign enough: renters get the certainty of limited annual increases in rent in their units and in return property owners are excused from some of the more onerous requirements of maintenance of their buildings, and depending upon the locale they may be eligible for some tax incentives for offering rent control. But at the same time, rent control brings about some perverse results. Here’s a nice encapsulation of rent control’s problems from Kenneth Rosen, chairman of the Center for Real Estate and Urban Economics at that notorious right-wing free-market institution, the University of California at Berkeley:

Specifically, rent control reduces property values and decreases tax revenue for local governments. Rent control hurts mom-and-pop businesses, encourages property owners to neglect building maintenance, and can lead to deteriorating neighborhoods. Rent control is need-blind, so the benefits often accrue to high-income households. Moreover, if applied to single-family homes, rent control could eliminate rental housing for many families and decrease property values for California homeowners.

Not to mention that rent control interferes with a building owner’s right to sell his product at market prices. Government invariably stirs up a hornet’s nest of bad consequences when they try to implement price controls, and the housing market is no exception.

The second worst option is for government to subsidize renters to live in apartments beyond their financial means. There are already Section 8 subsidies available to low-income renters through the federal program administered by HUD; having the state or a particular city expand this with additional dollars would be preferable to rent control, but only by a little. It would have to be a partnership between the government and the landlord whereby in return for being eligible to take in the government vouchers the landlord would agree to limit rent increases. But of course given the fact that there is a shortage of rental properties in the biggest cities, why would a landlord voluntarily agree to limit prices where there are no doubt long lines of people willing to pay market rates to get the place? Though expanded government subsidies do have the virtue of forcing the government to bear some of the cost for the housing shortage, it ultimately is an unworkable solution.

So that brings us to the final choice, which is to do nothing. After all, where is it written that people have a right to a cheap apartment in a desirable location? And what is so special about firms in San Francisco, Los Angeles, New York, Chicago, Washington DC, and other places that governments should rig markets in order to provide workers for them? I understand that young woman who struggled through her computer science degree because she dreamed of working in Silicon Valley is having her hopes dashed because she can’t get an entry-level job that pays enough for her to find a place there, but — you know what? — that’s between her and Google/Facebook/Twitter/Salesforce. Maybe she needs to telecommute from Cleveland, or maybe the time has come when urban America has been built out to capacity and companies need to shift their operations to Kingman, Pueblo, Joplin, Sheboygan, Pine Bluff, Allentown, and Spartanburg. It will be up to the cities to take care of workers in non-tech industries — the teachers, bakers, florists, cops, and nurses — and that will take a willingness to build more housing or somehow figure out how to make their commute easier (I still think the tech companies should pay to extend the boondoggle bullet train from the Central Valley to the Bay Area).

Let me give our friend aphrael the final word, since he plans to vote for Proposition 10 next week. Here is his reasoned rationale for supporting rent control as the best of a bunch of bad options:

The cost of housing ripples through to other things. Groceries, for example, have to be substantially more expensive because (a) the rent on the storefront is more expensive, and (b) the salaries of the workers have to be more expensive so that the workers can afford to live four-to-an-apartment manhattan style. This inflation trickles down through everything. And as the price of housing continues to rise due to a growing imbalance (we’re not building enough new housing to keep up with demand, let alone to backfill the gap), the problem will get worse.

A mechanism that allows those who are already renting to continue to afford their rent helps ameliorate *some* of the inflationary effect of the cost of housing.

And it protects those people from having their lives disrupted and the quality of their life shattered by being forced to move by rising rent.

It’s a bandaid. It doesn’t bring us any closer to solving the real problem. But it helps temper the effects of the catastrophe.

And thanks as always to him for his comments, even (and especially) when we don’t agree.

– JVW

51 Responses to “Against Rent Control”

  1. I lived in a rent controlled apartment in Boston from 1992-93, just out of college. It was a three bedroom place in a dangerous (but gentrifying) neighborhood where a guy got gunned down in front of our place the day we moved in. Four of us split $960 per month for rent, until one guys’s girlfriend moved in and we all had our rent lowered to $192 per month. One of my roommates had inherited the lease from a guy who had inherited it from a guy, so we were paying 1982 rates plus moderate increases. The windows were as thin as candy glass, and that winter when we had a massive storm we sprung about two dozen small window leaks and another dozen or so in the ceiling.

