Cleaning up some points on my rent control and location monopolies post

So I didn’t get as much nastiness about my rent control post as I thought I would, but I did get some, including some misreadings.

I would love to do one of those cool screen shots with stuff highlighted, but I had two threads take off on Twitter and these comments got buried, so I will give you the gist.

One smartest boy urbanist corrects me to say that it’s “hyperbolic and misleading” to refer to land markets as noncompetitive.

Somebody else without their head up their bottom could respond “Isn’t it a little misleading to say noncompetitive? It’s imperfectly competitive.” I would have responded nicely there. We could have had the following chat.

But alas, smartest boys do not like it when their cherished concepts are poked at, let alone by mere women, and IT HAS TO BE WRONG that urban land markets aren’t sufficiently competitive for efficient outcomes BECAUSE I DON’T WANT THAT PREMISE TO BE TRUE.

Only this dude doesn’t know what he’s talking about because we (and that includes me) really have no idea how competitive land markets in most cities are because data on who owns what is hard to get. And it’s hard to get for good reasons and bad reasons. And even when we can get names and property tax rolls, which firms own what holding companies would require some extensive legwork and/or witchcraft.

Beyond that, it’s hard to know exactly how much market power a firm or a small collection of firms have to have before we put a special label on them as oligopolies. Some markets are obvious: effective cartel formation and behaviors are good signs that you have an oligarchy.

I took an entire class when I was in grad school on how to measure market dominance. It was a great class, co-taught by a law professor and one of my favorite econ profs (Professor John Solow), centered on the question how much market power do firms have to possess before anti-trust laws are violated?

I’m arguing that if urban land markets have reached a point where they are not sufficiently competitive, then “teh market” potentially has a real problem for social welfare even if we got rid all gubmint land use regulation tomorrow.

Remember, we start from the premise that cities are special places for land markets. Property rights in part mean you have monopoly control over the thing you own: in cities, owning a parcel of land means you own not just whatever building but the land itself and thus its location. And it’s that third thing where monopoly control and market power strike me as potentially bad for social welfare and becomes very limited in terms of competition, especially with infill strategies.

It’s why land assembly becomes such a headache, for one.

Here’s another example. For about 5 years straight, I sat through one NLF location bid after another in LA. I don’t know much about stadia, so I shrugged. We had three proposals of varying seriousness. I had very smart real estate people tell me about why each of those locations were viable, and I had very smart real estate people tell me about why only one of them were viable, and of the latter, I encountered advocates of all three locations as “the One.” It just goes to show you how predicting the future is a) required and b) all screwed up.

I have no idea who was right there. I’m sure that having three locations rather than just one made some difference with the NFL (speaking of noncompetitive markets), and it made those locations compete to some degree, but once the Inglewood decision was made, everything about the parcels surrounding that location changed overnight in ways that other locations do not get compete in.

In theory, people who value the location will outbid others to be next to the stadium. Yay, efficiency! In practice, we just handed landowners a huge increment in asset value (that we won’t tax them on particularly effectively in California) which means land speculation is a nice, no-work alternative to building stuff. And it hands little but a headache to existing renters, unless they want and can afford stadium access.

This problem about monopoly control over locations becomes an issue with transit-oriented development strategies as well. Don’t get me wrong. They are good strategies! We want them. But there is a station area land bonus (if we are investing in transit properly); it’s unearned; and you can’t get that proximity everywhere. If the network is sufficiently ubiquitous and the transit ubiquitous frequent, then this becomes less a problem. Networks, even great transit networks, however, are never so ubiquitous, and service seldom so frequent, and we are a good long ways from those ever being the case in LA.

Point 2: Well, this is an interesting idea about location monopolies and all, but I don’t know that rent control is the answer.

First, of all, I didn’t say that rent control was the answer. I said it was an answer. In particular, it’s one of few regulatory tools that labor has to try to advance its interests vis-a-vis government capture among capital and land owners.

The question with all these of these various land use regulations, for me, always comes down to which ones are causes of market distortions (all of them) and which ones are symptoms of market distortions (all of them)? That makes for a messy analysis, but one that strikes me as far more useful and realistic than market analyses that pretend market power in land markets is not a political issue from the get-go.

Rent control is a lot like unions or minimum wage laws. Scratch a neoclassically trained economist, and you will get in response to any of these OMG these will hurt poor people! We mustn’t do them!

Well, then entire capitalist system can harm poor people, too. Objecting to this one part of it–rent–becoming somewhat less punitive for a subset of people strikes me as a little much, even if those people benefit at the cost of other people in similar situations to theirs.

For a parallel, we’ve had Trumpites singing about growth and unemployment. But who cares about growth if labor never gets a portion of it? And it’s great that some people got jobs and benefited. But lots of people losing health care (not to mention the future residents stuck with our budget deficit) lose out.

We can’t pretend that this system exists independent of politics, nor should we treat small fish organizing democratically to protect what they have as prima facie wrong because of distributional concerns. Those distributional concerns are built-in and structural, so if you support the structure, than you should probably be prepared for people to organize in order to have what influence that structure allows them…