9 ms·

Rent control is almost always counter-productive. Real estate is subject to the same laws of supply and demand as everything else. The only way to make housing

Rent control is almost always counter-productive. Real estate is subject to the same laws of supply and demand as everything else. The only way to make housing more affordable is to increase the supply. In certain highly desirable areas, it is always going to be difficult to increase the supply enough. Generally speaking, however, more housing = cheaper housing. (Expanding rapid public transportation can also help by giving workers quick access to larger regions, and more housing options.) EDIT: Thanks to all for the good comments. I want to stress that I understand "just build more" (by which I really mean increase supply however you accomplish it) is often not a simple answer, but it is the ONLY strategy that has a hope of working to make housing more affordable.

kjakm 6y ago
Supply and demand is too simplistic an approach for a lot of places when so many properties in major cities are purchased by foreign investors and left empty.
- goodcanadian 6y ago
  Supply and demand still works. That is a confounding factor artificially increasing demand (or decreasing supply). There are lots of approaches to fight this, including banning foreign ownership, or just building so much housing that it doesn't matter (the foreign ownership problem may also go away in the latter case if it turns into a poor investment).
  - Jochim 6y ago
    Building housing isn't enough. People need to be able to get to work in a reasonable length of time, they generally need to be able to maintain prior relationships, have access to hobbies, shopping etc. that all tend to be further away from undeveloped land. That's also ignoring the problem of landlords using the excess capital extracted from rents to drive the price of housing further from the reach of the people actually interested in using it as a house. The higher prices are then used by landlords as a justification for raising rent, and this cycle then repeats.
- twic 6y ago
  > so many properties in major cities are purchased by foreign investors and left empty This is a bit of a popular myth. Vancouver is the only city i know of where it even approaches being significant. Try to dig up some statistics on empty properties for some cities that matter to you and you'll see.
  - kjakm 6y ago
    There are about 25,000 unoccupied properties in London, UK worth about £11 billion.
    - twic 6y ago
      That's all homes empty for any reason, not just "purchased by foreign investors and left empty", which is what i'm talking about. It's still a tiny number compared to the size of the city. Here's a report, covering England but with some extra detail on London, from 2019: https://www.actiononemptyhomes.org/Handlers/Download.ashx?IDMF=68fa9a2d-83f5-4ca4-936b-a8d8248484c0 https://www.actiononemptyhomes.org/Handlers/Download.ashx?ID... Table 5 tells us that in London, there were a grand total of 2126 empty homes in council tax bands G and H, ie the kind of property an investor might buy. The vast majority of empty homes are not offshore investment material.
cygx 6y ago
The only way to make housing more affordable is to increase the supply. That's not necessarily sufficient. From Für eine wirklich soziale Wohnungspolitik[1], citing empirical studies of rents in Germany: Im Ergebnis muss demnach festgestellt werden, dass eine verstärkte Neubautätigkeit unter den gegenwärtigen Bedingungen nicht zu einer Ausweitung von bezahlbaren Wohnungsangeboten führt, sondern vielmehr die Ertragssteigerungen im Bestand beschleunigt. As a result, it must be stated that increased new building activity under the current conditions does not lead to an expansion of affordable housing offers, but rather accelerates the increase in yields in existing buildings. The reason for this is that the newly constructed housing tends to be higher priced, and when old housing gets freed, rents tend to get raised on the new tenants. [1] https://zeitschrift-suburban.de/sys/index.php/suburban/article/download/411/585/ https://zeitschrift-suburban.de/sys/index.php/suburban/artic...
- goodcanadian 6y ago
  The reason for this is that the newly constructed housing tends to be higher priced, and when old housing gets freed, rents tend to get raised on the new tenants. If they are able to do this, there still isn't enough supply to meet the demand.
  - cygx 6y ago
    Space in cities is a limited resource, and it might not even be in the markets interest to build enough housing to let prices drop.
    - goodcanadian 6y ago
      I believe I acknowledged that in my comment, and suggested a possibility of building rapid transit to also increase the effective supply in such cases.
      - deleted 6y ago
        [deleted]
      - 6y ago
bildung 6y ago