    As we were moving out, I came home one day and the landlord was showing the place to a single professional man, promising him new windows, new appliances, etc. I found out he was asking $1800 for the place, almost twice what we had been paying. Now it’s a condominium which last sold for something like $850,000 three or four years ago.

    JVW (42615e)

  2. Zoninbg, bukilding code and other regulations have driven up the price of any sort of new hoiusing to the point that it is only tolerable for long term residents registered voters who have voted for incumbents if rents are controlled.

    Abolishing rent control won’t make housing any cheaper. It’s a symptom, not acause.

    Sammy Finkelman (102c75)

  3. it’s a band-aid but for hundreds of different mostly self-inflicted wounds some of which need debriding

    what i hate about rent control is how it traps people there what stand a much better chance of prospering elsewhere

    it’s just another plantation you see

    it’s just another plantation

    happyfeet (28a91b)

  4. Thomas Sowell and Walter Williams have written extensively on this topic. If you’re really interested in learning about the devastating effects of rent control policies, just do an internet search using their names.

    In fact, Sowell and Williams explain it so simply and clearly that even a NeverTrumper can understand it.

    The Great Ape of Madagascar (7654f5)

  5. Anyone who welcomes open borders or illegal immigration welcomes even greater inflation of property prices and rents, especially in CA.

    It would be bad enough without 20 million illegals but we’re pricing lots of our younger citizens out of the great and vanishing opportunity of owning a home.

    harkin (fc9aef)

  6. Let’s say there is a social need to lower these high rents. Young people, families, marginal workers, yada yada yada.

    Why does the state think it is fair to put the ENTIRE burden on landlords? They had similar costs — land to build apartments in SF isn’t free and the regulatory hoops for development are extreme. THe construction workers need to be paid more for the same reasons as given.

    Why just the landlords?

    Further, why does anyone think that it will BE the aforementioned downtrodden folks who get these cheaper rentals. It hasn’t happened that way in Santa Monica, nor are the subsidized renters there necessarily working in the city. It’s a nice place to live even if you work downtown (and there’s a train now!).

    Most landlords will want the most stable renters, who aren’t going to ever be late and are capable of taking care of little things themselves. In Santa Monica you don’t expect the landlord to replace the garbage disposal. That was settled with a wink and a nod when you signed the lowball lease.

    JVW’s less evil option of a straight financial subsidy is WAY better than rent control.

    1) It can be means-tested. Even travel-tested.
    2) The landlord and developers are not screwed to the point of never building there again.
    3) It spreads the burden to all taxpayers, which is the proper way to pay for a public good.

    Kevin M (a57144)

  7. Anti-gentrification: a racist insistence on keeping a slum a slum.

    Kevin M (a57144)

  8. Anyone who welcomes open borders or illegal immigration welcomes even greater inflation of property prices and rents, especially in CA.

    In Los Angeles, the old Hispanic community was East LA, near downtown jobs, manufacturing and government agencies. Over the past 30 years, the Hispanic area has crossed downtown, and spread throughout North Hollywood and the near Valley.

    This has displaced people (like me) who used to live in that area but now try to crowd into West LA or the far valley. Land and rent prices went up.

    Kevin M (a57144)

  9. Property rights….the right to “own” your property, and if you are not harming others, or deliberately destroying the property, shouldn’t it be your “right” to do certain things, like SELL OR RENT it at whatever price you want? That there is a “need” for housing in an area can be addressed in the free market, “”IF”” the local government wants to address that. But, then, the local government gets cut out of their “SHARE” of the bounty….Rent control is the government getting a share of the bounty, without any of the cost, which are all passed down to the property owner, who can’t charge enough to make a “market profit.”

    reff (654c04)

  10. Abolishing rent control won’t make housing any cheaper. It’s a symptom, not a cause.

    Oh, BS. It’s both. It’s controlling a system with positive feedback. After a particularly pernicious rent control went in in Santa Monica in 1979 — a town that is now politically controlled by a local Rent Control Party — not one new apartment has been built. Quite a few former apartment buildings have been converted to condos (after lawsuits against a city that tried to outlaw same), and some have been razed completely for other uses.

    And the price of condos in SM? I doubt there is one that sells for less than $1 million. Houses? I saw a house sell in probate for $2.5 million, razed and a spec house built. Sold for $4.5 million and the new owner gutted it and remodeled.

