How rent controls have failed around world

[Mittens]

@Edge, I'd figure this might interest you.

Unanimity among economists is rare but if there is one issue that unites practitioners of the dismal science, it is rent controls. Almost universally, they consider them a bad idea.

Expertise, however, is fast going out of fashion in politics and this week Jeremy Corbyn raised the prospect of the state determining how much private landlords can charge.

In his speech, the Labour leader gave few details, saying only that “rent controls exist in many cities across the world and I want our cities to have those powers”. That opens a lot of possibilities, with different models operating from Pyongyang to Palm Springs.

The problem he is trying to deal with is clear at least. Rents have soared in recent years and now account for two fifths of the typical tenant’s income. Half of young people are renters, double the rate ten years ago. Many landlords have grown rich through luck rather than endeavour and often their properties are woefully maintained.

So where might Corbyn copy? Germany is often cited as having a well functioning and affordable rental market and has employed rent controls for years. There, landlords can set the rent as they see fit but once a tenant is in place, the cost can rise only with inflation. Tenants usually have indefinite right to remain and can be evicted only for non-payment. In the past two years Berlin has gone further by stopping landlords charging new tenants more than 10 per cent above the local average, curtailing their ability to force rents higher between tenancies. The law was introduced after rents started jumping in the capital.

The policy is already running into problems, though, and experts say the cheap rents Germans benefited from for years were a result of high rates of housebuilding and liberal planning laws, not the inflation cap. Only last week, a court ruled the new law was unconstitutional. Far from helping poor Berliners, the court heard the policy benefited only the better-off because landlords restricted by price were opting for the security of wealthier tenants.

Economists’ main objection to rent controls is that they cut the supply of homes because there is less incentive for landlords to enter the market and more to leave. Ontario, which introduced a cap on rent rises six months ago, has already seen one in every 25 homes in the planning pipeline shelved.

History shows that the more draconian the controls, the greater the drop in supply. New York is a case in point. For years, it has capped rent rises on half of properties meaning anyone who lives in one gets a great deal but everyone else pays much more than they would otherwise on the open market. The result is a chronic shortage of homes in areas dominated by “rent-stabilised” properties. Research also suggests that New Yorkers who benefit from the controls are not the poorest but those earning “far above the poverty level”. And economists say that linking support to properties rather than people creates incentives for tenants to stay in unsuitable homes.

A CEILING ON THE COST OF LIVING
Berlin Rents rise only with inflation during a tenancy. New tenants cannot be charged more than 10 per cent above the average
Ontario Rents are only allowed to increase with inflation during a tenancy, up to a maximum of 2.5 per cent
New York Half of properties have predetermined rent that can only rise by the amount decided by the Rent Guidelines Board
Arguably a similar system already operates in the UK. People in social housing pay below the market rate while everyone else pays higher rents in the open market. The result is more than a million low earners waiting for a council home and existing council tenants on high salaries staying put. Some people argue that the UK has already introduced rent controls by the back door by capping housing benefit. The result, they say, is that 90 per cent of private landlords now state “no housing benefit” on their adverts.

Rent controls are also much easier to introduce than to withdraw. In the UK, “temporary” rent restrictions were introduced in 1915 but did not disappear entirely until 1989. In the intervening years, the proportion of the housing stock made up by private rented homes collapsed from nine tenths to one tenth. The policy resulted in far poorer quality rental properties because landlords saw no reason to invest in maintenance.

Supporters of rent controls say they stop cities from becoming the exclusive domain of the rich. Some economists also argue that rent caps during tenancies are justified because the nature of property means landlords have disproportionate power that lets them set rents above the market rate. But if Mr Corbyn does his research he will see that rent controls, even in their most benign form, benefit only a small number of people who are usually not the most needy, while cutting the supply of homes and triggering unintended consequences that are hard to unwind.

So what can he do if he wants to make rents more affordable? The only answer, according to those much- maligned economists, is to get building. Scott Corfe, of the Social Market Foundation think tank, says: “Rent controls are a messy way of trying to deal with the fundamental problem, which is the lack of supply of homes.”

https://www.thetimes.co.uk/article/h...rbyn-8spsjq5fl

[Total Crica]

There isn't a piece of land on the earth that isn't owned by someone already. If you don't own the land, how are you going to enforce any rules on it?

[Endus]

Rent controls don't work, but there's alternatives, like requiring developers to build the types of apartments your municipal population needs. If there's not enough low-cost housing, then when developers want to build more expensive condos, you say "no, not until you build more of what we need", or alternatively "sure, but only if you also build X units that are expected to sell/rent at below X cost as well".

Rents balloon out of control largely due to insufficient supply. The simple answer to that is to stop letting your city planning department rubber-stamp all development permits, and instead start enforcing conditions to create the development the city needs, rather than what the developer would find most profitable.

There isn't a piece of land on the earth that isn't owned by someone already. If you don't own the land, how are you going to enforce any rules on it?

Because land and property ownership only exist as an agreement between you and the government. And the government is free to place restrictions on your use, or even end that agreement, taking the property for themselves, in certain cases. Owning land doesn't make you sovereign, so the government's still going to enforce its laws on you.

[zEmini]

I figured this shit out in Sim City. Why it is so hard for mayors and planners IRL?

[Total Crica]

I figured this shit out in Sim City. Why it is so hard for mayors and planners IRL?

They have to work with real people to get stuff done. You can be a genius, but if everyone around you is an idiot, nothing of note is going to be accomplished.

I love Sim City. Everyone in that game does exactly what they are told.

[Masark]

I figured this shit out in Sim City. Why it is so hard for mayors and planners IRL?

They don't want to rezone to high-density residential. Or even medium-density for that matter.

