Swedish economist Assar Lindbeck, quoted in a 2003 WSJ editorial against NYC’s rent control laws, which catalogs the destructive effects of those laws, and of the associated tenants’ rights laws designed to prevent landlords from making up in poor service what they lost in rent. It also describes how the predicted catastrophic effects of ending rent control never materialized in Boston:
Today the institute will release a second Pollakowski study of the effects of terminating rent control in Cambridge, Mass. Harvard’s home regulated rents from 1971 to 1994, when the practice was precipitously terminated by a statewide referendum. “Remember the tidal wave of evictions, the masses of poor senior citizens kicked out of their homes?” Boston Globe Columnist Jeff Jacoby wrote. “Of course you don’t. It never happened. There was no crisis.” Mr. Pollakowski found that Cambridge deregulation was followed by a boom in housing investment. Mr. Tucker says that 50-years of pent-up housing demand is an “ace in the hole” in reviving the city.
Californians have the opportunity to abolish rent control tomorrow by passing Prop 98, and at the same time to pass real anti-Kelo protections.
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Obviously, you refuse to get it or else simply ignore any opposition then start a new post. Â
Prop 98 is about amending the California state constitution to favor landlords.
There can be little doubt that, in the wake of Kelo, eminent-domain reform is needed badly. But neither Proposition 98 nor Proposition 99 is the answer. Proposition 98 is the fruit of the Howard Jarvis Taxpayers Association. Its campaign is heavily funded by California landlords – and that’s the problem. On the plus side, Proposition 98 effectively deals with the abuses inherent in Kelo. It would prohibit municipal governments from taking any private property for another private use. But – as is often the case with California initiatives – Proposition 98 is a good idea tainted with political subterfuge. That’s because even though proponents don’t talk about it much, Proposition 98 goes far beyond reining in eminent-domain abuse. The initiative also includes language to ban rent control – a wholly different issue in the minds of most Californians. In California, rent control is as politically popular as eminent-domain abuse is unpopular. That’s why Proposition 98′s backers are cloaking their attack on rent control in a campaign that focuses exclusively on eminent domain.
I did reply to your comment in the other thread. I acknowledge your oppositon and find your arguments against it unpersuasive. The purpose of this post is to elaborate on my claim that rent control is bad policy.
Yes, landlords are supporting Prop 98. Yes, landlords would benefit. But Californians in general would also benefit, and in this case landlords’ private greed reflects the public greed. Economists across the political spectrum agree that rent control is terrible policy. It hurts not just landlords, but also renters.
As I said in the other thread, I do believe that Prop 98 should have been split into two initiatives — one narrowly focused on eminant domain reform, and one containing the anti-rent-control provisions. I nevertheless support Prop 98 because if it were seperated into two initiatives I would enthusiastically support both of them.
Regardless of how other people backing Prop 98 are behaving, I was honest in my portrayal of it. I brought up rent control explicitly in my initial post.
I have investigated the argument that Prop 98 contains regulatory takings provisions, and as I mentioned in my inital post, I am convinced that the regulatory takings claim is politically motivated nonsense.
How would Californians in general benefit from abolishing rent control?
About a dozen or so of my friends live in Los Angeles and they’ve told me that if it wasn’t for rent control, they would not be able to live in the nice apartments they have.
Being someone who lives in St. Louis, I still find their rent ridiculously high.
I’m not attacking your view, I just want to know how they would benefit. Maybe there’s something I’m not seeing. Please explain it to me.
I’m not attacking your view, I just want to know how they would benefit. Maybe there’s something I’m not seeing. Please explain it to me.
No worries. It’s counterintuitive that limiting rents would hurt tenants, which is why rent control is so hard to repeal.
Rent is ridiculously high in California (particularly the Bay Area and the LA area) because it’s a very desirable area to live (good weather, plenty of stuff to do, and very lucrative job opportunities), but there are a lot of restrictions on building housing. Rent control or no rent control, a lot of people who want to live there will get squeezed out.
