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Rent Control
Posted by: Jon Henke on Saturday, June 03, 2006

John Tierney has a wonderful column in today's New York Times on the subject of rent control. I'm fairly certain that, somewhere in New York, some "To the Rent-Controlled Apartment Born" progressive had their breakfast ruined by this. The whole thing is good, but here are the key 'grafs...
...I did live in regulated apartments for 17 years, and I'm still amazed at the self-delusion that prevailed. I spent long dinners hearing rentocrats earnestly explain that while the free market may work for the rest of apartments in America, rents must be regulated in Manhattan because it is an island with a limited supply of housing. (If an out-of-towner suggested to these Manhattan theorists that the rent they charged for their vacation homes in Nantucket should also be regulated, they would explain that Nantucket is a different kind of island.)
[...]
No matter how much you love your rent-stabilized apartment, no matter how smug you feel bragging to your friends about your deal, in your heart you know it's not fair you're paying so little. It's like buying stolen goods: you can revel in the low price, but you know it comes at someone else's expense.

And you know exactly who that someone is. You're living on his property. You're a squatter, but you don't want to admit it. So you tell yourself it's not really his property anyway, and you're more worthy of it than he is, and you couldn't survive anywhere else, and anyway this is all about something far more profound than money. But it's not.
There is an important central truth there which can, and ought to, be applied to more areas of government policy. I'm not sure whether anybody could seriously defend rent control — that is, somebody who actually believes in it; not merely speculative, unenthusiastic defenses from opponents of rent control — but I'd like to hear such a defense.

One suspects that defenders of rent control for New Yorkers would rarely be found defending the massive federal agri-business subsidies, while defenders of massive federal agri-business subsidies would rarely be found defending rent control in New York. Both cannot be right. In fact, neither are right.
 
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Amen.
 
Written By: OrneryWP
URL: http://
I’m not sure whether anybody could seriously defend rent control...
I don’t see how anyone could seriously defend, say, Fidel Castro or the Canadian healthcare system either, but assorted leftists defend both all the time. And they think they’re serious.
 
Written By: Billy Hollis
URL: http://
Rentocrats may be self centred, leftist, idiots, but they are also law abiding, working and living in New York. The benefits of having a law abiding population in a central city are worth something to New York - allowing stability of a sort.
 
Written By: unaha-closp
URL: http://warisforwinning.blogspot.com/
Could people also, possibly, be law-abiding if they had to pay equilibrium prices on their real estate?
 
Written By: OrneryWP
URL: http://
"One suspects that defenders of rent control for New Yorkers would rarely be found defending the massive federal agri-business subsidies..."

Not, perhaps, subsidies to large farming businesses, but I’ve heard leftists defend subsidized ’family farming’ on the feeble grounds that "it’s different; it’s part of American culture and must be preserved." It’s easy to be nostalgic with someone else’s money. The same idiocy, incidentially, pervades members of city historical preservation commissions.
 
Written By: Unknown
URL: http://
Rentocrats may be self centred, leftist, idiots, but they are also law abiding, working and living in New York. The benefits of having a law abiding population in a central city are worth something to New York - allowing stability of a sort.
unaha-closp, are you suggesting that if the rent control laws were to be abolished, that all the law-abiding citizens in New York City would disappear? That the only thing keeping the law-abiding in the city is rent control?

That’s a pretty long reach.

Besides, it’s easy to abide by a law that lines your own pocket at the expense of someone else.
 
Written By: Steverino
URL: http://steverino.journalspace.com/
Well, something like 95% of corporate farms are actually closely held family farms. Having grown up on a farm and worked in the industry for many years, I seriously doubt that ’family farms’ could survive even with subsidies if they are trying to raise the 4-5 major cash crops (corn, wheat, soybeans, cattle, hogs). To make it on less than 800 acres of pretty decent land requires that you raise a speciality crop the *consumers* are willing to pay a premium for.

I suppose you _could_ totally subsidize a family farm by covering all costs and guaranteeing a large enough profit to ensure that most of the hard work got done.

Anyway, I’m pretty sure that if rent control was abandoned, NYC would soon become just like "Escape from New York." Or maybe Mad Max. Total anarchistic, violent chaos. Surely rent control is a small price to pay to avoid that.
 
Written By: JorgXMcKie
URL: http://
I feel like such a fool. All these years I have been a law abiding citizen for free when I could have been paid for it. Maybe I can get rent control established where I live, since housing costs are going through the roof.
 
