Suppose that you want to destroy a city. Should you bomb it, or would it be sufficient just to impose rent control? It’s a bracing question at first but the two are roughly equivalent. FULL ARTICLE
Source link: http://blog.mises.org/10403/the-unintended-consequences-of-rent-control/
The Unintended Consequences of Rent Control
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Art:
You had a duplicated paragraph when describing Nocross article.
One note I can make on your article is regarding incentives that management companies who own apartments have. I actually just signed a lease in a rent control building in NYC and I can tell you when you sign the lease, they show you two figures.
1 number is the price of the apartment how it is, currently my apartment is listed for 7600$ per month, based on their assessment.
The second number is what I pay, which is roughly half of that, because of rent stabilization and/or control.
What you do not describe is the incentive companies that manage my apartment receive for having rent stabilized/control facilities. They receive a tax free/credit until 2025, which most probably will be renewed.
Another flaw I see in your article is based on the statement, “Eliminating a landlord’s ability to enjoy the return from investing in higher-quality housing means eliminating the landlord’s incentive to invest in basic upkeep.” The essential tax break received from the city eliminates this statement.
They obviously aren’t equivalent — come back after a few years and the bombed city will be rebuilding.
I read recently where San Francisco has been losing population quickly because, in part, of the high rents, which is another consequence of rent control. People believe that rent controls somehow keep rental prices lower than they would be in a free market, and that everything else is equal.
Not so. Over time, fewer rental units are built, as landlords find that not only do government authorities set the rents, but they also act as de facto owners, but without responsibility. Thus, they find ways to make life miserable for property owners.
In the long run, there are fewer units, and they are bid to astronomical levels. For example, I remember talking to people living in SF who were paying more than $2K a month for what basically was an efficiency unit. That’s nuts, but it also is where rent control leads.
In cities without rent control, people will choose where they wish to live, i.e., being close to work, etc. However, it is much more difficult to find convenient places to live in cities with rent control, and the process of finding a place to live — anywhere — becomes very complicated.
For example, people looking for rental units in New York City often hire people to do the looking for them, something that would be unheard of in cities that don’t have rent controls. Yes, a person moving to Houston might hire someone to find a desirable location (if one is not familiar with the area), but that is not the situation in NYC. Instead, one needs help just finding a place to live.
Interventionists always seem to believe that they simply can order away the laws of economics. Not so.
Rent control is also greatly affected by the FEDs money inflation.
The main reason rents would normally go up is because they are priced nominally in dollars. After all, housing of any kind normally loses it’s value as does anything (except antiques) as it gets older.
Location also affects land prices, but while some prices go up, others go down (when measured in real money instead of dollars).
The real culprit is once again the Fed and it’s legal tender monopoly.
Joseph Salerno’s lecture video link is dead. I really wanted to see those pictures! IE says it can’t find the destination.
KP,
What you do not describe is the incentive companies that manage my apartment receive for having rent stabilized/control facilities. They receive a tax free/credit until 2025, which most probably will be renewed.
A tax credit based on what? Total income? Value of the property?
I remember reading a post on Daily Kos where the author was complaining that even though he had plenty of money he’d been looking for months and couldn’t find an apartment in the city. He apparently failed to see the irony.
In this rent-controlled city there is a prominent lot at the corner of Burrard & Davie that has gone for so long without someone willing to put up a building (why bother?), a “Community Organization” took over, planted garden, and claimed it as a victory for socialism.
Not sure about the terms of their lease for the dirt, but very likely the land owner could get more from a building offering opportunities for more potent economic activity. That’s ok, though, according to the socialists, because the consequent poverty and homelessness is just the thing for good ol’ government activism.
…and people wonder why this city is the origin of the term “Skid Row.”