[zebreck]

They don't want to rezone to high-density residential. Or even medium-density for that matter.

I wish this was not the literal truth.

This is a case in which we don't need more regulation, we need more things, which is what capitalism is actually good at. And that's coming from a socialist.

[unbound]

Don't disagree, but I do get a chuckle at the article as the first sentence is a bit of a rip-off from Paul Krugman (NYTimes op-ed, June 7, 2000)

The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial.

http://www.nytimes.com/2000/06/07/op...nt-affair.html

[Endus]

They don't want to rezone to high-density residential. Or even medium-density for that matter.

Largely, city planners want density. It's a hell of a lot easier to service, it provides greater ridership for mass transit options, etc. The property taxes will actually pay for their servicing requirements, which single detached housing does not.

It's developers who don't want density, because single detached homes are cheaper and quicker to build and sell at a higher turnover on the initial investment.

City politicians often lean too much in favor of developers in this, which is why we're in the state many North American cities are in today.

To planners, density is amazing, and it's way more cost-effective for the city to encourage greater density.

[Najnaj]

Rent controls are a necessity once you are occupying a rental property. Imagine life if your landlord could double your rent from one month to the next.

[callipygoustp]

I figured this shit out in Sim City. Why it is so hard for mayors and planners IRL?

Thanks for the chuckle.

[Deleted]

Yeah it is a somewhat strange phenomenon. It usually is carved down to the notion of investments into rent-able real estate, and they drop quite heavily whenever there is a roof on something because the prospect that you can only make a certain amount of money on your investment, is somehow preferable to the notion that you'd likely end up earning less in an actual competitive market, which makes very little sense when you think about it.

There is also a really problematic issue with how current market value is evaluated, public housing is not the thing that it used to be, borrowing money having an impact on the general evaluation of land value, estate moguls playing a rather insidious game of preferable law makings and other factors that have had negative impact.

Edit: forgot another thing. Investment overall, rent control or not, have dropped quite heavily in the estate business. Unfortunately it became rather evident around the late 70's and 80's that there was a lot more money to be made investing in almost anything else, which somewhat forced the estate business into creating larger bonds, and sell them at more wholesale prices to large funds. This of course meant that it was more difficult to gather funds for continued new projects, which of course means that there will be a supply demand that almost no matter your regulation, simply can't persuade investment money to turn towards estate investment.

It is a modern problem that we somewhat feed ourselves, because there isn't the patience to buy bonds that will be profitable after 5-15 years (that doesn't even take into account the notion of buying the debt as well).

And as a side note to this topic, we here in the west almost don't create new cities anymore to the extend that other nations do and what we ourselves have in the past. We will expand a city, no matter how much it will strain the system and the people living there, when you could go 100 miles away and have the same benefits of said big city, without a lot of the strain.

[prwraith]

With how much I pay in rent for a shitty apartment I could really use some rent controls for at least a temporary amount of time....this is ridiculous

[Rennadrel]

Rent controls don't work, but there's alternatives, like requiring developers to build the types of apartments your municipal population needs. If there's not enough low-cost housing, then when developers want to build more expensive condos, you say "no, not until you build more of what we need", or alternatively "sure, but only if you also build X units that are expected to sell/rent at below X cost as well".

Rents balloon out of control largely due to insufficient supply. The simple answer to that is to stop letting your city planning department rubber-stamp all development permits, and instead start enforcing conditions to create the development the city needs, rather than what the developer would find most profitable..

I wish this were the case. There isn't much for "affordable" rental options in a lot of cities and there isn't much being built. Maybe governments need to be more firm on subsidized and lower cost rental developments moving forward. All I see are "luxury" (aka overpriced) rentals in development and nothing more reasonably priced.

[Miyagie]

Rent controls are a necessity once you are occupying a rental property. Imagine life if your landlord could double your rent from one month to the next.

Its his property and you have to use a min. rent in most countrys and when the prices goes up in the neighborhood the landlord have to increase the rent.
Here in germany they tried that shit and landlords just went to the next fleamarket, bought some cheap furniture for 300€ and still take 600-700€ for a 20qm flat since you can legaly increase the price on the rent if the flat have furniture in it.

[Doctor Amadeus]

A real easy solution to the issues. Move somewhere fucking else!

Seriously all these free spirits and assholes that hate everyone else love to fucking live where everyone else lives. If you're so independent move to fucking Wyoming JFC.

Omfg rent is so high where everyone else is. Shocking

[Endus]

I wish this were the case. There isn't much for "affordable" rental options in a lot of cities and there isn't much being built. Maybe governments need to be more firm on subsidized and lower cost rental developments moving forward. All I see are "luxury" (aka overpriced) rentals in development and nothing more reasonably priced.

I agree that it's NOT happening, I'm just noting that planning staff are generally aware of this.

Developers want to build as high-end as they can; higher-value properties sell for more, and make for bigger returns on investment. City staff should be controlling that and moderating it somewhat. They often don't, for two reasons. The first is simple; they work for politicians, politicians get lobbied by developers, and planners execute policy and advise politicians, but it's the politicians that actually set policy. Often against recommendations by staff.

The second is that planning's not a hive mind, and some city planners pursue their profession more with an eye towards supporting developers than pursuing some goal of improving city function. I disagree with that view, but it's not overtly unethical, automatically.

[Glorious Leader]

End speculation in housing markets. And food markets for the matter.

[Sunseeker]

To planners, density is amazing, and it's way more cost-effective for the city to encourage greater density.

Well duh. The problem is that people aren't sardines.

[draganid]

where i live, the biggest problem is that every new building that goes up is condos, not apartments. what really needs to happen is incentivize the construction of purpose built rental housing and punish through heavy taxation the construction of condo towers.