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Why I don't like rent control

One of my social circles is busily debating rent control. Well, arguing over it, really, there's not so much debate as moral divide. On one side are the lay economists, on the other side the people who think it's self-evidently good to protect current tenants and sock it to landlords, who cares what economists say?

http://en.wikipedia.org/wiki/Rent_control_in_the_United_States has some actual public good arguments in favor of rent control, as well as the standard arguments against, the key one of which I wish to illustrate.

Imagine 100 units, and 100 tenants, renting at some price. Now imagine 100 more people wanting to move in. What happens?

Case 1, fixed housing supply and flexible prices: you've got 200 people bidding for 100 units, rents soar, poor people leave as their leases expire, and soon only the richest 100 live in the area. Poor people are forced to move, neighborhood character may be lost. Sum up as only the rich live here.

Case 2, fixed housing supply and rent control: Existing tenants aren't directly affected. But when one does leave, there's now 100 outsiders, plus any insiders who want to move within the area, bidding for that one apartment. Vacancy rents *soar*. Other effects: landlords skimp on maintenance hoping to drive controlled tenants out; landlords seek ways to take illegal bribes; prospective tenants offer illegal bribes to be considered out of the 100+ applicants; landlords seek ways to evict tenants, or to convert apartments to condos they can sell. Friends who want to move might try to unofficially live in each other's apartments (an official swap would allows rents to rise), while landlords will seek to police and prevent such behavior. Landlords will favor 1 or 2 BR apartments, to minimize the chance of a lease being chained from tenant to tenant as could happen with a multi-unit house. Current tenants are protected while they stay but are prevented from moving within the area, and may not be able to afford to do so.

That's assuming the modern form, where rents can be raised when someone moves out. If rents are absolutely controlled then you avoid some bad effects but worsen others, particularly the slovenly maintenance and bribery, or at least landlords using arbitrary means to select from the hordes of applications they get. Like taking the highest credit rating, or the richest looking people, or the whitest.

Sum up: only the extremely rich can move in and there's a black market in housing. Existing tenants are favored, new ones like college or grad students are screwed. Someone who goes away for a few years probably can't come back.

Case 3, flexible housing: people build new housing to match demand, rents stay tied to the marginal cost of adding new housing, which eventually becomes the cost of adding a floor to a new high-rise design. Alternately or in parallel, housing sizes shrink; one can add housing by subdivision as well as by building after all, unless zoning laws require minimum sizes. Rent control is irrelevant in proportion to how fast housing can be added. Side effects: green space and/or sunlight may diminish as buildings spread and climb like trees. Infrastructure gets fully utilized or even overburdened; new infra is well worth building. The number of people you can meet in walking distance grows. Your area becomes more like such hellholes as NYC, London, Paris or Tokyo.

Sum up: people actually get to live where they want to at affordable prices.

Rent control is a bandaid that shifts power from landlords (kind of) to existing tenants, at the expense of everyone else, and the expense of social mobility. Freeing up housing markets -- getting rid of Euclidean zoning, minimum sizes, floor aspect ratios, parking requirements, and just keeping safety and noxiousness regulations[1] -- actually solves the problem. But it doesn't have an attractive sound bite, especially to leftists who treat markets and developers as tainted things rather than processes providing things they want.

[1] I'd be tempted to make building codes include noise isolation requirements. More market friendly would be public evaluation of apartments for noise (and energy efficiency, while we're at it), allowing landlords to compete on such metrics without the asymmetric information problem (aka you don't know if they're telling the truth or even have a clue when they tell you it's quiet).

Adding: I don't see landlords as parasites. Or rather, there's ambiguity: landowners are largely parasitic on the increase in land value created by society; building owners provide useful services in maintaining the buildings I stay in. Of course most building owners own the land the building's on, so there's a mix of functions. I'm also friendly to high land value taxes to capture the social increment in land value. But you *still* need to free up the provision of new housing. Land value taxes would just transfer land rent to the government, they wouldn't make it easier or cheaper for people to live in the area.

Late edit: I had rent control back in San Francisco. Large 1BR started at $950 in 1998, crept up a bit in the next 4 years. Nice. But if I wanted to move back now it might cost me $3000. Not nice. And I'd stayed there the whole time it might be $2000 now; 'losing' $12,000 per year per apartment would probably gall a landlord. And why do apartments cost $3000? Because there's been hardly any housing built on the whole west side of the Bay Area, city or Peninsula, despite a huge dotcom boom, because of selfish and shortsighted local building restrictions. A big chunk of SF is the Sunset district, an ocean of one story houses on garages. It's insane.

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Damien Sullivan

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