Rent Control

What do you think are the effects of Rent Control on a city's development?

First, what is Rent Control - fixing prices to a certain level or range based off of the location in the city?

In order to keep all sorts of rent control in the realm of discussion, any sort of price ceiling or price modification for what people can charge for rent for their property.

Usually it's a straight cap on rent prices. Other things include restricting rent increases.

My knee jerk response to price caps is "bad" thanks to that French bread thing.

Ensuring that a supply of housing exists at a wide range of price points does more to help people and spur development than a cap on rent.

Except that they can't afford to live in said development, which is somewhat contradictory with helping them.

Rent Control means the housing with those controls aren't very available. Depending o nthe situation it can be good on preventing unwarranted speculation on housing prices, or it could be placed too low and bleed money...

edited 11th Jan '11 4:02:41 PM by BalloonFleet

Let's see what Wikipedia has to say.

Most economists believe that a ceiling on rents reduces the quality and quantity of housing available . . . Economists from differing sides of the political spectrum, such as Paul Krugman and Thomas Sowell, have criticized rent regulation as poor economics which, despite its good intentions, leads to the creation of less housing, raises prices, and increases urban blight. A survey of articles on Econ Lit regarding rent control finds that economists consistently and predominantly agree that rent control does more harm than good.

edited 11th Jan '11 4:15:36 PM by feotakahari

Feo sums it up pretty well. Krugman's textbook says that subsides solve the housing affordability issue much better than rent control does.

Or making low interest loans available to developers. In some places zoning regulations require that new developments contain a set percentage of low rent units be available, but that's little better than rent control itself.

Yes, economists very typically argue that rent control causes urban blight but are there actual examples of this happening considering how widely used rent control is in many parts of the world?

I think they argue that rent control contributes to economic decay, not that it "causes" urban blight all by itself.

Well that's more vague I suppose but then again, any empirical data to support the theory? It took us a long time to produce data to show supply-side economics didn't work and they largely all argued in favour of it before, so consensus doesn't really equal correctness.

Well, do you consider illegal underground economies around rent controlled apartments to be a bad thing? Because if so, there's plenty of evidence about that.

It's hard to find articles that are available free, but the ones I can read seem to agree that the primary social cost of rent control is to limit the supply of housing, and create distortions in the housing market (ie, later rentors pay higher rent in the non-controlled units):

http://www.socsci.uci.edu/~jkbrueck/course%20readings/gyourko%20and%20linneman2.pdf

http://econjwatch.org/articles/rent-control-do-economists-agree

Well when I looked at rent control in my local areas and major metropolitan centres, it, as far as I could tell, did the job it was supposed to do. Allowed everyone to pay rent and have predictable rent increases, at the same time, the amount of housing was not limited. What it did do was shift focus to high-density housing, such as condos and apartments, instead of urban sprawl suburban housing.

Where was this, if you dont mind my asking?

as a method of ensuring affordable housing...The evidence is complicated

As a method of preparing areas for urban renewal...demolition is more effective and much quicker

policies promoting high denisty housing, ensuring the availability of affordable housing and rent subsidies are probably far better in the long run

rent control appears to have adverse impacts on the quality of housing available, probably because the evidence indicates that the first thing cut from building expenses is upkeep/maintenance, if the externally dictated rent price is less than the property's carrying cost

Yeah, well largely what I've seen is that people switch toward building high-density housing in response to rent-control. Since rent control dictates the cost per month you can charge, you just reduce the area of which you are selling, thereby increasing cost per square foot and maintain a profit. A poor person would realistically not care that they have a reduced house size, since they get to at least live somewhere. Then for more luxury housing, they just make big tall condos, so high price per square foot can get them great profit and still get you nice housing.

Though I'd prefer better statistics to judge all of these aspects.

(For the question about where this is, I'm looking at Toronto).

You might find this interesting: http://economics.ca/cgi/jab?journal=cpp&view=v11n3/CPPv11n3p543.pdf

The most interesting conclusion is on page 548. Since I cant seem to select text, I'll retype it:

"The basic pattern of tenant benefits is thus clear. Tenants in the controlled sector gain because their rent is reduced by 11%; the average annual benefit being... approximately $531. Tenants in the uncontrolled sector lose because their rent is increased by 9.2%; the average annual loss being... approximately $536. The gain to lower income households in the controlled sector is significantly offset by the loss to lower income households in the uncontrolled sector; and the loss to higher income households in the controlled sector is significantly offset by the gain to higher income households in the controlled sector."

I believe that "controlled sector" here means the rent-controlled buildings.

edited 13th Jan '11 2:41:52 PM by DeMarquis

Hm, that is fascinating actually. What happens if you do rent control everywhere then?

you kill real estate investment and evetually you end up with a housing supply problem

upkeep/maintenance, if the externally dictated rent price is less than the property's carrying cost

Don't forget it interferes with profit which in the name of profit they tend to cut maintenance first anyways or reduce its quality as low as possible.

I believe part of the problem is the over zealous drive for profit in these markets especially in short term gains.

it's just price controls with a different name

the diocletian edict and its consequences give you a good idea why price control is bad

that said, helping not-rich people find a roof would be solved with tax deductable rental subsides much easier than with externally dictated prices, which nearly always destroys property (slowly, due to shortchanged maintenence)

So what would be a better solution. The current models are pretty damn ham fisted and usually lead a vicous cycle kind of dealing.

Like some local apartments. Started out private and quality was decent then company buys it, they quality of the property drops as they effectively turn it into drug filled slum housing then ditch it, private owner buys it up and cleans up and it ends up bought up by a company again. Seriously there are no fewer then 10 apartment complexes like that in my city.