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Rent control really doesn’t make sense. If we could make things cheaper by passing a law we’d do it for everything. Rent control won’t work for the same reason

Rent control really doesn’t make sense. If we could make things cheaper by passing a law we’d do it for everything. Rent control won’t work for the same reason a price control for food or cars won’t work. https://freakonomics.com/podcast/rent-control/ https://freakonomics.com/podcast/rent-control/

standardUser 5y ago
Some forms of rent stabilization make perfect sense. But most of the policies implemented in big cities are far too restrictive. There is a lot of policy to be explored between "your rent never goes up forever" and "you can't be immediately evicted for no reason". No one wants the latter, but there are better ways to address that, like much longer notices for rent increases, or requiring multi-year lease options.
- mrfusion 5y ago
  Sounds feasible. I don’t normally think of that as rent control.
- nradov 5y ago
  San Jose limits annual rent increases to 5%. That seems reasonable (unless inflation gets out of control). Tenants aren't immediately forced out of their homes if the market rate jumps 20% in one year. But landlords can still eventually raise rents to market rates spread out over several years. There's no absolute limit on maximum rent.
  - laverya 5y ago
    If it was inflation + 5%, I'd be fine with that - but a flat 5% limit only works so long as inflation stays low.
    - dragonwriter 5y ago
      Technically, it only works if the (notional, I’m not sure this is an actual tracked category) PPI for rental housing is low, general (CPI) inflation may loosely correlate with that, but its not directly relevant.
  - ralph84 5y ago
    Inflation may not be out of control yet, but certainly things like insurance, parts and labor for repairs and maintenance, and HOA dues are already increasing more than 5%/year. And property taxes alone are guaranteed to increase 2%/year in California. Not saying we should feel sorry for landlords, but when some parts of a market have price controls and other parts don't, distortions are inevitable.
    - dragonwriter 5y ago
      > And property taxes alone are guaranteed to increase 2%/year in California No, they aren't. Assuming no increase in property tax rate (which is a good assumption, since your local taxing jurisdiction almost certainly already charges the maximum nominal rate of 1% allowed under Prop. 13), your property taxes will increase only by the amount your assessed value for taxation increases, which is capped to the lower of 2% or the actual annual (trailing) rate of inflation. For 2021/2022 the actual cap is 1.036%, based on the actual California CPI for October 2019 through October 2020.
antisthenes 5y ago
> If we could make things cheaper by passing a law we’d do it for everything. Price controls for medicine are proven to work, based on single payer European systems. They cost cheaper and provide better outcomes than the US system. Yet here we are.
- mrfusion 5y ago
  That’s a little different because we’re dealing with a monopoly which can raise prices above the market rate. But you are correct that in those cases it can work well. Same with other monopolies like utilities.
- FredPret 5y ago
  That’s different. The drugs are invented and produced all over the world and can be imported to Europe. So low European drug prices will harm overall pharma innovation a bit without killing the entire market. Housing, OTOH, is always local. Low rents will discourage development which will make the real, underlying problem worse.
- nradov 5y ago
  That is an example of what economists call the free rider problem. European countries get cheap drugs only because they are effectively being subsidized by Americans. https://www.investopedia.com/terms/f/free_rider_problem.asp https://www.investopedia.com/terms/f/free_rider_problem.asp Outcome differences are due more to public health and social factors like obesity. Expensive drugs or lack thereof have only a tiny impact at the population level.
  - toomuchtodo 5y ago
    US pharma spends an outsized amount on sales and marketing, expenses that could be eliminated if public funding was spent directly on R&D. Europeans aren’t free riding; they’re paying a reasonable rate for these goods while Americans are shouldered with extraction of revenue for pharma profits and those inefficient (and arguably unnecessary) sales and marketing expenses. Only two countries in the world permit marketing directly to consumers to promote pharmaceuticals: the United States and New Zealand.
lordnacho 5y ago
As described by Freakonomics and general economic education, this is more or less right. However keep in mind there's two kinds of rent. You can rent a house, or you can rent money and buy a house. Historically and across countries there's been some willingness to restrict mortgage LTVs and interest-to-income ratios. At least in some European countries the interest ratio depends on a fixed interest rate (eg 5%) rather than the current interest rate. We can create and destroy money more easily than we can create and destroy homes, maybe that's a worthwhile lever to try.

