This seems like too short-term a study. The argument against artificially holding prices down is that people won't produce as much as they would otherwise and people won't be able to get the thing they would otherwise buy. So what we're predicting a rent control policy will do is cause a shortage of rental accommodation in the area.
Now how that expresses itself in an accounting sense, who knows (probably the economists). Good question to study. But I doubt the impacts of rent control would appear in the market this quickly, it'd take years for the market signals to be measurable. Initially rent controls will probably be set near the previously ideal market price, I'd guess there are a lot of 12 month leases and housing construction projects probably don't reset that quickly either.
Hard disagree. Rational investors have no problem whatsoever projecting the impact to future cash flows and adjusting the amount they're willing to pay now. That's like saying the stock market wouldn't respond quickly to changes in next year's tax law.
And these things have a lead time of years
That's not accounting for the time value of money.
Suppose you have a rental unit and before rent control you were planning to rent it out. That now has far less attractive returns and it suddenly makes more sense to sell it as a condo to an occupant rather than keeping it to rent it out. Likewise, other prospective landlords no longer want to buy it at the previous market price (returns went down and they can invest in stocks or housing in some other city instead), so the short-term effect is to increase the number of property sellers and decrease the number of buyers. Short-term, property values going down is the expected thing.
But construction going down is also the expected thing, for the same reason. If property values are lower then the number of viable construction projects is lower and less construction happens.
The lack of construction then continues until rents, even after rent control, are high enough to justify more construction, i.e. are even higher than they were originally, because now to justify the same investment as before you need the current rent to be high enough to account for the inability to increase it later. And with less construction happening, that's the natural result in a growing area. More people have to bid on the same number of units, rents go up. So the short-term effect is lower real estate prices, the long-term effect is higher.
Now you say, if we expect real estate costs to be higher later, why don't investors take advantage? Which is the "time value of money" issue. If you invest there now because the prices will be high later, what do you do with the property in the meantime? If you don't rent it out, paying $1 today to get $1 in ten or twenty years is dumb, so you only buy if the current price is at a discount. If you do rent it out, then you'd be stuck trying to sell a building with a rent-controlled tenant, which isn't worth as much as the same building as empty as you bought it which you could sell as condos or rent out at current rents instead of price controlled ones, and then you still need a discount. And so the current seller has to provide a discount even if the real estate costs will be higher in a few years.
It might not happen that way - someone does need to check - but at 9 months I wouldn't read much in to this study. The physical market would still be reorganising and it seems entirely possible that the eventual impacts are just different than what this study suggests. I'd want a period of more like 5 years to be confident that the data had given everyone in the market enough time to feel the impacts of artificially low rents and reposition appropriately.
Starting with the assumption that all or even most investors / actors are rational is a continuing pox on both economic scholarship and societal thinking
Most of the damage was concentrated in Minneapolis, a little south of the river. But what happens in Minneapolis affects St. Paul, and vice versa. St. Paul wasn't unscathed, either. Property values dipped as a result of the riots, and I'd go find more evidence of that if it wasn't just taken as a fact by the people who live there.
There was also an arson on a construction site in downtown St. Paul later that summer that spooked a lot of folks too.
There's also George Floyd Square, an ad-hoc memorial at the intersection where he was murdered. For reasons beyond me, this was a source of controversy for well over a year, and I know a lot of MN righties who took the city's willingness to leave the memorial there as "capitulating to crime" or something.
In short, don't use Twin Cities property values in the early 2020s to make generalizations about economics or policy. It took years for those scars to heal. Things didn't really go back to normal until 2023 at the absolute earliest, and some things haven't ever gone back to the way they were.
Artificially holding down rents will result in housing shortages. The lower the rent controlled price, the worse the shortage.
If the rent goes too low, the building owner will stop doing maintenance. Eventually, the building gets abandoned.
https://www.sciencedirect.com/science/article/pii/S105113772...
Basically if you're in a "rent controlled" unit, you benefit, but live in a dumpster, because the owner don't have the reason to invest in the place.
But the supply of new units is down & all other renters are paying higher rates, because there is no incentive to build new units. NIMBY-ism has the same effect.
No easy solutions here. I do think if rent exceeds half your earnings as a minimum wage worker that’s a failure of the social contract.
Want people to have kids, make it possible to raise them on a working class wage.
Rationally , since it’s impossible to raise a family on what most people make , people aren’t making people anymore. Not at replacement rates anyway.
It will increase the price for new comers, lower the quality of buildings due lack of maintenance funding, and decrease new construction.
Rental control is NIMBY for renters who are already there.
They are also headed towards paying more than 50% of whatever income they make to rent that’s the United States, Canada, Great Britain, Australia, New Zealand, and Ireland.