Written By: timactual
URL: http://
Unaha, an apartment building is a business. If a municipal entity artificially suppresses rent-increases, then, that entity is robbing that business’-owner of potential income.

A friend of mine owns a rental in San Francisco’s controlled neighborhoods. He complained last year that SF’s city-government won’t let him collect enough rents to keep up the building - and, to add insult to injury, when improvements are required, the city’s permit regimen taxes the building owner even more.

The result: he put off the improvements, again.

Meanwhile, the tenants take little comfort from their subsidy. They still complain about the booming cock-roach population, while, perversely voting "D" for more "Dependency," and draining their acrid bong-water onto the wilting Hydrangeas by the front door.
 
Written By: grass
URL: http://
It is very easy to argue for any given policy if you feel politics is about expressing what society wants and not just achieving the most efficient marketplace.

But, rent-control is just one of those policies where the economics screw up the policy to make it risible.




 
Written By: Harun
URL: http://
I seriously doubt that ’family farms’ could survive even with subsidies if they are trying to raise the 4-5 major cash crops (corn, wheat, soybeans, cattle, hogs). To make it on less than 800 acres of pretty decent land requires that you raise a specialty crop the *consumers* are willing to pay a premium for.
I totally agree, in fact my Brother in Law is a farmer with, incidentally, about 800 acres of good Louisiana farmland. For years he struggled trying to make it with subsidized crops such as sugar cane. Then, about twelve years ago he began to convert his acreage to Pecan Grove, and crawfish farm. Now he makes more money on far less work, and no subsidies.

As for Rent control. I remember reading an article years ago that showed that the worse homeless situations were all in rent controlled cities. The reason is that the older housing which would normally be converted into very low rent tenements are never converted with rent controls.
So all these good liberals are contributing to homelessness, LOL.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
Largely lost so far in the comments is the fact that rent control not only penalizes rental property owners by artificially reducing their potential income in a free market, it also thereby reduces the stock of rental property by discouraging the creation of new rental properties and encouraging the sale of existing properties to condominiums and such. If anything, it thus reduces the number of those (law abiding persons) above the poverty line but not affluent enough to buy housing in Manhattan to live there.

As a collateral matter, the question should be raised why public housing of any sort should be continued where real estate prices are among the highest on earth. Indeed, if one is to all intent and purposes a permanent ward of the state, does it make any sense for the state to send the check to a Manhattan address as opposed, say, to one in Queens?
 
Written By: D.A. Ridgely
URL: http://
...I’ve heard leftists defend subsidized ’family farming’ on the feeble grounds that "it’s different; it’s part of American culture and must be preserved."
I’ve been hearing that one since it was part of the intro econ class at the University of Tennessee in the 1970s. My question then (and now) was, what makes family-owned farms different from family-owned candy stores or family-owned textile mills, or any other family-owned business? I’ve never heard defenders of family-owned farms come up with a coherent answer to that one.
 
Written By: Billy Hollis
URL: http://
I’m not sure whether anybody could seriously defend rent control — that is, somebody who actually believes in it; not merely speculative, unenthusiastic defenses from opponents of rent control — but I’d like to hear such a defense.
You may have to find a more diverse crowd to get that robust argument.
 
Written By: unaha-closp
URL: http://warisforwinning.blogspot.com/
You may have to find a more diverse crowd to get that robust argument.

Amen.


Largely lost so far in the comments is the fact that rent control not only penalizes rental property owners by artificially reducing their potential income in a free market,

So what? There are no completely free markets anywhere in the universe, and there are 1000 laws that artificially reduce the potential income of various business operations in a free market. Almost every regulation I could name does this.

It also thereby reduces the stock of rental property by discouraging the creation of new rental properties and encouraging the sale of existing properties to condominiums and such

Again, so what? Every regulation that reduces the maximum possible profit for the supplier has a theroetical negative incentive on supply.

If anything, it thus reduces the number of those (law abiding persons) above the poverty line but not affluent enough to buy housing in Manhattan to live there.

That’s exactly what it’s intended to do. Thanks.

I’m not sure whether anybody could seriously defend rent control — that is, somebody who actually believes in it; not merely speculative, unenthusiastic defenses from opponents of rent control — but I’d like to hear such a defense.

