Rent control and time

Welp, bring on the supply-splaining:


Because I am talking demand-side today and if there is one policy that supply-siders love to lecture me on other than ‘splaining the micro I teach in the first 3 weeks of my freshman class, it is rent control.

Rent control strikes me as one of those policies that could be enormously helpful or harmful, depending on its design. Most rent control policies are well-intended but badly designed; they get passed in perpetuity, and I think most public sector economists agree that price controls are useful at times in specific instances, but permanent price controls just aren’t a sustainable idea–people find ways around them, there’s underhanded behavior instead of just market behavior, etc.

But temporary price controls can be very useful, indeed. I have long believed UC Davis’ Dan Sperling right in advocating for a price floor for gasoline. That one can be permanent as far as I am concerned; it is a technology-forcing measure that tries to move people off a polluting power source to others.

Rent control, by contrast, should not be permanent. That doesn’t mean it should never happen. Now, maybe the politics are such that if you give people rent control for a bit, it becomes permanent. I don’t buy that, but it’s worth mentioning, though.

Here are the general, valid complaints about rent control:

1. It’s inflexible, and thus it keeps renters stuck in units when they might be better off moving to locations that would be more welfare-enhancing;

2. Ditto, and thus it keeps landlords from making improvements that are location-efficient;

3. Given time, renters age and often become affluent enough that they no longer need rental protection, which they still take anyway because they like the place and why not?

4. Ditto, inflexible, so that it sticks it to newcomers who would find the location welfare-enhancing, but they can’t live there because the units aren’t moving because of rent control.

I’m not going to get into the normative objectives from market ideologists; they will usually explain their position to anybody who doesn’t run away quickly enough, so they hardly need me to do that work.

What I wish people understood about the concerns renters have: most of those fears are short-term because people who have low-incomes often do not have the resources to invest long-term, nor do they have a lot of cushion to withstand short-term price shocks.

Buying them time and easing their transition would be a helpful thing.

1. Supply is medium- to long-term strategy for affordability*.

If one quarters’ building is enough to make rents drop, then the shortage in construction has been vastly over-estimated, and I don’t think it is. It takes time to finance, approve, and build new units, and even if filtering theories are right (not the asterisk), low-income renters are the last people served with filtering.

Now, with more market-rate units, etc, in theory the short-term price benefits should accrue to those down the market segments and reduce downward raiding.

2. Existing landlords can move quicker than most renters and most new suppliers.

In practice, though, any number of things may happen. Existing landlords, eyeing the rents being charged in the new units, jack up their rents believing that they are going to catch the gentrification wave as it comes it. And they may be right.

Now in theory, so many new units should come that landlords can’t do that–they will face too much competition from new units. But those units coming online happens, at the soonest, in 2+ years. Landlords have a lot of renters on month-to-month leases. Time advantage: landlord.

3. With urban population growth, filtering can take a long time, indeed, if it happens ever.

If we are adding new residents, many mays start at the bottom of the filtering process, but that may not be the case for many newcomers. More affluent newcomers can consume new units and slow the process for stabilizing rents on the supply side.

4. We need time to plan for those that the market never seems to get around to serving. We have people who are homeless because of shortage problems, undoubtedly, and short-term price shocks could make that problem worse. We don’t want that.

We want to be able to keep housing vulnerable people in housing in the short term to avoid worsening that problem. But we also have those who need permanent, supportive housing. The market doesn’t build for this group; it never has unless the public sector contracts for it. These are folks who were struggling long before the rapid urbanization and zoning combo left our cities undersupplied.

Getting a smart public housing plan off the ground will take a little.

With temporary rent control that allows for escalation to a yearly ceiling, I don’t see a ton of downside. If, as supply siders think, housing prices immediately react to new supply and competition forces landlords to keep their prices reasonable, then nobody need hit the ceiling or prompt the escalator. And the escalator can be designed to hold harmless long enough to allow renters to make moving arrangements even if local supply doesn’t ante up.

*I’m not convinced in global capital era that filtering theories are right. But I can pretend they are for the sake of argument.

2 thoughts on “Rent control and time

  1. I think you are quite right about the time issue, and I would argue that rent control in California as presently constituted is not permanent because vacancy decontrol takes all rents to market sooner or later.

    Rent stabilization ensures that tenants with stable incomes have stability in their housing. (Tenants without stable incomes need a society that ensures access to stable incomes, but that’s another issue.) Many economists seem to find this offensive and are fond of the idea that reducing mobility is a bad thing, very inefficient. The real estate industry quotes them against rent control, but also tells us that tenants are bad for a community because they are “transient” and that we should support homeownership because homeowners are stable.. But of course mobility and transiency, immobility and stability, are simply positive and negative ways of describing the same phenomenon using two different frameworks, market efficiency and civic community. Even the claims of inefficiency due to reduced mobility are questionable because they ignore income inequality. Is it really more efficient if people who get high-paying jobs move into a community and push out retired people or low-wage workers with more limited incomes who have spent many years in the area and have most of their family and friends there? Only if you think how much money people have should determine their human worth. For every example of how rent control encourages some tenants to stay who don’t need to, there is another example of how the lack of rent control leads to someone suffering greatly from being pushed out.

  2. 1. Landlords skimp on maintenance by reflex. (I have worked as an electrician often for landlords over 40 yrs)
    2.Even if R Florida’s creative class decides they want suburban picket fences as they age, until the rest of the country becomes as welcoming of diversity as LA, SF et al those choice locations will not build new housing either fast enough OR cheaply enough for the service sector workers. So there will be continuous price pressure on existing older housing.
    Thus, for this leftist, rent control is pretty much a necessity anywhere but ghost towns.

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