I can’t speak for the other countries, but in United States, the so-called luxury apartment is in fashion, and there is nothing luxury about them, except for the amount of money you will be charged to live there.
The shortage of affordable housing has nothing to do with rent control because over most of the country there is no real rent control effective rent control.
America is the land of luxury apartments currently popping up everywhere. What is also ironic is the fact that there are very few states that have anything like Prop 13 in California, which took a ballot initiative passed by the electorate and was not passed by the legislator’s who supposedly represent the people in short, there will be nothing forthcoming for the majority of people across the country. It’s sink or swim for most you are on your own in poverty.
Dear reader, never believe anyone who says a serious societal problem is "just" anything. Especially on the internet when they use merely a pesudonym to assert their authority.
Especially when the person behind the pseudonym is a one-time washed-out author desperately clinging to their housing stock in Atherton.
They create a strong incentive to keep a flat indefinitely. It's not unheard of for a person to continue renting a rent frozen apartment after they buy a house because the rent is so cheap - effectively it's a second home.
There's also plenty of corruption. "Knowing a guy" is one of the best ways to get a rent controlled unit since the wait time can be years.
That's how military housing works. There's an underground "economy" of favors.
IMHO, the problem now is bad zoning. The rich car-centric suburbs are preventing denser housing- to their own financial detriment. A recent fight is that the state has forced them to allow higher density housing around commuter rail stops. Similar fights about rail trails, future abutters are afraid of change but they are valuable everywhere they exist- in that they are a desirable feature and raise your house's value.
Another problem is that they overbuilt $100/sqft bio-lab space. These are sitting empty, and the owners refuse to lower the rent.. I don't understand how the owners remain solvent.
Their rent control used to have no exemptions, but now it's become very similar to SF rent control. Strict limit on how much rent can go up for current tenants, but can reset close to market rate when there's a 'just cause' vacancy. And all buildings built after X date are exempt entirely. (X=2004 in St. Paul, X=1979 in SF). Developers argued that any rent control at all limited their ability to finance housing projects.
I think results of studies like this were hugely influential to the changes in rent control that followed.
Unfortunate policy, and generating weird incentives to get people to leave!
In Queensland (not exactly perfectly managing the rental crisis but...) their policies include not being able to raise rent more than once every 12 months (leases tend to be 12 months). Importantly it's linked to the property, not the tenants.
There's no actual cap in practice on how much you can raise it by ("reasonable" I believe is the nonfalsifiable term used) but it doesn't generate perverse incentives to kick people out
https://news.ycombinator.com/item?id=48524204
Don't use Twin Cities property values in the early 2020s to draw conclusions about anything related to policy or economics. What you're actually measuring is the after shock of race riots.
Also, RHAWA is a landlord lobbying group.
If the construction strike by commercial investors is replaced by public housing then the better outcome can emerge.
Aren't you just describing "the projects"[1]? Is that a better outcome?
[1] https://en.wikipedia.org/wiki/Subsidized_housing_in_the_Unit...
People can argue about whether that's what should happen, and there are nuances on both sides there, but that is undeniably what will happen.
Price ceiling is the surest way in economics to create a shortage.
Surely they are more likely to sell if they can never be leased profitably? This would put that capital to better use.
Your assumption there is also that the class of ‘renters’ is homogenous and wants to rent. In some cities there is a significant class of people who are forced into continuing with renting because of supply constraints on homes for sale, which are exacerbated by landlords with superior access to leverage buying up stock and pushing up prices. In this situation the landlords actually create their own market.
A comparative shortage of rental properties and of landlords could be very desirable, as it implies more owner-occupiers.
It also implies more capital flowing out of real-estate and into productive industry, which one would assume is also desirable for a thriving economy.
The truth of the situation here is that there is more than enough demand for new housing anyway, directly financed by wannabe homeowners, that ‘investment’ goes 90% into existing stock, not new builds, and that investment properties actually create rental demand as investors crowd out would-be owner-occupiers from both existing houses and new-build opportunities.
In Melbourne, where measures to reduce the attractiveness of investment have already happened, the price of housing has levelled off comparative to other capitals in Aus, and rental availability has actually gone up.
The underlying problem is of course supply, but there appears to be a limit to how fast the building industry can actually build more stock, so with huge demand and limited supply, we don’t need to encourage as much speculation or landlordism in the market to get more built. All it does is add heat and pump prices.
You can almost hear yakitty sax playing in the background. I bet if you met the researchers you could honk their nose.
This to me is the big one. So in addition to rents being more affordable (even if wealthier renters capture most of the gains) limiting the rental market profits also makes houses more affordable to buy? The paper is trying to argue this is bad, but I’m not seeing it.