You want the textbook defense, Jon? really? Never heard it? It goes like this. Imagine city X going through property bubble Y, having an economic boom with large influxes of high-end jobs moving in, undergoing gentrification, etc, therefore landlords see an opportunity to raise rents to move with the rising median income, except that jobs in the bottom 15% have flat incomes and rent becomes more than income or some debilitating percentage in the 75% and up of total income range. The market does not correct and does not care because housing overall is scarce in a major city on an island, and therefore vacancies are low. Due to the limited availability of land and high demand, prices are inelastic, and the 15% are going into bakruptcy, debt, financial ruin etc. etc.

Thus rent controls are established as a societal corrective action to the inelasticity of prices - the fact that prices chasing the median does not fully meet the needs of and/or lead to economically viable outcomes for certain societal segments with jobs that used to be economically viable and now are not.

Never heard that before, eh John?





 
Written By: glasnost
URL: http://
Glasnost, your explanation is garbage. If prices go up then there will be a demand for higher wages, or people will not be able to work in the city. What you just described is the entire Hawaiian Islands. Nothing works better than the government getting rid of subsidies, controls, and other crap. If you want to help the working poor, give them direct monetary aide, that is less harmful than any other such tinkering.

You know, you are probably an intelligent guy, but your ideology has made you stupid.
 
Written By: kyle N
URL: http://impudent.blognation.us/blog
You know, you are probably an intelligent guy, but your ideology has made you stupid.

Some of the intelligent ones eventually outgrow the ideology.
 
Written By: Billy Hollis
URL: http://
glasnost:

I understand someone preferring some loss in market efficiency in return for some other objective perceived as more important, so I take your first several "So what?"s in stride. I think such indifference to market efficiency is wrongheaded, mind you, but I understand someone taking that attitude.

What I don’t understand, however, is your comment that reducing middle class rental property is the intended consequence of rent control. Either you misunderstood me or I misunderstood you or you are claiming that the objective of rent control is an inverted bell curve permitting the very poor and the very rich to live in Manhattan but precluding the middle class. That strikes me as a perverse objective even by liberal standards.
 
Written By: D.A. Ridgely
URL: http://
I manage apartment houses in NY. Several months ago, the Gannett Journal-News (favors rent regulation) published an article comparing the profitability per sales dollar of the media biz (about 20%) versus the S&P (about 11.5%) in context of job and product cutbacks. Well, according to the Westchester County Rent Guidelines Board, profitability per dollar of rent is about 6%. Hence, the real argument should be that media subscriptions and classified rates should be scaled back and placed under political control - not speech, just revenue - until the media’s profitability per sales dollar is also 6%.

chsw10605
 
Written By: chsw10605
URL: http://
I’m guessing glasnost might be a little less in favor of ’social corrections’ (a.k.a. centrally run economies and lives by a self-describe intellectual elite) if he was genuinely on the other end of the stick, having to put up his own capital and sweat equity to make a business work or face failure. Just exactly what do you do, glasnost? I’m guessing you are a student or employee of government.

 
Written By: Unknown
URL: http://
Do I understand this correctly? We must freeze the price of housing so the proletariat can continue to live in the city and serve those who can afford to live in condominiums or commute from Conn. etc., all at the expense of the greedy landlords?(Landlords are parasites anyway, right?)
 
Written By: timactual
URL: http://
Glasnost is perfectly correct in making his argument - it’s just that history has proven it to be a failure. Trying to control a market lets out too many unintended consequences.

The slightly better solution to the "problem" he describes would be direct subsidies to individuals.

The best solution was the other argument that OVER TIME, wages at the low end would have to increase or the city wouldn’t have any janitors. (However, I believe the bay area has this problem. I don’t know if wages rose, but supposedly the janitors commute huge distances to find affordable housing.)

 
Written By: Harun
URL: http://
Kyle,
Friends in the shady forests of Oregon are growing American Ginseng for the Chinese market, and doin’ pretty good at it, too.

Glasnost:
"...[H]ousing overall is scarce in a major city on an island, and therefore vacancies are low."
Regulation and subsidy (they usually go hand in hand) are the main causes of product-scarcities. Real-estate and new-building construction is over-regulated, and renters (who represent just one lobe of the intricate island RE market, and a secondary one at that) are subsidized in their free-choice of residence.
"[R]ent controls [were] established as a societal corrective action to the inelasticity of prices"
The end-result of "rent-control" is the stagnation it is supposed to correct. Buildings deteriorate, cronyism in contracting, permitting and title-ing grows, a lucrative black-market in sublet-ed partitions blossoms, and a warped sense of trapped, entitlement settles into these "island" communities.

It’s gotta effect the Island’s discourse on politics, its media and the world.

