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Supply and demand explains all. When more people want something than there are available, prices increase - until the price increases enough to ration the avai

Supply and demand explains all. When more people want something than there are available, prices increase - until the price increases enough to ration the available supply to the highest bidders. For those calling for rent control, they are advocating a different method of rationing the available apartments... leaving multiple interested people for one apartment. Why is the non-price way of rationing better than rationing based on who is willing to pay the most? Some people still won't be able to live where they want to live, it just won't be because they can't afford to.

pappyo 10y ago
Because you've turned a "neighborhood" into an "investment property." Neighborhoods develop culture. Investment properties develop nothing other than capital that leaves the neighborhood. What happens when the Silicon Valley boom is over? What happen to those neighborhoods? I guess that's not your problem.
- throwaway76543 10y ago
  This is utter nonsense. There's no evidence that neighborhoods made up of renters are any more or less "cultural" than neighborhoods made up of, well, you haven't really articulated an alternative have you? Do you expect everyone to purchase a home, and not have renting at all? Generally areas regarded as having a vibrant culture also correlate with high percentages of renters -- because they're in cities. Areas with high percentages of homeowners and low percentages of renters tend to be suburbs. In any event we can answer your question of what happens when the boom is over because we've already lived through two tech booms in this area. The answer is: Prices fall and folks with investment properties will lose some money but not much else changes. Homeowners get hurt a lot more than renters when bubbles pop.
- raldi 10y ago
  > What happens when the Silicon Valley boom is over? What happen to those neighborhoods? When the supply of SF housing overtook demand in the late 1960s, and this oversupply led to incredibly-affordable rooms, it brought about the Summer of Love.
pash 10y ago
> Why is the non-price way of rationing better than rationing based on who is willing to pay the most? It's not. But rationing by price has little advantage if you're not going to allow anybody to build more housing: the basic benefit of the price mechanism is that higher prices recruit more resources to employ towards increasing supply. But if you're going to fix supply though a NIMBY-dominated political process, then every dollar of increased rent is going to end up in the pockets of property-owners, not budging the supply of housing, to the unallayed detriment of renters. This is a both a partial explanation of why NIMBY-ism is so pernicious and of why capital (foreign or otherwise) is so strongly attracted to NIMBY-dominated, supply-constrained markets like the Bay Area. The quality of commentary on these issues in the press and in the political process is abhorrent. If anyone with a basic understanding of economics is interested in learning more about the economics of rationing, I recommend starting with Economic Analysis of Property Rights, by Yoram Barzel [0,1]. 0. Publisher's site: http://www.cambridge.org/us/academic/subjects/economics/industrial-economics/economic-analysis-property-rights-2nd-edition http://www.cambridge.org/us/academic/subjects/economics/indu... 1. Amazon: https://www.amazon.com/Economic-Analysis-Political-Institutions-Decisions/dp/0521597137 https://www.amazon.com/Economic-Analysis-Political-Instituti...
- sokoloff 10y ago
  I'd argue that higher prices also mean the resources are consumed by those with the greatest need (as demonstrated by willingness to pay). Take another example. After Katrina hit, some stores got investigated for "gouging" on water. Obviously, water is a necessity of life, post-Katrina municipal water supplies were unavailable in many areas. Now, imagine that it was selling for $1/gallon two weeks prior to Katrina. What's the "best" price for the water to sell one day after Katrina? $1/gallon will likely yield rampant hoarding and scarcity of water for someone who might need it. Allowing the price to float will ensure that someone who really needs water will be able to buy it, though the price might be $5/gallon. I'd rather have thirsty people paying $5/gallon and drinking clean water than having a few AHs having hundreds of gallons of surplus water and no water available for sale. This is how I view rent control. This would also serve as a strong pull signal to get more water into the area, but I suspect that was already underway.
jchrisa 10y ago
There's also the argument that economic diversity is good for everyone. Non-market solutions to maintaining space for people of different income levels in the area might have positive externalities.
- alexmat 10y ago
  Just as a fun thought experiment, let's say we price all the service workers at current income levels out of the market so they all move away. At some point, people will be willing to pay more for service work due to a strong demand for limited services. It almost seems pernicious to have low income housing since it allows employers to get away with lower wages to cover an artificially low cost of housing, at the same time, service workers retain a poor quality of life because outside housing everything else is expensive.
  - tuna-piano 10y ago
    Your first point is definitely correct, one example (a mix of factors) would be the $17+ wages for Walmart and fast food workers in North Dakota energy boom towns(1). Your second point is interesting, but I suspect only partially correct. I imagine subsidizing service workers to live in low income housing does allow businesses to pay service workers less in those areas. However, if those low income housing units were not the service workers best option - they wouldn't live there. So I would imagine overall that it does help the service workers, not hurt them. http://dailysignal.com/2014/06/10/drilling-innovation-forcing-walmart-north-dakota-pay-17-40-hour/ http://dailysignal.com/2014/06/10/drilling-innovation-forcin...
    - alexmat 10y ago
      Thanks for the link, that's exactly what I had in mind!
curun1r 10y ago
A market-based approach would make a lot of sense in a world that doesn't have Prop 13. Then property owners would be forced to balance their objections to new development with the fact that the lack of new development will push up property values and increase property taxes. But with a cap on property taxes, existing property owners are free to block, stall and otherwise prevent new development without any financial disincentive. As you've pointed out, supply and demand explains all. But supply has been limited by forces that need to be fixed. We either need some financial pressure that convinces property owners that new development is in their best interests or we need to stop giving existing property owners input on new development. Because demand is increasing, whether we like it or not. And in the face of that, there are only two options, build more or let rents spike. When even Google employees are feeling the pain of high rents, it's obvious we're not striking the right balance between those two options. It's annoying to see the focus on stuff like rent control when the underlying cause is so clear. Prop 13 is at the core of these problems and needs to be addressed directly rather than tangential half measures like rent control.