It’s almost like “rent-seeking behavior” is a negative pejorative of an actor’s actions that negatively influence the market.
> Similarly, we need to consider any one-time confounding events in control cities. Most notably, Minneapolis would be a natural control for St. Paul. However, in addition to the ballot measure on rent control, Minneapolis’s ballot also included referenda on mayoral power and policing. These confounding events mean that if property values in St. Paul changed relative to Minneapolis, we could not attribute the change to rent control.
their mistake is that they excluded Minneapolis for a bullshit reason here. you might as well do the analysis and then tell us. of course, they did, and found all the same effects as st. paul despite no rent control, so they chose not to talk about it.
Is this a metro area with serious rental price pressure where rent stabilization is greatly altering the market conditions, or is housing so available to begin with that it’s more of a feel-good legislation that doesn’t shift prices around?
It looks like from a quick search that over half of people in this metro area own their own home.
I imagine that rent control in many Midwestern metros is effectively pointless. The rent is already being controlled by flat or declining populations, cheap land, and high homeownership rates.
> Over the nine months following the passage of rent control in St. Paul, Minnesota in 2021, average property values fell by 4.4% to 5.8%.
Why is this bad? Pretty much every Western society has fallen into the trap of raising property prices as a politcal imperative. People who own 1 (maybe 2) homes believe it's good for them but it only benefits very wealthy people who hoard land.
The real problem is that ever-increasing property prices destroys the fabric of society. It's a wealth transfer from the next generation to older and wealthier people that creates a drain on their entire lives. It's justified by people arguing the current young people will be able to do that to the generation after them. But this can't go on forever.
Want to know why eating out is so expensive? Why third spaces have disappeared? Why basically everything has gotten expensive? it's housing prices. Commercial rent is an input into everything that you buy. Higher costs mean higher wages that need to be paid, which is also an input into everything you need to buy. And the only one who is winning out of all of this is the landlord. If the commercial rent is too low well then it'll get torn down or converted into residential real estate because that's more profitable.
You know who realized this? Xi Jinping [1]:
> Houses are for living, not for speculation
So the Chinese property speculation bubble was quietly popped a decade ago and Chinese real estate has been in a severe and prolonged recession ever since as the market corrects. What's funny is media coverage points this out like it's a problem. It's not. It's intentional.
And if you think that's a purely socialist/communist idea, tell that to Adam Smith [2]:
> As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed and demand a rent even for its natural produce.
He had this in common with Mao [3].
So if Marxists, Leninists, Maoists and capitalists all agree that landlords are parasitic, what are we doing?
There's a British former wealth manager and economist named Henry Fudge who has done the math on how the housing market is a "rentier black hole" (as he describes it) on the UK economy and has hollowed out manufacturing as an inevitable consequence when returns on housing exceed all asset classes. It becomes a self-fulfilling prophecies and housing enjoys significant tax advantages and government protections. He calls it The Housing Theory of Everything [4].
Rent control is a bandaid. The solution here is for the government to become a significant provider of housing, as is the case in Vienna [5] and to stop treating housing as a speculative asset. Attacks on rent control are generally a thinly-veiled effort to increase landlord profits however.
We're rapidly re-inventing feudalism here with 1 (and soon more to come I'm sure) trillionaire who will increasingly hoard all the land and assets, leaving the rest of us as impoverished tenant workers who own nothing. Most call this neofeudalism for this reason.
[1]: https://en.wikipedia.org/wiki/Houses_are_for_living,_not_for...
[2]: https://www.prosper.org.au/geoists-in-history/adam-smith-on-...
[3]: https://thirdworldtruth.medium.com/not-just-mao-but-adam-smi...
[4]: https://henryfudgeofficial.substack.com/p/the-housing-theory...
[5]: https://www.theguardian.com/lifeandstyle/2024/jan/10/the-soc...
For a small time landlord, a good tenant is worth their weight in gold. It's not worth chasing out a reliable tenant you have a good history with just to try to squeeze a few extra bucks out of the property.
Are landlords allowed to increase rents when the tenant changes? If so then yes, I would expect them to do so, so if they don't, there needs to be some other explanation.
If they don't, then obviously they'll prefer to keep their long-term, pays-on-time, probably-not-wrecking-the-place existing tenant.
My mother lives in a 12 unit building in a very nice SF neighborhood. Only 2 people have been there longer than 10 years, and only 1 other longer than 5. The building was recently sold for only $2 million. The low price is less because of rent control, more because of all the other regulations that make it very costly to renovate or rebuild, lowering the value of the property. That building could/should be replaced with something having twice the number of units, but it never will be. In theory it should be trivial to have a system where existing tenants could be relocated while preserving their rent, but that would only work if there were much more supply coming online creating more structural vacancies so people could be shuffled around efficiently.
