>Second, the benefits of rent-control take away various healthy market-based incentives. My dad for example lives on welfare in an apartment with 3 bedrooms, by himself in the capital city, and pays 1/3rd of the market rate. He has no incentive to seek out smaller housing which suits his needs just fine.
Whereas if you allow market rate on all apartments you've given landlords collecting rent an incentive to impede all kinds of property development which might bring rents down with NIMBYism.
If they are leveraged landlords who risk going underwater on their mortgage if too much supply comes on the market you've created a veritable NIMBY zealot who will show up to every town planning meeting and throw sand in the gears of new development and vote down every social housing program that might impede supply.
Will your dad? Doubtful.
Rent control wasnt ever a clean, ideal fix (land value taxes are) but they're a band aid solution to rent seeking driven evictions - especially of the frail and elderly.
>Whereas if you allow market rate on all apartments you've given landlords collecting rent an incentive to impede all kinds of property development which might bring rents down with NIMBYism.
that assumes rent control actually brings down rents (overall), and landlords aren't baking it into the price. When the government forces landlords to give tenants an indefinite call option on housing (ie. rent control), I doubt landlords are just going to carry on business as usual. The call option has a cost, and that will be incorporated into the cost of future tenants' rents.
> I'm struggling to see why you think landlords would be able to charge above market rate once rent control ends.
It won't be above market rate, but the market rate will go up to account for the call option. It's like if the city mandated all landlords to install AC (assume for this example this is for a region where most units don't have AC). Since this cost is applicable to most landlords, the landlords collectively will raise their rent because their costs have gone up.
As far as I can see it's exactly like being mandated to install AC - in that it would not change supply of housing and it would not change demand for housing.
That is, unless there was a non-negligible number of landlords who would be so infuriated with spending, say, $2k on installing AC that they would take their house off the market (but not sell it) and therefore willingly forego, say, $2k of rent every single month.
I don't see that as plausible, though. If you have an unsold rental unit doing nothing but collecting dust you're wasting money. In rent controlled cities like SF/NYC almost by definition rent is high, so these theoretical landlords would be leaving a lot of money on the table so if you think this effect is real you are obligated to assume that these landlords are behaving in an irrational manner.
the pre-AC prices are already in equilibrium. mandating AC increases the cost of supplying housing, so it disturbs that equilibrium. who actually absorbs that increased cost depends on the elasticity of demand. for highly elastic goods, the producer/seller loses more of their surplus (ie, they cover most of the cost increase). but with a highly inelastic good like housing in a desirable location, it is much more likely that the consumer covers the larger part of the cost increase.
this is basically equivalent to the effect of elasticity on tax incidence. you can view the cost of AC or forgone rent from rent control as a sort of tax.
another good example of an inelastic good is gas. people who commute can't easily change the amount of fuel they consume. if the gas tax goes up, or a barrel of oil becomes more expensive, your local gas station doesn't just make it up from their margin. they increase their prices, regardless of how accustomed people were to the previous price.
tl;dr: the fact that a landlord can charge more after being forced to install AC does not imply that they could have just increased rent in the first place if they weren't so stupid.
A careful reading of my previous comment should make it clear that I alluding to precisely that, in fact. Also it was explaining why it would 90%+ fall on the landlord in high rent locales like NYC/SF.
Why you think it shouldn't fall on the landlord in high rent markets just because the supply of property is relatively inelastic isn't so clear to me.
do you not agree that housing demand in nyc/sf is highly inelastic then? the rest kinda follows from that. or are you arguing that the supply itself is even more inelastic than the demand?
I think part of the problem with this example is that $2k is just not very much money compared to rental income in those areas. I agree, it is hard to imagine landlords dropping out of a market where they can rent a studio for $2500+/month over a one-time $2000 expense. I argue it would still happen at the margins, but it might result in a market rent increase that is below the noise floor.
still, it is a mistake to assume that all HCOL landlords are making money hand over fist. places with high rents tend to also have high price-to-rent ratios. landlords with recently purchased, mortgaged properties might not be making much profit, even with sky-high rents. if a lot of landlords are in this situation, the supply could be surprisingly elastic.
>do you not agree that housing demand in nyc/sf is highly inelastic then? the rest kinda follows from that. or are you arguing that the supply itself is even more inelastic than the demand?
Relatively inelastic, but not as inelastic as supply. There are people who would gladly move to NYC tomorrow if rents were cheaper and vice versa.