Rent control is not an explicit restriction on building housing, but it has a chilling effect on construction by capping the potential profits of landlords, and it tends to remove rental housing from the market by giving landlords an incentive to drive out their tenants and convert the property to condos or commercial space.
In the short term, abolishing rent control would hurt people who are fortunant enough to have secured rent controlled apartments for themselves, but it would help renters who live in non-rent-controlled apartments within commuting distance of rent controlled areas (rent control tends to drive up rent in nearby uncontrolled areas — rent control leads to shortages in the controlled areas, so people commute farther, and cities tend to be rent controlled while the surrounding suburbs tend to be uncontrolled). Indeed, part of why rent control tends to look necessary is that it artificially inflates prevailing rents in nearby uncontrolled areas.
In the medium term, removing rent control leads to more efficient use of existing housing stock. For instance, people who today live in uncontrolled Redwood City because of rent-control induced shortages in San Francisco may decide they’d rather share an apartment in San Francisco than commute. They’d be more able do that because abolishing rent control has smoothed out the price signals (see the Friedman article linked in my previous post).
In the long term (which could be as little as a year or two), abolishing rent control leads to the construction of more housing, which alleviates the underlying shortage which is the fundamental cause of the high cost of housing.
Rent control also leads to abusive behavior on the part of landlords, who know they can fill vacancies nearly instantly because of the rent control induced shortages, and thus have no incentive to treat tenants decently or spend money on upkeep beyond the bare minimum required by tenants’ rights laws. Rent control also leads to a lot of wasted effort trying to snap up open apartments quickly (see the Krugman article). It also forces people to stay put once they find a rent controlled apartment, as if they move they have to go to the back of the line.
A full fix of California’s housing shortage would require rethinking a lot of zoning and land-use laws which also restrict the construction of housing, but abolishing rent control would be a good start.
Economics is, by necessity, more of an observational science than an experimental science. It’s all about how scarcities and incentives lead to certain behaviors; and all too often, the incentives and behaviors can only be known in hindsight.
But some ideas have been tried so many times and produced the same results so many times that it’s tantamount to experimental data, and the results are as predictable as anything can be in such a field. And one of those is: price controls lead to shortages and higher prices, rent control especially.
Maniakes, you forgot one other way that rent control increases prices. You mentioned that landlords will phase out residential properties in favor of commercial properties. Similar to that is the luxury effect: most rent control schemes don’t apply to luxury apartments, because politicians don’t want to be seen as favoring the rich. So a developer can plunk a million into lots of low-end housing, and have the state tell him how much profit he can make; or he can plunk that million into a tiny number of luxury units, and charge what the market will bear. Rules can create incentives that are opposite to what the rulemakers intended.
I should add: for a good layman’s explanation of what Maniakes is talking about, read Thomas Sowell’s Basic Economics. That should be mandatory reading for every office seeker in the country. Dr. Sowell won’t make an economist out of you with this book, but he’ll give you a good foundation.
Well said, Martin.
The is no question that rent control reduces the availability of rental housing, but in some areas (and not very many) it is a politically popular idea. Now you may think that it is stupid policy, but the question is, if the people in those cities like the stupid policy, should the state of California overrule them and say you cannot do that. Perhaps the people who like rent control understand that it reduces the availability of rental property, but they don’t care. They think some benefit of rent control out weighs the availability issue. Is it up to the state to substitute its judgment about what is the best policy for every city in the state?
I would argue yes, on the grounds that the state has an interest in defending landlords’ property rights, and because the housing shortages induced by rent controls are not confined by city limits and tend to spill out into all suburbs within commuting distance.
Prop. 99 wins easily, Prop 98 trounced
Prop 98 was defeated.
Prop 99 won by 65 % of voters.
So I see. I hope I’m wrong about Prop 99 making it harder to pass real anti-Kelo protections next election.
The inclusion of anti-rent control provisions in Prop 98 was probably the main reason it went to down to defeat. Rent control may be mis-guided, but it is still popular.
I think you’re right. Ilya Somin has a good postmortem of Prop 98 on Volokh Conspiracy this morning.
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