    But the dwindling supply of rentals are a bargain, not that there are a lot of vacancies. The blue-haired old ladies they used on posters in 1979 have given way to people with Mercedes.

    Kevin M (a57144)

  11. If it weren’t for Prop 13, the state would probably be assessing the rental property at market rates, too.

    Kevin M (a57144)

  12. I’m wrong, Some new apartments have been built in SM, but only after Costa-Hawkins put them off limits. But, like Darth Vader at Bespin, the landlords should just pray the deal doesn’t get any worse.

    Kevin M (a57144)

  13. Further, why does anyone think that it will BE the aforementioned downtrodden folks who get these cheaper rentals.

    This.

    Remember when Trump’s buddy Charlie Rangel was found to be leasing four rent-controlled apartments in NYC, and using some of them as campaign offices?

    Dave (9664fc)

  14. “JVW’s less evil option of a straight financial subsidy is WAY better than rent control.”
    Kevin M (a57144) — 11/1/2018 @ 8:58 pm

    Subsidies would do for rent what financial aid has done for tuition. As JVW notes, no landlord in their right mind would agree to limit rent in exchange for subsidies.

    Munroe (b04614)

  15. maybe the time has come when urban America has been built out to capacity and companies need to shift their operations to Kingman, Pueblo, Joplin, Sheboygan, Pine Bluff, Allentown, and Spartanburg

    If only Google/Facebook/Microsoft/Yahoo! could figure out how to connect these far-flung enterprises over some kind of high-speed telecom system. TOYOTA builds cars in Tennessee, after all.

    Kevin M (a57144)

  16. Subsidies would do for rent what financial aid has done for tuition. As JVW notes, no landlord in their right mind would agree to limit rent in exchange for subsidies.

    Prisoner’s Dilemma then, with rent control the other option.

    Kevin M (a57144)

  17. I learned about rent control in Econ 201 back in the 1980s. It’s one of those classic perverse economic incentives, where lawmakers intend to make housing affordable but create the opposite effect by shutting down developer incentives to build new supply. The best way to make urban housing more affordable is to abolish rent control, change zoning to allow higher-density development, and cut down on bureaucratic red tape.

    Paul Montagu (7b9e3b)

  18. A lot of the problem can be summed up by the old saying that a developer is someone who wants to build a cabin on top of the mountain and an environmentalist is someone who already owns a cabin on top of the mountain. People want things to stay “just the way they’ve always been” with “always” being defined as “five minutes after I got here.”

    As a long-time resident of Damnearalabama, Georgia on the far fringes of the Atlanta metro area, I get treated to a weekly letter-to-the-editor complaint about how this bucolic small-town rural county is rapidly changing and every letter starts the same way: “Ten tears ago when we moved here from Atlanta to escape the big-city environment, this was a nice peaceful place and now it’s being overrun by too damn many people moving here from Atlanta.” The joke of course is that this exact same letter appeared ten years ago, but in that case the author’s complaint about “too damn many people moving here from Atlanta” was referring to the current letter writer. And ten years from now there’ll be the umpteenth iteration of the letter from the guy who just moved here from Atlanta yesterday.

    Jerryskids (702a61)

  19. It’s one of those classic perverse economic incentives, where lawmakers intend to make housing affordable but create the opposite effect by shutting down developer incentives to build new supply.

    Not to be ridiculously cynical, but I think lawmakers are really just intending to get votes from people who have a limited understanding of how markets work.

    JVW (42615e)

  20. @18 There’s already too many people in Atlanta. People from NY or NJ shouldn’t think the area is still the land of affordable housing, good schools, and jobs. They might keep moving there and pushing the suburbs out.

    NY and CA are wonderful places and everyone who lives there should stay there.

    I may need to fire off another letter to the editor.

    frosty48 (6226c1)

  21. “Ten tears ago when we moved here from Atlanta to escape the big-city environment, this was a nice peaceful place and now it’s being overrun by too damn many people moving here from Atlanta.” The joke of course is that this exact same letter appeared ten years ago, but in that case the author’s complaint about “too damn many people moving here from Atlanta” was referring to the current letter writer. And ten years from now there’ll be the umpteenth iteration of the letter from the guy who just moved here from Atlanta yesterday.

