4 ms·

> 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. Hard disagree. Rati

by heylook 5mo ago

> 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. 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.

tverbeure 5mo ago
I think you're wildly overestimating the rationality of investors.
- WalterBright 5mo ago
  If you're smarter than other investors, you can make a lot of money doing the opposite of what they do.
  - WalterBright 5mo ago
    The failures and dislocations and "unanticipated" side effects of rent control are always a consequence of the Law of Supply and Demand. You cannot repeal that law, though they try again and again and again.
  - stymaar 5mo ago
    In a beauty contest, being right alone against everyone else just makes you lose. Markets can remain irrational much longer than you can remain solvent.
- jjav 5mo ago
  If other investors are irrational that's a wonderful arbitrage opportunity. But good arbitrage opportunities are rare and don't last very long, so maybe they are rational.
  - rcxdude 5mo ago
    That does depend on the underlying market. Often you can make money (especially as a small participant) only if you can predict when the other participants in the market will snap back to reality. This can be pretty difficult when the market is more detached from the underlying activity it's supposed to represent (and property markets are often not very transparent or fast-moving).
  - tverbeure 5mo ago
    You’re really asking for a Keynes comment here. :-) He flirted with bankruptcy multiple times.
ameon 5mo ago
both can be true if we separate short-term from a long-term effect. Panic or other emotional reactions are quick, that's for sure.
avs733 5mo ago
Except the housing market, especially the rental market, is still significantly driven by small rental property owners and is a significant source of generational wealth transfer. Starting with the assumption that all or even most investors / actors are rational is a continuing pox on both economic scholarship and societal thinking
- joshribakoff 5mo ago
  It doesn’t require all or most investors to act rational. A small percentage of rational actors still moves prices.
  - dwallin 5mo ago
    Moving prices is not the same as moving the market, and famously the market might cause them to go insolvent faster then the market goes rational. Which would mean that they weren’t actually rational and this is all circular reasoning?
- datadrivenangel 5mo ago
  actors are in aggregate rational and self interested, but emotions are important.
roenxi 5mo ago
In a highly liquid commodity market full of professional traders, I'd agree. But the housing market isn't that liquid over 9 months and there are a lot of small timers. It seems more likely there'd be some sort of initial wobble as sophisticated participants reposition, then a period of calm, then the actual impacts set in over 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.
- heylook 5mo ago
  "It seems more likely..." "It might not happen that way..." "someone does need to check..." "seems entirely possible..." "I'd want more like 5 years to be confident..." Lot of different ways to say you don't know anything at all. This isn't a new market. This isn't the first time laws have changed in this way. This isn't the first time they've had this effect. We already know all of this. You're just waffling and enjoying the sound of your own voice.
pushcx 5mo ago
The stock market has liquidity, fungibility, low transaction costs, etc etc. https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terri...
servo_sausage 5mo ago
You probably won't see new commencement of building projects, but it probably doesn't mean ongoing projects would be scrapped... And these things have a lead time of years
- Schiendelman 5mo ago
  You don't have to build for the market to change - the projection of future rents changes behavior in more efficiently operationalized landlords.
AnthonyMouse 5mo ago
> 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 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.
- linkregister 5mo ago
  This argument presupposes multiple levels of assumption. By the point where the assertion is made that construction costs would drop, the prediction's error bars equal the entire range. There's no reason to believe that construction companies would accept jobs at prices below the cost of materials and labor. Construction companies frequently let workers go rather than accept large negative cash flows.

by heylook 5mo ago

tverbeure 5mo ago

I think you're wildly overestimating the rationality of investors.

WalterBright 5mo ago
If you're smarter than other investors, you can make a lot of money doing the opposite of what they do.
- WalterBright 5mo ago
  The failures and dislocations and "unanticipated" side effects of rent control are always a consequence of the Law of Supply and Demand. You cannot repeal that law, though they try again and again and again.
- stymaar 5mo ago
  In a beauty contest, being right alone against everyone else just makes you lose. Markets can remain irrational much longer than you can remain solvent.
jjav 5mo ago
If other investors are irrational that's a wonderful arbitrage opportunity. But good arbitrage opportunities are rare and don't last very long, so maybe they are rational.
- rcxdude 5mo ago
  That does depend on the underlying market. Often you can make money (especially as a small participant) only if you can predict when the other participants in the market will snap back to reality. This can be pretty difficult when the market is more detached from the underlying activity it's supposed to represent (and property markets are often not very transparent or fast-moving).
- tverbeure 5mo ago
  You’re really asking for a Keynes comment here. :-) He flirted with bankruptcy multiple times.

ameon 5mo ago

both can be true if we separate short-term from a long-term effect. Panic or other emotional reactions are quick, that's for sure.

avs733 5mo ago

Except the housing market, especially the rental market, is still significantly driven by small rental property owners and is a significant source of generational wealth transfer. Starting with the assumption that all or even most investors / actors are rational is a continuing pox on both economic scholarship and societal thinking

joshribakoff 5mo ago
It doesn’t require all or most investors to act rational. A small percentage of rational actors still moves prices.
- dwallin 5mo ago
  Moving prices is not the same as moving the market, and famously the market might cause them to go insolvent faster then the market goes rational. Which would mean that they weren’t actually rational and this is all circular reasoning?
datadrivenangel 5mo ago
actors are in aggregate rational and self interested, but emotions are important.

roenxi 5mo ago

In a highly liquid commodity market full of professional traders, I'd agree. But the housing market isn't that liquid over 9 months and there are a lot of small timers. It seems more likely there'd be some sort of initial wobble as sophisticated participants reposition, then a period of calm, then the actual impacts set in over 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.

heylook 5mo ago
"It seems more likely..." "It might not happen that way..." "someone does need to check..." "seems entirely possible..." "I'd want more like 5 years to be confident..." Lot of different ways to say you don't know anything at all. This isn't a new market. This isn't the first time laws have changed in this way. This isn't the first time they've had this effect. We already know all of this. You're just waffling and enjoying the sound of your own voice.

pushcx 5mo ago

The stock market has liquidity, fungibility, low transaction costs, etc etc. https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/ https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terri...

servo_sausage 5mo ago

You probably won't see new commencement of building projects, but it probably doesn't mean ongoing projects would be scrapped... And these things have a lead time of years

Schiendelman 5mo ago
You don't have to build for the market to change - the projection of future rents changes behavior in more efficiently operationalized landlords.

AnthonyMouse 5mo ago

> 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 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.

linkregister 5mo ago
This argument presupposes multiple levels of assumption. By the point where the assertion is made that construction costs would drop, the prediction's error bars equal the entire range. There's no reason to believe that construction companies would accept jobs at prices below the cost of materials and labor. Construction companies frequently let workers go rather than accept large negative cash flows.