Rent control is inevitable. The cited paper (https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth...) synthesized a cost of a 5.1% increase in rental prices for San Francisco, but that's for the period 1995 to 2012. 5.1% for that period is miniscule, dwarfed by demand and non-rental control supply pressures. The political cost of an army of voters worried about housing insecurity is incomparably higher.
The researchers suggest transfer payments instead of rent control, minimizing negative effects on supply. But Americans, and I'd bet most people around the world, dislike transfer payments. Nobody wants to be "on the dole", and in any event signing up for those payments comes with its own form of social cost and insecurity. Rent control is a silent tax that is relatively optimal from a political-economic perspective (not just an economic one).
The same dynamics are at play with free trade. Academics said dislocation costs of free trade could be ameliorated with transfer payments. But those payments never came, and voters would never accept them as a substitute for lost jobs. And for similar reasons--people don't want to feel forced to move, they want to feel like their pursuing better opportunities. But when a factory shuts down or a landlord effectively evicts you, it's not a choice. And even if it only happens to a small fraction of people, many more feel insecure even if they have no rational reason to feel insecure.
The question isn't whether rent control is good or bad, it's whether and to what extent it's possible to extract in exchange zoning and development concessions that promote supply increases. Unfortunately, the outlook doesn't seem so good. The only other alternative is Federal pressure, which doesn't seem too likely, either, unless it comes in the form of a Supreme Court decision that constrains zoning practices.
The political cost of an army of voters worried about housing insecurity is incomparably higher.
Can't you make them stop worrying by building enough housing that they believe the free market will give them affordable rents even without rent control?
This is different from a factory shutdown because there's much less of a natural cap on housing supply than on job supply. You can build four-story apartment buildings basically everywhere, modulo government interference (zoning, permits, etc.), and they'll work, so you can just build enough to pull down the supply/demand intersection to where people want it, that is, in a free market you can just build residential buildings and expect them to turn into housing. You can't just build a physical factory and expect it to turn into jobs.
There's a time asymmetry at play. I think it's inevitable specifically in those cities where costs are rising quickly and feelings of housing insecurity are acute--the same cities we normally discuss in the context of rent control. In that case you couldn't possibly build quickly enough to address the issue. And let's not ignore one of the primary reasons communities often find themselves in that situation--zoning and regulatory hurdles that limit supply, demanded by the very same electorate suffering from lack of supply, yet which isn't nearly as keen, if at all, at removing those hurdles.
Rent control is even on the table in cities like Chicago, which relatively speaking has been pro development. But for a state law prohibiting it, Chicago would now have rent control; and it seems likely that exceptions to that prohibition will pass the legislature. That goes to show that time asymmetry is problematic even without the scourge of single-family home NIMBYs.
Regarding the free trade analogy, the alternative I had in mind wasn't building factories, but moving to new locales and finding new jobs. Which is the de facto existing alternative for housing supply-constrained cities, which have been free all along to promote greater densification, but simply incapable of doing so to the extent necessary.
Isn't the American healthcare system a convoluted set of transfer payments?
There's enough articles here on HN that tell me the high prices and subsidies for a privileged few aren't really a solution to healthcare. I hope that kind of industry stays out of accommodation.
I supported those claims with an analogy to free trade and the political backlash caused by structural dislocation. Here's another parallel--price gouging. Rent control laws are a form of anti-price gouging measure. Show me a jurisdiction where the electorate would vote down an anti-price gouging law (or one that doesn't already have one, for that matter).
In the most popular cities, where housing insecurity sentiments are acute, rent control has the same logic and appeal to voters as anti-price gouging. And just like with anti-price gouging laws, arguments that such measures negatively moderate price signaling (which might induce greater supply) are insufficient to persuade voters to oppose them. (The more persuasive argument concerns opposing government and advocating for property rights, but in cities with large renting populations that argument is a difficult sell, especially if single-family homes are excluded, which is very often the case.)
Housing security is a fundamental, high priority need (see Maslow's hierarchy of needs). When it's threatened, promises of future supply and price improvements are simply insufficient to resolve the felt problem. There's a time asymmetry dilemma to such structural problems, and there's no easy way to solve it. I argue that some rent control laws (at least in certain geographic areas) are as inevitable as some tariffs, at least in the short term, so long as there's a strong democratic process. Remove or weaken the democratic process and you can more easily resolve that particular dilemma (while creating other ones). I might cite as a supplemental source Platos' The Republic.
Economists systematically underestimate the value of security (defense, shelter, food, etc, and pricing stability thereof). Perhaps because it's difficult to accurately measure. We can "price" the value of a human life in the aggregate or in special situations, and we do for various purposes, like various forms of insurance, or civil restitution. But good luck convincing people to make criminal penalties against murder contingent on inability to pay restitution. (That is, legal if you can afford it.) Even with a trillion dollar premium (above and beyond existing restitution formulas--earnings, pain & suffering, etc), few people would vote for that, which means that in some sense the value is infinite.