    We have this out here in my sleepy little beach town. I arrived here 23 years ago, but the people who have lived here for 30 years still consider me an interloper and people who have been here for as long as I have look down on those who have arrived in the past ten years as the interlopers. I’ve made it an absolute point not to look down on anyone who comes to my town in search of the same sunshine and ocean breezes that I found and I’m against all efforts of my neighbors to prevent others from enjoying our piece of the world. But no one is entitled to live here, and the idea of the government subsidizing someone to live in a desirable location strikes me as obnoxious.

    JVW (42615e)

  22. Natives get restless everywhere.

    mg (9e54f8)

  23. As I said on another thread, there are sane developments and there are crazy-ass ones. When you pass laws that override local concerns (as has been done in California already), you get ahole developers who lawyer the dickens out of things and destroy the value of all the property around them as they make a few bucks themselves. Then the next guy, who tries to be reasonable, gets his ass kicked down the street.

    I have a rule that I think would work for development: You can build anything you want, but you are liable for all loss of value you cause your neighbors. Tower 8 stories over their back yard and you may find yourself buying their house. But feel free.

    Kevin M (a57144)

  24. 19. Sometimes the truth sounds ridiculously cynical. That doesn’t make it untrue.

    Gryph (08c844)

  25. 23. And how do you make sure that “local concerns” are taken into account? Easy! Leave government out of it altogether!

    Gryph (08c844)

  26. Great post and great comments – a pleasure to read. Great comment by Jerryskids, especially.

    Leviticus (1e8028)

  27. Kevin M,

    If we don’t like it when the government exercises eminent domain powers, I don’t think we should be handing de facto eminent domain powers over to the private sector.

    Leviticus (1e8028)

  28. Rent control springs from the same part of human nature that lets people steal watermelons from their neighbors’ patch.

    nk (dbc370)

  29. You won’t win by appealing to their higher natures — respect for the labor and the property of others.

    nk (dbc370)

  30. #18 writes about a phenomenon that we “Inside the Perimeter” Atlanta people recognize pretty well. Because we are complaining about all those suburban people moving back into town and changing things, or wanting to build ever more dense developments, and crowding us older neighborhoods, and making the rents go up.

    Used to be a joke in a formerly derelict neighborhood called Kirkwood, in which you could tell the difference between an old time resident and one of these newfangled residents by the kind of dog they had. Old time Kirkwood — it was a pit bull or a German Shepard. Y’know, the kind of dog you get for protection. New Kirkwood — well, that would be some kind of nice small dog, like a terrier or something frou frou like that. They don’t tell that joke in Kirkwood anymore, because the folks with the pit bulls have all moved. Resentfully, most of the time, but with more cash for their house than they probably expected.

    Atlanta does this more swiftly than most places, but things always change, and the people in the mdst of it always want to freeze thing to the way they were because, after all, when you made the decision to move into a spot, you liked the way it was at the time rather better than anywhere else you looked at that you could afford. Places preserved in amber, through historical preservation or environmental regulation, either become unaffordable wealthy person theme parks, or decline, or, if you have the misfortune of having a newer home in a historic neighborhood, you get both decline and the theme park.

    Appalled (c9622b)

  31. Neither a landlord nor a renter be…

    Colonel Haiku (d6d143)

  32. Some politicians hear “higher density” and think public housing or Cabrini Green. Good in theory, lousy in execution. I chortle at the environmentalists who want walkable higher density housing, but would never ever live there. They already have a place in the mountains, etc.

    CygnusAnalogMan (9c66ec)

  33. Oh, Atlanta!

    https://youtu.be/tyyq_Mye6so

    Colonel Haiku (d6d143)

  34. I don’t think we should be handing de facto eminent domain powers over to the private sector.

    They pretty much already have in CA.

    If a developer wants to build on any lot not specifically zoned R-1, he can build up to 5 stories if:

    1. It is near a transit stop. This can be a bus bench.
    2. He sets aside a small number of apartments for low-income tenants.
    3. He meets all state limits and regulations.

    City rules are waived by the state law. This is called a “by-right” development. Parking requirements*, height limits, density limits, traffic mitigation and all other city rules can be ignored. In a few situations, where he wants something that is not “by-right” he may have to negotiate with the city. But mostly he (or his lawyers) can tell the city and local residents to bugger off.

    The state legislature has several bills before it that would make this process even easier for developers, going up to 8 stories and allowing construction of high-density units in R-1 for the first time. Also “by-right.”


