Podcast Summary
Rent Control: Rent control, while appealing for affordability and preventing displacement, can create scarcity, hinder market adjustments, and discourage new housing construction. Economists recommend increasing housing supply, incentivizing affordable housing, and addressing underlying causes of rising rents instead.
Rent control, a popular solution to rising rents in cities, is generally considered a bad idea by economists. Despite its appeal as a means to provide affordability and prevent displacement, rent control can have negative consequences, such as creating scarcity, hindering adjustment to market changes, and discouraging new housing construction. The history of rent control dates back to World War II when it was seen as a way to keep housing fair during wartime. However, its long-term effects have been found to be detrimental, particularly in cities with high demand and limited housing supply. Economists argue that markets work best when left to find their natural equilibrium, with price acting as a referee. Instead, they suggest exploring alternative solutions, such as increasing housing supply, incentivizing affordable housing, and addressing underlying causes of rising rents.
Rent control effects: Rent control, despite its goal to make housing more affordable, can lead to a decrease in new construction and lower renter mobility, disproportionately affecting minority renters.
Rent control, which was implemented with the goal of making housing more affordable, has had unintended consequences. By limiting the ability of landlords to raise rents, it has led to a misallocation of housing and a decrease in new construction. Additionally, rent control can lower renter mobility by up to 20%, preventing them from moving to better accommodations or leaving the city altogether. This effect is particularly significant for minority renters. These findings come from research in San Francisco, where the expansion of rent control to smaller apartment buildings was studied using unique data sets that track individual tenants' address histories.
Rent control effects: Rent control can decrease the overall supply of rental housing, leading to higher prices for future tenants, and landlords may respond by converting units or selling to owner-occupants. However, removing rent control can lead to increased investment, higher quality units, and decreased crime.
Rent control, while beneficial for initial tenants, particularly low-income and minority residents, can have unintended consequences. These consequences include a decrease in the overall supply of rental housing, leading to higher prices for future tenants. Additionally, landlords may respond to rent control by converting units to condos or selling to owner-occupants, further reducing the supply of rental housing. Research from San Francisco and Cambridge, Massachusetts, shows that the removal of rent control can lead to increased investment in housing, higher quality units, and even decreased crime in the neighborhoods. However, the theoretical and empirical evidence suggests that the negative effects of rent control on the housing market outweigh the benefits for a select group of tenants in the long run.
Rent Control vs Affordable Housing: Rent control's removal doesn't guarantee affordable housing, and its impact on commercial vacancies and prices is debated. A holistic approach to housing affordability is crucial.
The removal of rent control doesn't automatically result in more affordable housing. The Boston Cambridge area, and many other places, face a severe housing shortage, making the issue complex for policymakers. Economists argue against rent control due to its arbitrary rewards and punishments, but many people, especially Democrats, support it due to its immediate benefits for tenants. However, some argue that rent control contributes to commercial vacancies and high prices. David Eisenbach, a historian and former New York City public advocate candidate, disagrees with economic research on rent control and instead focuses on the Small Business Job Survival Act to address empty storefronts and commercial rent increases. Ultimately, a comprehensive approach to housing affordability is necessary, considering the various economic, political, and community dimensions involved.
Commercial rent regulation impact: Economists study potential impact of commercial rent regulation on vacancy rates and landlord behavior, while urbanists express concern over empty storefronts. Vicki Bean argues for ensuring landlords receive a reasonable return and closing evasions, while considering property taxes and their impact on housing affordability.
The Small Business Job Survival Act, despite being labeled as commercial rent control by opponents, is not rent control but a legally binding arbitration system. Economists, such as Rebecca Diamond of Stanford and Ed Glaser of Harvard, are interested in studying the potential impact of commercial rent regulation. The vacancy of storefronts in New York City is a concern for both urbanists and economists, with theories suggesting that the threat of rent regulation may deter landlords from renting to lower-end tenants, leading to empty storefronts. However, Vicki Bean, a former housing official at NYU, argues that the high asking rents in many areas indicate a lack of demand and that the focus should be on ensuring landlords receive a reasonable return while closing avenues for rent regulation evasions. Property taxes, a significant cost for landlords, also impact rent prices and should be considered in discussions about housing affordability. The exemption of certain institutions, such as universities, from property taxes can affect taxes paid by others and ultimately housing prices, and it's essential to consider the potential benefits and drawbacks of these exemptions.
Housing affordability in desirable cities: Streamlining zoning laws and building regulations to increase housing supply is a more effective solution for promoting affordability than property taxes and rent regulations in desirable cities.
The issue of affordable housing in desirable cities like New York is complex and requires a multi-faceted approach. Property taxes and rent regulations are significant factors driving up costs, but they may not be the most effective solutions for promoting affordability. Instead, increasing the supply of housing through streamlined zoning laws and building regulations could be more effective. Housing vouchers are another option, but they face resistance due to government instability and the potential financial risk for landlords. Ultimately, the most natural tool for affordability is increasing the supply of housing units. Cities like Boston and New York have imposed restrictive regulations that limit new construction, resulting in high demand and high prices. By making it easier to build, cities can accommodate population growth and provide more affordable housing options. However, the politics of changing zoning laws and building regulations can be challenging. Cities that have made it easy to build, such as those in the American Sun Belt, offer more affordable housing options but face fewer affordability issues overall. European cities, on the other hand, often prioritize preserving historical sites and cultural heritage, which can limit new construction and drive up prices.
Rent control policies: Rent control policies can discourage investment in new buildings, leading to housing shortages and the emergence of a black market. Alternative solutions should be explored to encourage more affordable housing.
Rent control policies, while common in major European cities including Stockholm, Sweden, can lead to unintended consequences such as housing shortages and the emergence of a black market. Economist Tommy Anderson of Lund University explained that Sweden's nationwide rent control system, based on collective bargaining, aims to keep rents low but discourages investment in new buildings due to the lack of profitability. This results in long waiting lists for apartments, with some people resorting to illegal means to secure housing. The housing crisis in Stockholm has become so severe that business leaders, like the CEO of Spotify, have threatened to move their companies due to the inability to find affordable housing for employees. This situation highlights the need for policymakers to explore alternative solutions to encourage more affordable housing and prevent similar scenarios from unfolding in cities around the world.