Comments
Rent control is inevitable. The cited paper (https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth...) synthesized a cost of a 5.1% increase in rental prices for San Francisco, but that's for the period 1995 to 2012. 5.1% for that period is miniscule, dwarfed by demand and non-rental control supply pressures. The political cost of an army of voters worried about housing insecurity is incomparably higher.
The researchers suggest transfer payments instead of rent control, minimizing negative effects on supply. But Americans, and I'd bet most people around the world, dislike transfer payments. Nobody wants to be "on the dole", and in any event signing up for those payments comes with its own form of social cost and insecurity. Rent control is a silent tax that is relatively optimal from a political-economic perspective (not just an economic one).
The same dynamics are at play with free trade. Academics said dislocation costs of free trade could be ameliorated with transfer payments. But those payments never came, and voters would never accept them as a substitute for lost jobs. And for similar reasons--people don't want to feel forced to move, they want to feel like their pursuing better opportunities. But when a factory shuts down or a landlord effectively evicts you, it's not a choice. And even if it only happens to a small fraction of people, many more feel insecure even if they have no rational reason to feel insecure.
The question isn't whether rent control is good or bad, it's whether and to what extent it's possible to extract in exchange zoning and development concessions that promote supply increases. Unfortunately, the outlook doesn't seem so good. The only other alternative is Federal pressure, which doesn't seem too likely, either, unless it comes in the form of a Supreme Court decision that constrains zoning practices.
Can't you make them stop worrying by building enough housing that they believe the free market will give them affordable rents even without rent control?
This is different from a factory shutdown because there's much less of a natural cap on housing supply than on job supply. You can build four-story apartment buildings basically everywhere, modulo government interference (zoning, permits, etc.), and they'll work, so you can just build enough to pull down the supply/demand intersection to where people want it, that is, in a free market you can just build residential buildings and expect them to turn into housing. You can't just build a physical factory and expect it to turn into jobs.
There's a time asymmetry at play. I think it's inevitable specifically in those cities where costs are rising quickly and feelings of housing insecurity are acute--the same cities we normally discuss in the context of rent control. In that case you couldn't possibly build quickly enough to address the issue. And let's not ignore one of the primary reasons communities often find themselves in that situation--zoning and regulatory hurdles that limit supply, demanded by the very same electorate suffering from lack of supply, yet which isn't nearly as keen, if at all, at removing those hurdles.
Rent control is even on the table in cities like Chicago, which relatively speaking has been pro development. But for a state law prohibiting it, Chicago would now have rent control; and it seems likely that exceptions to that prohibition will pass the legislature. That goes to show that time asymmetry is problematic even without the scourge of single-family home NIMBYs.
Regarding the free trade analogy, the alternative I had in mind wasn't building factories, but moving to new locales and finding new jobs. Which is the de facto existing alternative for housing supply-constrained cities, which have been free all along to promote greater densification, but simply incapable of doing so to the extent necessary.
"But Americans ... dislike transfer payments."
Isn't the American healthcare system a convoluted set of transfer payments?
There's enough articles here on HN that tell me the high prices and subsidies for a privileged few aren't really a solution to healthcare. I hope that kind of industry stays out of accommodation.
“Inevitable”? “Only other alternative”? You have not supported these claims.
I supported those claims with an analogy to free trade and the political backlash caused by structural dislocation. Here's another parallel--price gouging. Rent control laws are a form of anti-price gouging measure. Show me a jurisdiction where the electorate would vote down an anti-price gouging law (or one that doesn't already have one, for that matter).
In the most popular cities, where housing insecurity sentiments are acute, rent control has the same logic and appeal to voters as anti-price gouging. And just like with anti-price gouging laws, arguments that such measures negatively moderate price signaling (which might induce greater supply) are insufficient to persuade voters to oppose them. (The more persuasive argument concerns opposing government and advocating for property rights, but in cities with large renting populations that argument is a difficult sell, especially if single-family homes are excluded, which is very often the case.)
Housing security is a fundamental, high priority need (see Maslow's hierarchy of needs). When it's threatened, promises of future supply and price improvements are simply insufficient to resolve the felt problem. There's a time asymmetry dilemma to such structural problems, and there's no easy way to solve it. I argue that some rent control laws (at least in certain geographic areas) are as inevitable as some tariffs, at least in the short term, so long as there's a strong democratic process. Remove or weaken the democratic process and you can more easily resolve that particular dilemma (while creating other ones). I might cite as a supplemental source Platos' The Republic.
Economists systematically underestimate the value of security (defense, shelter, food, etc, and pricing stability thereof). Perhaps because it's difficult to accurately measure. We can "price" the value of a human life in the aggregate or in special situations, and we do for various purposes, like various forms of insurance, or civil restitution. But good luck convincing people to make criminal penalties against murder contingent on inability to pay restitution. (That is, legal if you can afford it.) Even with a trillion dollar premium (above and beyond existing restitution formulas--earnings, pain & suffering, etc), few people would vote for that, which means that in some sense the value is infinite.