pappyo 10y ago

Because you've turned a "neighborhood" into an "investment property." Neighborhoods develop culture. Investment properties develop nothing other than capital that leaves the neighborhood. What happens when the Silicon Valley boom is over? What happen to those neighborhoods? I guess that's not your problem.

throwaway76543 10y ago
This is utter nonsense. There's no evidence that neighborhoods made up of renters are any more or less "cultural" than neighborhoods made up of, well, you haven't really articulated an alternative have you? Do you expect everyone to purchase a home, and not have renting at all? Generally areas regarded as having a vibrant culture also correlate with high percentages of renters -- because they're in cities. Areas with high percentages of homeowners and low percentages of renters tend to be suburbs. In any event we can answer your question of what happens when the boom is over because we've already lived through two tech booms in this area. The answer is: Prices fall and folks with investment properties will lose some money but not much else changes. Homeowners get hurt a lot more than renters when bubbles pop.
raldi 10y ago
> What happens when the Silicon Valley boom is over? What happen to those neighborhoods? When the supply of SF housing overtook demand in the late 1960s, and this oversupply led to incredibly-affordable rooms, it brought about the Summer of Love.

pash 10y ago

> Why is the non-price way of rationing better than rationing based on who is willing to pay the most? It's not. But rationing by price has little advantage if you're not going to allow anybody to build more housing: the basic benefit of the price mechanism is that higher prices recruit more resources to employ towards increasing supply. But if you're going to fix supply though a NIMBY-dominated political process, then every dollar of increased rent is going to end up in the pockets of property-owners, not budging the supply of housing, to the unallayed detriment of renters. This is a both a partial explanation of why NIMBY-ism is so pernicious and of why capital (foreign or otherwise) is so strongly attracted to NIMBY-dominated, supply-constrained markets like the Bay Area. The quality of commentary on these issues in the press and in the political process is abhorrent. If anyone with a basic understanding of economics is interested in learning more about the economics of rationing, I recommend starting with Economic Analysis of Property Rights, by Yoram Barzel [0,1]. 0. Publisher's site: http://www.cambridge.org/us/academic/subjects/economics/industrial-economics/economic-analysis-property-rights-2nd-edition http://www.cambridge.org/us/academic/subjects/economics/indu... 1. Amazon: https://www.amazon.com/Economic-Analysis-Political-Institutions-Decisions/dp/0521597137 https://www.amazon.com/Economic-Analysis-Political-Instituti...

sokoloff 10y ago
I'd argue that higher prices also mean the resources are consumed by those with the greatest need (as demonstrated by willingness to pay). Take another example. After Katrina hit, some stores got investigated for "gouging" on water. Obviously, water is a necessity of life, post-Katrina municipal water supplies were unavailable in many areas. Now, imagine that it was selling for $1/gallon two weeks prior to Katrina. What's the "best" price for the water to sell one day after Katrina? $1/gallon will likely yield rampant hoarding and scarcity of water for someone who might need it. Allowing the price to float will ensure that someone who really needs water will be able to buy it, though the price might be $5/gallon. I'd rather have thirsty people paying $5/gallon and drinking clean water than having a few AHs having hundreds of gallons of surplus water and no water available for sale. This is how I view rent control. This would also serve as a strong pull signal to get more water into the area, but I suspect that was already underway.

jchrisa 10y ago

There's also the argument that economic diversity is good for everyone. Non-market solutions to maintaining space for people of different income levels in the area might have positive externalities.

alexmat 10y ago
Just as a fun thought experiment, let's say we price all the service workers at current income levels out of the market so they all move away. At some point, people will be willing to pay more for service work due to a strong demand for limited services. It almost seems pernicious to have low income housing since it allows employers to get away with lower wages to cover an artificially low cost of housing, at the same time, service workers retain a poor quality of life because outside housing everything else is expensive.
- tuna-piano 10y ago
  Your first point is definitely correct, one example (a mix of factors) would be the $17+ wages for Walmart and fast food workers in North Dakota energy boom towns(1). Your second point is interesting, but I suspect only partially correct. I imagine subsidizing service workers to live in low income housing does allow businesses to pay service workers less in those areas. However, if those low income housing units were not the service workers best option - they wouldn't live there. So I would imagine overall that it does help the service workers, not hurt them. http://dailysignal.com/2014/06/10/drilling-innovation-forcing-walmart-north-dakota-pay-17-40-hour/ http://dailysignal.com/2014/06/10/drilling-innovation-forcin...
  - alexmat 10y ago
    Thanks for the link, that's exactly what I had in mind!

curun1r 10y ago

A market-based approach would make a lot of sense in a world that doesn't have Prop 13. Then property owners would be forced to balance their objections to new development with the fact that the lack of new development will push up property values and increase property taxes. But with a cap on property taxes, existing property owners are free to block, stall and otherwise prevent new development without any financial disincentive. As you've pointed out, supply and demand explains all. But supply has been limited by forces that need to be fixed. We either need some financial pressure that convinces property owners that new development is in their best interests or we need to stop giving existing property owners input on new development. Because demand is increasing, whether we like it or not. And in the face of that, there are only two options, build more or let rents spike. When even Google employees are feeling the pain of high rents, it's obvious we're not striking the right balance between those two options. It's annoying to see the focus on stuff like rent control when the underlying cause is so clear. Prop 13 is at the core of these problems and needs to be addressed directly rather than tangential half measures like rent control.