I think rent control is an acceptable policy in so far as it directly addresses people's need for a sense of security that simply can't be met by promises of low housing prices in the future. It does come with a cost, a kind of tax, but taxes can be justified. There are much more costly housing policies than rent control. However, those policies unfortunately tend to coexist with rent control (often preexist), so it's really just a mess.
They also neglected the effect of travel time on behavior. Back in the day, I was commuting from a rich suburb to Cambridge, and to get to work on time, I had to get up early to accommodate a 30-minute commute to the train station, wait for the purple line and the red line, and then walk three-quarters of a mile. When I saw how little traffic was on the road, I said, "F it," and drove to work in the same amount of time as it took me to get to the train station.
In the Biolab space, it was a little overbuilt, and now it's tremendously overbuilt because of the killing off of NIH grants and subsequent reduction in investment in the biotech sector. I suspect the reason they don't drop the rent is that it would cause a bit of unraveling. You drop the rent; that changes the valuation of your building, which may mean you're underwater on the loan, the bank calls the loan, et cetera, et cetera. Then, similar properties would suffer devaluation and a similar unwinding. And if you agree with the contagion theory of deflationary environments, it'll all unwind all the way through your 401k and other investments. Sadly, the billionaires would be untouched.
In the greater boston area NIMBY's are incredibly effective and will pull out every stop. I.e. instead of designating normal areas as multifamily, they will designate a portion of a golf course as multi family so you'd have to buy out the whole golf course [1].
It really is sad MA is 50/50 in housing produciton per capita [2]. Despite being severely under built and very desirable place to live, and then everyone pretends to be progressive. Michelle Wu in Boston uses "affordable housing" to bring all residential construction to a halt.
[1]. https://www.cbsnews.com/boston/news/marblehead-david-modica-...
Couldn't they just change the zoning to allow for greater density?
The properties become more valuable, some would want to develop, and some would sell to those developers. Moreso over time.
Why would you conclude that? Billionaires have their money invested in the same things as your 401k, etc.
> I don't understand how the owners remain solvent.
I think that tells you everything you need to know about who's renting them out.
[1]: https://constructioncoverage.com/research/cities-with-the-mo...
When I point this out in r/boston, cambridgema, and somerville I get downvoted to oblivion because obviously fuck the landlord class. But why on earth would anyone start renting a place if they know they could get soaked over time?
Haven't fully read the paper, just the introduction and skimmed through the rest, but it seems they're merely observing that a rent control law went into effect, and given some control variables, it seems like it depressed property values.
Their findings also suggest that while the wealth transfer of rent control factor is real -- that is, landlords are impacted more and existing renters see relative benefit -- that effect is greater among higher-income renters and less among lower income renters.
Second paragraph in the Conclusion:
"While the negative wealth effects for owners are large, our results show the positive effects of the law are poorly targeted. Though the intention is to benefit lower income renters, we find that the largest benefits are received in the neighborhoods of the city in which renters have higher incomes, are less likely to be minorities, and have more education. To the extent that price drops for rental properties reflect future rent savings, and thus housing wealth gains for tenants, our results suggest that the largest cost savings are going to be realized in the neighborhoods with the richest, most educated, and least diverse owners."
Farms are renewable so farmers maintain them over centuries. Mines are extractive so they get pumped and dumped.
What landlords do in these situations is try to extract as much money as possible before the enterprise collapses, either literally or figuratively. New housing doesn't come online quickly so both quality and quantity fall.
It's still the Law of Supply and Demand. Just like F=ma always applies, even if the results are complicated.
What really exists, closest to the limit we will call "hard science" or "physics", is the microcosmic focus on individuals interacting in a market. Everything else -- supply and demand as a theory definitely included -- is a statistical extrapolation from micro-scale interactions. Hence the label of "dismal science". It's dismal because every hardline assumption is inevitably contravened by real life physics.
Not always. It can trap the person in the apartment, such as constraining where they can work.
"Trap" here means the deal is so good that they don't ever want to leave.
I think of how I was absolutely shocked when a Big Mac meal was $10 during the pandemic (I think it cost about $2.50 the first time I bought it) and didn’t think I was going to buy 4% less of it but rather I skipped the fries.
The cost of the wood and the labor needed to build the house is unaffected by the rent control, so if cost remains the same, but the reward (or "revenue") from building the house decrease from $100K to $95K, then fewer houses will get built.
When supply is constrained by the availability of builders and materials, then some landlords dropping out won’t make a lot of difference there.
See what happened in NYC regarding the consolidation of housing units.