Another second-order effect of rent control is increased traffic. Suppose you have two residents with significantly below-market-rate housing at the same quality level, one in downtown SF and another in Mountain View. The former starts a new job at Google in Mountain View, the latter starts a new job at a trendy start-up in downtown SF. Since they're paying significantly below market rate, they're unable to trade apartments with each other without paying a significant amount of money.
So, because you cannot trade apartments without spending significantly more money, there's a couple of hour-long commutes instead. This is part of a general pattern - messing with prices doesn't help, since the market still has to clear. You just start paying in things other than money. Paying for things with money is great in general, since then someone else has the money. Paying for things with a longer commute is terrible, since there's no beneficiary.
Rent control solves some problems. Creates other problems. Similar to almost any intervention in free markets. Sometimes the cost of intervention outweigh benefits, sometimes they don't.
Rent control allows people (wealthy or poor) to remain where they are without purchasing their residence. Unfortunately, to do accomplish this objective, it increases the price for new arrivals (be they wealthy or poor).
In California, Prop 13 does the same thing -- drives up the cost of housing for everyone other than the people who already own a home.
Rent control is a failed experiment. All it does is force land lords to massively increase rent amounts when someone moves out to account for multi-year market increases.
Basically, if the real market price of an apartment is ~$3,000/mo, but in 5 years it realistically would be $5,000, they will simply list it for $5,000 now, to mitigate the loss.
My mother-in-law is a land lord in Los Angeles (a very fair one at that), and is also about as bleeding heart liberal as you can get. She is a staunch opponent of rent control.
Note: Everyone (in the economics world, anyhow) has known that rent control does this for a long time. There's no controversy here; left, right, socialist, Chicago-school, heterodox, mainstream: It's a known thing.
This study is interesting primarily because it tries to put some hard numbers on how much it drives up the cost of housing.
Another point which is usually not well-discussed, the houses/apts in SF are really bad in terms of quality, amenities and features. With new housing, this is starting to change a little bit. But, overall, rent control results in really bad maintenance. Landlords do the absolute bare minimum to not get sued/fined. For the rent people in SF pay, the value they derive is almost a joke.
This is what new rent control regulations in Toronto are doing...
More than 1,000 planned purpose-built rental units have instead been converted to condominiums in the Greater Toronto Area since Premier Kathleen Wynne's government expanded rent control
It's making the housing crisis worse, not better. For those who already have low rent locked in, it's the ultimate "fk you, I got mine."
The problem here is the character of current housing markets causing the progress and poverty paradox. Rent control then is just (quite unfortunate) measure to mitigate the poverty problem when rents rise rapidly.
The paradox occurs because rent prices are much more flexible than peoples' income. If you have rapid increase in wages (like in SF area), then landlords match the increase by raising rents even faster than the wages rose and the tenants don't get no better services nor quality of living. Just higher prices they have to pay.
That supply and demand determine the price is like describing gravity as "things just fall to the ground when dropped". While true, these tell you nothing about how fast things fall nor where the market prices stabilize.
To see where rent levels come from and why they match up with general income level for a given locality, look at David Ricardo's "law of rent" (introduced in 1809), which tells you exactly that. It basically tells you that rents increase exactly to the level that wages increased. Therefore eating away all technological progress and only giving you higher rents and house prices. This is the progress and poverty paradox. The harder the society works, the larger wealth gap and poverty.
Failing to understand the cause of all this people just slap some random regulation to alleviate the problem - in this case the rent control.
--- To observe the law of rent, simply look at the fact that rents almost exactly match some general level of income of majority of bottom workers so that they barely get by and don't save a cent. Any excess goes to rent.
Just plot wage vs rent of any city on earth and you'll see it.
>The solution is to stop allowance of condo conversions or TIC (Tenancy In Common) conversions,” she said.
You can always trust them to keep digging.
In Montreal, we have rent control that has worked spectacularly. Rent is significantly below what it costs in comparable cities across Canada, the United States and even Europe. This all stems from our laws originating in French common law which is decidedly more for-the-people than British law.
Our rent control works because it applies between leases. Last year rent increases were frozen at 0.5%. In the apartment that I moved into, the landlord is not allowed to increase the rent more than 0.5% above what the previous tenant was paying. Increase are also allowed in order to reflect any major renovations performed to the unit. Increases due to renovations must be anchored to the cost of the renovation, and distributed over the next 10 years of rental. This system works spectacularly for renters. Some people may argue that this leads to more slums, but it effectively incentivises landlords to renovate their units in order to maximize their returns.
I really wish the submitter of this story did a better job than repeating the clickbait title at Curbed. Because this article is actually a fairly good summary of an interesting paper which has a lot to say about the mixed results of rent control as a long-term strategy.
But no, instead we get this, "Rent Control Is Uniformly Bad" title which is designed to split the demo and bring in people who want to argue.