Regular supply and demand doesn't really seem to apply to real estate because renters are not voluntary participants in the market: The alternative to consuming the available housing is homelessness. Supply and demand obviously are efficient to determine property values, but optimal property values isn't the goal of rent control regimes. This report from Brookings is illustrative: It shows that property values (and rents) in Cambridge have sharply risen after rent control has been cancelled. The article concludes: "In short, the policy imposed $2.0 billion in costs to local property owners, but only $300 million of that cost was transferred to renters in rent-controlled apartments." [0] That is undoubtly true, but seems to miss the point - the goal of rent control is not to help in optimal pricing of real estate. Rent control only seems to not work when high real estate prices are the goal of the researcher, instead of low rents. [0] https://www.brookings.edu/research/what-does-economic-evidence-tell-us-about-the-effects-of-rent-control/ https://www.brookings.edu/research/what-does-economic-eviden... EDIT: I think one core problem in this discussion is the assumed relation between real estate values and rent level. In hot markets these are only loosely correlated, though: Investors can often savely assume that appreciation alone will result in profits. An example for Berlin, Germany: from 2010 to 2020 real estate values rose about 400% but rent "only" rose 66%. This means investors can safely assume profitable investments even if rents are not part of the equation, by real estate appreciation alone. An unregulated real estate market therefore will certainly result in rising property prices, but this doesn't mean more living space will be available.
- refurb 6y ago
  renters are not voluntary participants in the market Maybe not across the country as a whole, but they are certainly voluntary participants in a given market which is likely limited to a small geographic area.
  - proverbialbunny 6y ago
    Having to live in a location so you can work is not voluntary for most.
w_t_payne 6y ago
The problem is that land is not subject to the same laws of supply and demand as other goods and services. It's very hard to make new land (unless you're Dutch), and very hard to move residential capacity around in response to fluctuating demand. The alternative isn't necessarily rent control. The smart people in this forum could probably come up with some market-oriented system which would dramatically improve the flexibility and efficiency of residential real estate supply.
- lb1lf 6y ago
  -As you state, making new land is hard, so the simplest option remaining probably is to make more land desirable to live on - say, by improving local transit so that you can live farther away from downtown and still have a decent commute. Obviously, though, this approach requires an awful lot of people willing to fill the newly developed land to make the infrastructure investment worthwhile. Free lunches are few and far between. Sigh.
  - w_t_payne 6y ago
    Another alternative is building both up and down. Taller buildings for more residential space, and buried infrastructure for more room at the surface. Planning regulations need to acknowledge this reality though.
proverbialbunny 6y ago
It's a complex problem. Supply and demand works in some housing markets and not others. Some markets are non-competitive so supply and demand doesn't quite work. This is not because land is a limited resource, but travel times to work are a limited resource. Land use is limited to a number of minutes from where jobs are. Before cars became common commute times were the same length as they are today, but people lived much closer to where they worked. In housing markets where there is a lack of competition this allows land lords to raise prices as much as they want, up to a point, as long as tenants can pay. Because it's an inelastic good, people have to pay or be homeless, so they'll pay up to how much they make. China is a good example of this. It has some of the highest rent prices in the world with people crammed into these coffin sized living conditions, so China has strongly stimulated building development. This has let to handfuls of ghost cities with no one living in them, and yet rent prices continue to increase beyond just about anywhere else in the world. Singapore is a good example as well. It's a country with limited land and a high population. The government there builds condos with a locked rate, so the average citizen can afford it. The government effectively becomes their land lord. "Buying" land there is renting, and the condos are quite nice. They have the resources to do this, it limits land prices, the people benefit from it, the government benefits from it. I'm not saying this is how other countries should do this, just that it makes a good use case to show an example of what reduces land prices and an example of what increases it. One such solution I am unfamiliar if any country in the world does, is build more Ivy / high end business universities. The largest reason someone chooses to start a business in an area is because their social network is there. They get this network at a university. By building education up in a better way, more cities will form around those universities. We could get more cities with businesses, instead of people fighting over the few options in the US, despite all of the land we have. Another such solution is limiting business in an area. If the number of workers in an area are limited, around those businesses house and rent prices become competitive and supply and demand starts working. Business that want to expand or new businesses would have to move to another area. (Of course, this solution is not without its faults.) The European solution is two fold: 1) mixed zoning, so businesses are more inner-twinned with residential reducing commute times increasing the ability for supply and demand to work. 2) limit building size to regulate the residential to business employee ratio, which allows supply and demand to start working. We can see today that this works and works well.