    *The parking thing grates in Los Angeles, as it just means that nearby residential streets will be the parking lot. The state claims the new renters will take the bus or ride bikes.

    Kevin M (a57144)

  35. ANd of course, residents demand the city “”do something” then continue to vote for the state legislatures that passed the law. Because Trump, or abortion, or icky Republicans, or something.

    Kevin M (a57144)

  36. So, the anti-rent-control argument that it will stop development is not necessarily a winning one.

    Kevin M (a57144)

  37. If we don’t like it when the government exercises eminent domain powers, I don’t think we should be handing de facto eminent domain powers over to the private sector.

    Yeah, but it’s worse when you hand them de facto “takings” power without having to pay for it.

    Kevin M (a57144)

  38. Appalled, I thought that the German Shepard (60s) -Doberman Pinscher (70s)-Rottweiller (80s)-Pit Bull phenomenom was just as indicative of restrictive gun control laws, given these breeds ubiquity in downtrodden CA, IL and NJ.

    urbanleftbehind (5eecdb)

  39. #38

    ATL doesn’t have that factor, since there aren’t restrictive gun control laws here, and haven’t been as long as I know about.

    Appalled (c9622b)

  40. Just an observation germane to those 3 states, much like locomotive-driven commuter trains have stood in for the pistol to the head here in Chicagoland, but I think our much delayed entree into concealed carry and resulting greater household firearm ownership and experience might be putting a dent in that grim metric. And one could say Wisconsin (the other holdout in concealed carry until 2012) is a “do as I say, not as I do” firearms culture as much as Israel – note Wiscy had a German socialist influx mid -1800s whereas modern Israel had that initial influx of Eastern European socialist Jews.

    urbanleftbehind (5eecdb)

  41. OT, in other news… https://www.usatoday.com/story/money/2018/11/02/jobs-report-october-economy-adds-healthy-250-000/1850406002/

    Last jobs report before the mid-terms, watch how it will not get much play w/o Dem in the WH.

    Colonel Haiku (d6d143)

  42. Colonel Haiku (d6d143) — 11/2/2018 @ 6:42 am
    Heh!

    I have been enjoying this thread. A round of applause for the host and his wise policies.

    felipe (5b25e2)

  43. Last jobs report before the mid-terms, watch how it will not get much play w/o Dem in the WH.

    Just as apt, how much play will it get from Trump compared to the fake news caravan?

    BTW, on CNN this morning, the jobs report got what seemed to be full and fair coverage. It even suggested Trump’s trade policies were possibly responsible for the rise in manufacturing jobs.

    kishnevi (bb03e6)

  44. You could buld alternative housing using shipping containers, or other prefabricated housing, but nobody who has any equity in real estate would like that. Banks wouldn’t either.

    Sammy Finkelman (102c75)

  45. Good God…

    If you can’t afford to live there..LEAVE.

    Failafornia has chosen it’s fate. It is a leftist hellhole, never to be recovered.

    Shut up and pay your toll or, pick up and go to the land that believes as you believe.

    The majority in your garbage state has made it plain and clear. You have no right now.

    Man up, move on.

    Matador (39e0cd)

  46. 45. Unfortunately, in California as in elsewhere, there are still a large number of people that think voting is a civic duty and that it can actually make a difference. Good luck with that Commie-fornia.

    Gryph (08c844)

  47. California secession should be cheered and encouraged.

    First, and foremost, from a Constitutional perspective. Secession was never a power prohibited to the States by the Constitution.

    Better, because the malignant tumor would be excised, without a single shot being fired.

    Matador (39e0cd)

  48. I’m not giving up the Sequoias (that’s Giant Redwoods to you.) What I’d like is to have California vote for secession and then use that as an excuse to take away its statehood and make it a federal territory again. Hawaii, too.

    nk (dbc370)

  49. Why you wanna keep a wife dat dont luv ya? Let her go, OJ.

    Matador (39e0cd)

  50. So, the party line in CA is that homelessness there is caused by the high rents. And yet…

    I now live near Albuquerque, NM, where $1000 will rent you a damn fine two-bedroom apartment, with pets allowed, a pool, a weight room, and parklike grounds. Add a few bucks and get a fireplace and granite in the kitchen. For $500, you can get a clean 1 bedroom, maybe no pool.

    And yet there are lots of homeless here, too. Maybe it isn’t those high rents.

    Kevin M (a57144)


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