Surely we can do better!
Rent control is just one of the ways that people who are in a place benefit themselves at the expense of the people who are not yet there (and thus don’t get to vote).
San Francisco needs to build high rise apartments and condos with tons of units, and lots of them.
That's all there is to it. Obsessing about rent control, population numbers, tech workers, or whatever else is nothing but a distraction. Dramatically increase supply and prices will drop.
This shouldn't be surprising; this is an obvious result of rent control.
If rent control isn't applied to all rental units (as is the case in SF), then the units not under rent control end up being higher than average to make up for the units under rent control.
Even if rent control is applied to all rental units, then you see large spikes in rent that are speculative to several years in the future whenever a tenant moves out and the unit is re-listed.
The problem is that you can't just kill rent control and expect everything to be ok overnight, especially in a place like SF where the housing supply is constrained. Two things:
1) Demand outstrips supply even at the high prices commanded by non-rent-controlled units, so if you were to kill rent control here, the only thing that would happen would be that the units that were previously subject to rent control will get price hikes. I wouldn't expect rents to fall for the units that were never subject to rent control, because there are still people willing to pay those prices to live here, even if they'd prefer something lower.
2) Even if I'm not entirely correct, and there is enough supply that the overall market rate actually would be lower than the current market rate for non-controlled units, we'd still lose a lot of lower-income residents; I would be very surprised to find many (if any) landlords in the city who wouldn't raise rents at least modestly if their units stopped being subject to rent control. Some of the less exploitative ones might work with their existing tenants so as not to force them out of the city, but there are a lot of people in SF in rent-controlled housing that can't afford much more in the way of increases than rent control allows.
We need to 1) build like crazy, 2) kill rent control, 3) have some sort of phase-out period where we subsidize housing for lower- and middle-income people hit hardest by post-#2 rent increases. (And probably other things; I'm no economist.)
This is almost irrelevant if they don’t get the supply issues worked out.
Could this be Coase Theorem in effect? As transaction costs/restrictions go up, the market also becomes increasingly inefficient?
I had a friend that lived on Pine and Stockton in a rent controlled apartment. His rent was around $1400 a month for a 1 bedroom decent sized apartment (900 sq ft). He moved out and the landlord immediately made some upgrades to the apartment and the next tenant living there was paying $3300 a month. It wasn't even feasible for my friend to move out and then move right back in to the same place he just left.
Basically it's like a progressive tax system. How the income is sourced doesn't affect the budget expenditure in the end. And instead of varying on your income bracket, it varies on how early you got in the queue, which has nothing to do with fairness.
i.e., if you want to change the budget expenditure (how many people live in SF), shifting how the budget income is sourced wouldn't help.
Possibly. But Prop 13 is the real problem.
Of course it is. It artificially limits supply due to long term rent squatters taking advantage of the system
Well, duh. Rent control causes housing shortages because who wants to be a rent controlled landlord? Well then, housing shortages are reflected in higher housing costs for anyone who can't benefit from having [had for a long time] a rent-controlled apartment.
I believe most of the people living in SF are renters. Getting rid of rent control will never happen, politically.
What are the chances that the number of rent controlled homes will go down in the next five to ten years?
Price controls always end up creating artificial scarcity. The solution to lower housing costs is more housing, not less.
This seems obvious, no?
the issue is the lack of housing, the artificially restricted supply, not marginal effects like rent controls. definition of missing the forest for the trees.
"rent control appears to be the most efficient technique presently known to destroy a city – except for bombing" - Lindbeck
It really does take an American economist to come up with the idea that price controls drive prices up.
"And that in turn prevents flight from San Francisco itself. “We find that absent rent control essentially all of those incentivized to stay in their apartments would have otherwise moved out of San Francisco,” note the economists. Yikes."
This is like saying that had demand decreased prices would also have decreased. Well duh. The more people you price out of SFO the cheaper it gets. You could also increase supply if the people living there weren't such assholes. I'm so glad I left the Bay area with its fucked up politics and other assorted BS.
Haha. No shit.
Another solution by the government interfering with the free market and having the opposite effect as intended.
Who would have guessed /s
Rent control is nothing but a populist political measure. It makes no economic sense what so ever.
If rent control worked why not set prices of everything else to low values ?
Any intervention in a free market system will benefit some people at the expense of others and that losing party would then be less willing to participate. What incentive will people have to maintain and increase housing when they might end up broke because of rent control ?
California needs high rises and denser dwelling units for that the zoning laws needs to change.
Did anyone read the excerpts in the article and not come to the conclusion that rent control caused this? It sounds to me to like greedy landlords being greedy.
It feels like the title and the thesis of the news piece is either incorrect or at least misleading.
Now, I have not read the paper, but I would have thought the free market combined with sky-high wages and demand, combined with a lack of inventory, was the cause.
Rent Control surely just prevents local families from being muscled out by the tech employees?