kjakm 6y ago

Supply and demand is too simplistic an approach for a lot of places when so many properties in major cities are purchased by foreign investors and left empty.

goodcanadian 6y ago
Supply and demand still works. That is a confounding factor artificially increasing demand (or decreasing supply). There are lots of approaches to fight this, including banning foreign ownership, or just building so much housing that it doesn't matter (the foreign ownership problem may also go away in the latter case if it turns into a poor investment).
- Jochim 6y ago
  Building housing isn't enough. People need to be able to get to work in a reasonable length of time, they generally need to be able to maintain prior relationships, have access to hobbies, shopping etc. that all tend to be further away from undeveloped land. That's also ignoring the problem of landlords using the excess capital extracted from rents to drive the price of housing further from the reach of the people actually interested in using it as a house. The higher prices are then used by landlords as a justification for raising rent, and this cycle then repeats.
twic 6y ago
> so many properties in major cities are purchased by foreign investors and left empty This is a bit of a popular myth. Vancouver is the only city i know of where it even approaches being significant. Try to dig up some statistics on empty properties for some cities that matter to you and you'll see.
- kjakm 6y ago
  There are about 25,000 unoccupied properties in London, UK worth about £11 billion.
  - twic 6y ago
    That's all homes empty for any reason, not just "purchased by foreign investors and left empty", which is what i'm talking about. It's still a tiny number compared to the size of the city. Here's a report, covering England but with some extra detail on London, from 2019: https://www.actiononemptyhomes.org/Handlers/Download.ashx?IDMF=68fa9a2d-83f5-4ca4-936b-a8d8248484c0 https://www.actiononemptyhomes.org/Handlers/Download.ashx?ID... Table 5 tells us that in London, there were a grand total of 2126 empty homes in council tax bands G and H, ie the kind of property an investor might buy. The vast majority of empty homes are not offshore investment material.

cygx 6y ago

The only way to make housing more affordable is to increase the supply. That's not necessarily sufficient. From Für eine wirklich soziale Wohnungspolitik[1], citing empirical studies of rents in Germany: Im Ergebnis muss demnach festgestellt werden, dass eine verstärkte Neubautätigkeit unter den gegenwärtigen Bedingungen nicht zu einer Ausweitung von bezahlbaren Wohnungsangeboten führt, sondern vielmehr die Ertragssteigerungen im Bestand beschleunigt. As a result, it must be stated that increased new building activity under the current conditions does not lead to an expansion of affordable housing offers, but rather accelerates the increase in yields in existing buildings. The reason for this is that the newly constructed housing tends to be higher priced, and when old housing gets freed, rents tend to get raised on the new tenants. [1] https://zeitschrift-suburban.de/sys/index.php/suburban/article/download/411/585/ https://zeitschrift-suburban.de/sys/index.php/suburban/artic...

goodcanadian 6y ago
The reason for this is that the newly constructed housing tends to be higher priced, and when old housing gets freed, rents tend to get raised on the new tenants. If they are able to do this, there still isn't enough supply to meet the demand.
- cygx 6y ago
  Space in cities is a limited resource, and it might not even be in the markets interest to build enough housing to let prices drop.
  - goodcanadian 6y ago
    I believe I acknowledged that in my comment, and suggested a possibility of building rapid transit to also increase the effective supply in such cases.
    - deleted 6y ago
      [deleted]
    - 6y ago