>I think part of the problem with this example is that $2k is just not very much money compared to rental income in those areas. I agree, it is hard to imagine landlords dropping out of a market where they can rent a studio for $2500+/month over a one-time $2000 expense.
Ergo why the incidence falls squarely on the landlord.
This also explains why they bitch the most about things like property tax hikes and building regs while renters do not care. A double whammy of it hits their net profit and hits the value of their property because it reduces the profit it can generate.
>still, it is a mistake to assume that all HCOL landlords are making money hand over fist.
Right. If they're not it's because they're leveraged in which case there is even LESS reason to suppose that they would be the cause of a drop in supply because instead of not making as much as they could by not renting their apartment out, they'll be LOSING money hand over fist.
I do agree that property prices will likely bake in the cost of having to install aircon or having to abide by rent control regulations. It might be the proverbial "last" straw for some who might sell up but that won't reduce supply because they'll sell it on to somebody else who will rent it out (or live in it).
I also believe that what say may be right in, say, rural Alabama where rent control might well disincentivize the construction of new housing where land is not at a premium. But, NYC is a different kettle of fish.
> Whereas if you allow market rate on all apartments you've given landlords collecting rent an incentive to impede all kinds of property development which might bring rents down
This incentive still exists if only some of the apartments are market rate, right?
Political power? Numbers. How else did you think development gets canceled in city planning meetings? When one person turns up out of 70 to impede development or when 50 do?
Hm I'd never considered that angle. I buy that it is an effect, but I'm not confident it's general or stronger than other effects (often in the other direction).
For instance, in my neighborhood, (market rate) landlords generally want new residential development, because it's seen as something that will have a gentrifying effect on the area and bring up property values in general. That mentality presumably doesn't apply to neighborhoods that are already rich, though.
Speaking of land value taxes, I fully understand that homeowners do not want to be kicked out but there has to be a middle ground.
A progressive land tax would tax owner occupied housing less but then collect the shortfall when the owner sells his land. If for any reason the owner cannot pay, he can apply to defer taxes for 5 years which then result in eviction if the taxes are still due and the property will automatically be upzoned to prevent future evictions.
Land owned by companies does not qualify as owner occupied to prevent share deals.
Property investors will face increasingly higher land value taxes the more land they own in a single location. The idea is that instead of investing in thousands of plots in the same top 10 cities they will have a presence in multiple different cities. This should result in competition between landlords instead of regional consolidation like ISPs have done in the US.
And now the cherry on top. Deduct paid land value taxes from taxable income of the tenant or owner occupant. Finally, lower income taxes across the board and remove the deduction.
Ok, enough about land value taxes. The reason why I personally am against rent control is actually the reason why a minimum wage works. Supply and demand aren't perfectly inelastic. Raising the minimum wage turns the government into a union. But the real question is, who does this hypothetical union serve? People imagine that it will help minimum wage workers but that is just a story to sell the policy. The truth is that it works because the only people impacted by the policy are the poor. Any market distortion that the minimum wage achieves primarily benefits those who are below the previous level. If corporations are cash rich they can simply afford the higher wages so unemployment isn't as big a deal as the theory tells us. The downside of losing jobs that pay less than minimum wage may be overstated because those jobs merely save the government a few dollars on welfare but do not contribute to a meaningful existence.
Now, if a minimum wage has an impact on the poor then who does rent control have an impact on? Rent control is a price ceiling. Who is paying the most for rent? Of course, those who can afford high rents. There are lots of high end apartments that are simply not meant for low income people in which reliable and affluent tenants live in. Yet rent control starts with the most expensive housing first. Poor tenants are usually paying bottom or mid end housing. It doesn't reach them at all. What often happens as a result is that landlords raise rent on low and mid end housing to compensate for losses on high end housing. In my opinion people who advocate for rent control simply do not understand the policy they vote for.
It's a ban on renting in a market that badly needs more rental units.
Whereas if you allow market rate on all apartments you've given landlords collecting rent an incentive to impede all kinds of property development which might bring rents down with NIMBYism.
If they are leveraged landlords who risk going underwater on their mortgage if too much supply comes on the market you've created a veritable NIMBY zealot who will show up to every town planning meeting and throw sand in the gears of new development and vote down every social housing program that might impede supply.
Will your dad? Doubtful.
Rent control wasnt ever a clean, ideal fix (land value taxes are) but they're a band aid solution to rent seeking driven evictions - especially of the frail and elderly.