 
Written By: grass
URL: http://
If the purpose of rent control was to create an artificial housing shortage and insure that market rents would be kept as high as possible as renters compete for the remaining available housing, I’d say that they’ve been a resounding success. The net effect was to make the island evenly split between Section 8 and Yuppie City (not that there’s anything wrong with that). Just the mention of "rent control" raises my shackles.

As far as the island turning into "Mad Max" if rent controls were dropped, I can only say... "whaaaaaat?"
 
Written By: Mack
URL: http://bruisedorange.com
Maybe John Tierney’s point about rent control misses the benefits of a stable rental market - and not just for little old ladies who would otherwise lose their homes. Opponents to rent control and rent stabilization argue that the landlord’s profit dissipates and reverses as the market prices outpace the stabilized rent. But I wonder if the stabilized rent actually causes an increase in market prices.

When a person decides to rent in Manhattan, they may want a rent-stabilized building not because they think the rent would be lower (as an incoming tenant, it would not be), but because they know they could more or less predict future rents. They want to know that after paying a large sum to brokers and movers, they could stay in the apartment for several years without fear of being priced out. Without that stability, they may rent a less expensive apartment.

I have not studied this issue - but it is possible that a stable market allows the renter to rent at the upper range of his rental budget, because he knows that the rent will not dramatically increase the next year and "break the bank," so to speak. In an un-controlled market, the renter would instead rent at the lower range of his rental budget to allow room for future, unpredictable rent increases. Because more people can rent at the top of their budgets, the up-front rental price in the market may actually be higher because of rent-control and rent-stabilization - and the landlord may profit.

This could be one of the rare cases where a regulated market creates higher rents and yet everyone benefits. Think of the similar case of the stock market - regulation is good in a stock market, I’d think, because it encourages investment by people otherwise afraid of being cheated. Regulation in banks is similarly good because it encourages the free flow of capital and prevents cash hoarding. Perhaps regulation in housing allows a similar form of "rent investment" - and landlords should encourage it.

As far as promoting additional housing: if the upfront market prices are supported by rent-stabilization, then maybe rent-stabilization promotes the building of new property because the new property owner can attract those initial market rents. (And I have a hunch that those new buildings turn over frequently enough that the back-end profit drain never catches up to the profit from the increased market rent.)

The problem of course is that I have absolutely no idea if any of this is right - you would need some sort of empirical evidence, and I don’t have any. So I could be wildly wrong - but it’s a thought. What we would need to know is whether the price increase effect caused by the market stability is sufficient to provide enough profit to outpace the profit deflation caused by long-term tenants. (So I guess what we need to know is how often Manhattan apartments turn over, on average.)

Any thoughts?
 
Written By: Bryan
URL: http://
D.A.:

I’m a little late here, but to clarify:

What I don’t understand, however, is your comment that reducing middle class rental property is the intended consequence of rent control.

There must indeed have been some misunderstanding here, because I wouldn’t agree with that statement.

If you’re talking about this:

If anything, it thus reduces the number of those (law abiding persons) above the poverty line but not affluent enough to buy housing in Manhattan to live there.

I read that sentence as: rent control reduces the number of above-the-poverty-line poor people who can’t afford to live in Manhattan.

If you think it says something else, you could be right: it’s not very clearly worded.


If the purpose of rent control was to create an artificial housing shortage and insure that market rents would be kept as high as possible as renters compete for the remaining available housing, I’d say that they’ve been a resounding success.

I don’t believe that rent control has much to do with this. The housing shortage is natural: you live on a small island with twenty-five million people.

A recent NYTimes article priced the average rent in Manhattan as $1000/month:
This isn’t much higher than other coastal cities.




glasnost, your explanation is garbage. If prices go up then there will be a demand for higher wages, or people will not be able to work in the city.

Very typical libertarian: understand the dogmatic axioms of economics and not much else. What do the words "inelastic prices" mean to you, can I ask?

If prices go up then there will be a demand for higher wages
Very short version: markets aren’t perfect and just because there’s a demand don’t mean it’s met.

or people will not be able to work in the city.

This is actually what ends up happening. Thus, we have rent controls.

Harun:

Trying to control a market lets out too many unintended consequences.

So does not trying to control one. This is far too general a statement to have any real bearing on my argument. It’s like responding to a political choice with something like "Honesty is always the best policy" or "Do unto others as you would have them do unto you."





 
Written By: glasnost
URL: http://

 
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