bildung 6y ago

Regular supply and demand doesn't really seem to apply to real estate because renters are not voluntary participants in the market: The alternative to consuming the available housing is homelessness. Supply and demand obviously are efficient to determine property values, but optimal property values isn't the goal of rent control regimes. This report from Brookings is illustrative: It shows that property values (and rents) in Cambridge have sharply risen after rent control has been cancelled. The article concludes: "In short, the policy imposed $2.0 billion in costs to local property owners, but only $300 million of that cost was transferred to renters in rent-controlled apartments." [0] That is undoubtly true, but seems to miss the point - the goal of rent control is not to help in optimal pricing of real estate. Rent control only seems to not work when high real estate prices are the goal of the researcher, instead of low rents. [0] https://www.brookings.edu/research/what-does-economic-evidence-tell-us-about-the-effects-of-rent-control/ https://www.brookings.edu/research/what-does-economic-eviden... EDIT: I think one core problem in this discussion is the assumed relation between real estate values and rent level. In hot markets these are only loosely correlated, though: Investors can often savely assume that appreciation alone will result in profits. An example for Berlin, Germany: from 2010 to 2020 real estate values rose about 400% but rent "only" rose 66%. This means investors can safely assume profitable investments even if rents are not part of the equation, by real estate appreciation alone. An unregulated real estate market therefore will certainly result in rising property prices, but this doesn't mean more living space will be available.

refurb 6y ago
renters are not voluntary participants in the market Maybe not across the country as a whole, but they are certainly voluntary participants in a given market which is likely limited to a small geographic area.
- proverbialbunny 6y ago
  Having to live in a location so you can work is not voluntary for most.

w_t_payne 6y ago

The problem is that land is not subject to the same laws of supply and demand as other goods and services. It's very hard to make new land (unless you're Dutch), and very hard to move residential capacity around in response to fluctuating demand. The alternative isn't necessarily rent control. The smart people in this forum could probably come up with some market-oriented system which would dramatically improve the flexibility and efficiency of residential real estate supply.

lb1lf 6y ago
-As you state, making new land is hard, so the simplest option remaining probably is to make more land desirable to live on - say, by improving local transit so that you can live farther away from downtown and still have a decent commute. Obviously, though, this approach requires an awful lot of people willing to fill the newly developed land to make the infrastructure investment worthwhile. Free lunches are few and far between. Sigh.
- w_t_payne 6y ago
  Another alternative is building both up and down. Taller buildings for more residential space, and buried infrastructure for more room at the surface. Planning regulations need to acknowledge this reality though.

proverbialbunny 6y ago

It's a complex problem. Supply and demand works in some housing markets and not others. Some markets are non-competitive so supply and demand doesn't quite work. This is not because land is a limited resource, but travel times to work are a limited resource. Land use is limited to a number of minutes from where jobs are. Before cars became common commute times were the same length as they are today, but people lived much closer to where they worked. In housing markets where there is a lack of competition this allows land lords to raise prices as much as they want, up to a point, as long as tenants can pay. Because it's an inelastic good, people have to pay or be homeless, so they'll pay up to how much they make. China is a good example of this. It has some of the highest rent prices in the world with people crammed into these coffin sized living conditions, so China has strongly stimulated building development. This has let to handfuls of ghost cities with no one living in them, and yet rent prices continue to increase beyond just about anywhere else in the world. Singapore is a good example as well. It's a country with limited land and a high population. The government there builds condos with a locked rate, so the average citizen can afford it. The government effectively becomes their land lord. "Buying" land there is renting, and the condos are quite nice. They have the resources to do this, it limits land prices, the people benefit from it, the government benefits from it. I'm not saying this is how other countries should do this, just that it makes a good use case to show an example of what reduces land prices and an example of what increases it. One such solution I am unfamiliar if any country in the world does, is build more Ivy / high end business universities. The largest reason someone chooses to start a business in an area is because their social network is there. They get this network at a university. By building education up in a better way, more cities will form around those universities. We could get more cities with businesses, instead of people fighting over the few options in the US, despite all of the land we have. Another such solution is limiting business in an area. If the number of workers in an area are limited, around those businesses house and rent prices become competitive and supply and demand starts working. Business that want to expand or new businesses would have to move to another area. (Of course, this solution is not without its faults.) The European solution is two fold: 1) mixed zoning, so businesses are more inner-twinned with residential reducing commute times increasing the ability for supply and demand to work. 2) limit building size to regulate the residential to business employee ratio, which allows supply and demand to start working. We can see today that this works and works well.