Here is a working link to the photos.
http://www.youtube.com/watch?v=x9PUJZYzw3k
Bill
Rent control is only part of the problem of renting in San Francisco. There are equal housing regulations that you do not want to run afoul of. Also, if you have a tenant who does not pay the rent, it will cost you about $2000 to evict them on top of the lost rental income. As a result, rents are jacked up to recover these hidden costs and also to act as a barrier to entry – a high rent “keeps the wrong people out and gets the right people in”.
KP said: ‘Another flaw I see in your article is based on the statement, “Eliminating a landlord’s ability to enjoy the return from investing in higher-quality housing means eliminating the landlord’s incentive to invest in basic upkeep.” The essential tax break received from the city eliminates this statement.’
Response: no it doesn’t. The point KP makes here underscores the Misesian point Mr Carden made about intervention begetting intervention. the tax break is the vain attempt to mitigate the the loss of incentive on the part of the landlord.
Mushindo:
I am not for rent control, but assuming that these management companies do not receive any incentives be it tax breaks or any other form of monetary cost reduction is absurd. I find it funny that we quote these Austrian theories and belittle Keynesian because of its Utopian, perfect world, scenarios where we(the Mises.org article) do not take account for real world actions. Even if these are “vain attempt to mitigate the the loss” as you call it, it must be accounted for.
FTG:
“A tax credit based on what? Total income? Value of the property?”
I assume the tax credit is based on the property at the location. But I cannot tell you since I am not a tax lawyer or an accountant.
My point was that there are incentives for companies to own property and rent it out in NYC. We shouldn’t assume that rent control causes the owners to do less for an apartment because they are “making less” money on each unit. The owners may receive some other incentive to compensate, their so called “loss of income”.
Dear KP and Mushindo:
The point made by Mushindo (that intervention begets intervention) is valid, but to that may be added that these tax credits referred to by KP come from the pockets of uninvolved third parties (additional “innocent victims”).
What no one picks up on is that, in economics, we tend to overlook the different motivations of people while equating “things” to prices and money in its various forms. The common denominator is not dollars — it is power.
Unlike money, power cannot be inflated; it is a finite commodity, and its quantity cannot be changed.
Any amount of power that can be taken from the many (be it in the form of rights, money, or opportunity, among others) accrues to the few who take it.
Politicians understand this. Economists generally don’t. The general population and the media are absolutely, totally clueless, falling for the politicians’ fabricated “justifications” in the name of compassion. It isn’t compassion; it’s ignorance — but “ignorance” isn’t yet considered a prized commodity… in most of our society, anyway.
Tim Kern: Fantastic Point: I read the comments for amusement; thanks for the gut check. As a native of SF ( I punked out when I became a father), I remember the squables between the old “Paisans” at the “Marine Station.”. The Napolitanos claimed: “If you have money, you have power.” The Sicilianos (from Palermo, not Syracuse, mostly) claimed: “If you have power, money will come to you.”
It is good to remember that it used to be called “political-economics,” not just “economics.” Without “rent-control,” ( it has taken a different form in SoCal) there could not have been a California “housing bubble.” Without the “housing bubble,” “rent control” would have died like Ceasar, stabbed by his friends. We have failed, when we drop the “political” from “political-economics.”
I can’t speak for NYC, but SF declared itself an “asylum city,” which means: “Anyone can sleep in doorways and defecate in public, so long as we don’t have to provide for them.” SF has built two stadiums, looking for a third, and still maintains “SF General Hospital,” which, from the rats I have seen cruising the perimeter, is not a healthful place. (LA cannot even put together an NFL package, and has no public accredited hospitals in the innner city) The “wino hotels” of SF have been torn down, replaced by tourista hotels and law practice and brokerage offices, yet the SF Fathers have cut the “public health” budget.
Rent control is merely a symptom of the disease. We are shocked by the unintended consequences only because we have not bothered to define our basic premises. Mises makes the point of malinvestment; SF could be his poster child. NYC and LA could provide serious competition.
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i think The Unintended Consequences of Rent Control is the best blog it has goog information about rent and this is useful for all people.
Uh, the most bubbly areas in California don’t have rent control.
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