standardUser 5y ago

Some forms of rent stabilization make perfect sense. But most of the policies implemented in big cities are far too restrictive. There is a lot of policy to be explored between "your rent never goes up forever" and "you can't be immediately evicted for no reason". No one wants the latter, but there are better ways to address that, like much longer notices for rent increases, or requiring multi-year lease options.

mrfusion 5y ago
Sounds feasible. I don’t normally think of that as rent control.
nradov 5y ago
San Jose limits annual rent increases to 5%. That seems reasonable (unless inflation gets out of control). Tenants aren't immediately forced out of their homes if the market rate jumps 20% in one year. But landlords can still eventually raise rents to market rates spread out over several years. There's no absolute limit on maximum rent.
- laverya 5y ago
  If it was inflation + 5%, I'd be fine with that - but a flat 5% limit only works so long as inflation stays low.
  - dragonwriter 5y ago
    Technically, it only works if the (notional, I’m not sure this is an actual tracked category) PPI for rental housing is low, general (CPI) inflation may loosely correlate with that, but its not directly relevant.
- ralph84 5y ago
  Inflation may not be out of control yet, but certainly things like insurance, parts and labor for repairs and maintenance, and HOA dues are already increasing more than 5%/year. And property taxes alone are guaranteed to increase 2%/year in California. Not saying we should feel sorry for landlords, but when some parts of a market have price controls and other parts don't, distortions are inevitable.
  - dragonwriter 5y ago
    > And property taxes alone are guaranteed to increase 2%/year in California No, they aren't. Assuming no increase in property tax rate (which is a good assumption, since your local taxing jurisdiction almost certainly already charges the maximum nominal rate of 1% allowed under Prop. 13), your property taxes will increase only by the amount your assessed value for taxation increases, which is capped to the lower of 2% or the actual annual (trailing) rate of inflation. For 2021/2022 the actual cap is 1.036%, based on the actual California CPI for October 2019 through October 2020.

antisthenes 5y ago

> If we could make things cheaper by passing a law we’d do it for everything. Price controls for medicine are proven to work, based on single payer European systems. They cost cheaper and provide better outcomes than the US system. Yet here we are.

mrfusion 5y ago
That’s a little different because we’re dealing with a monopoly which can raise prices above the market rate. But you are correct that in those cases it can work well. Same with other monopolies like utilities.
FredPret 5y ago
That’s different. The drugs are invented and produced all over the world and can be imported to Europe. So low European drug prices will harm overall pharma innovation a bit without killing the entire market. Housing, OTOH, is always local. Low rents will discourage development which will make the real, underlying problem worse.
nradov 5y ago
That is an example of what economists call the free rider problem. European countries get cheap drugs only because they are effectively being subsidized by Americans. https://www.investopedia.com/terms/f/free_rider_problem.asp https://www.investopedia.com/terms/f/free_rider_problem.asp Outcome differences are due more to public health and social factors like obesity. Expensive drugs or lack thereof have only a tiny impact at the population level.
- toomuchtodo 5y ago
  US pharma spends an outsized amount on sales and marketing, expenses that could be eliminated if public funding was spent directly on R&D. Europeans aren’t free riding; they’re paying a reasonable rate for these goods while Americans are shouldered with extraction of revenue for pharma profits and those inefficient (and arguably unnecessary) sales and marketing expenses. Only two countries in the world permit marketing directly to consumers to promote pharmaceuticals: the United States and New Zealand.

lordnacho 5y ago

As described by Freakonomics and general economic education, this is more or less right. However keep in mind there's two kinds of rent. You can rent a house, or you can rent money and buy a house. Historically and across countries there's been some willingness to restrict mortgage LTVs and interest-to-income ratios. At least in some European countries the interest ratio depends on a fixed interest rate (eg 5%) rather than the current interest rate. We can create and destroy money more easily than we can create and destroy homes, maybe that's a worthwhile lever to try.