Hasn’t it been found that rent control has a negative impact on improving housing supply, which would, in turn, make rent more affordable?
Rent control disincentivizes new housing construction because developers wouldn’t see a return on their investment, or have a risk of such if it were implemented in their area. With housing shortages nearly everywhere, thus high demand, thus high prices, would it not be in everyone’s best interest to instead incentivise construction to increase supply to meet that demand?
Which government? The municipality, province/state, or federal? There’s already a significant lack of housing for the people who need it most, with the aforementioned three entities often fighting over who should pay for it. Along with that, there’s strong evidence that providing stable housing to homeless is quite effective in reducing public service costs elsewhere.
While I would love to see everyone have a stable home available to them, the lack of progress for even those needing it most, despite clear evidence of the return on investment of public funds, I am not hopeful that any government will be funding significant development projects that can have an impact on lack of housing supply anytime soon.
Which ever government has financing. It wouldn’t be free. The gov would collect interest and make money just like any private developer. Considering this is basically how Freddie Mac already operates with Single Family Homes it’s not a stretch to extend this gov financing to big multifamily projects owned by tenants.
Ah, I see what you mean. Not a bad idea if it can be done with a good design team and good construction oversight. I would fear government housing projects being built as cheaply as possible though, when well designed and constructed buildings bring far greater return.
This is just a cap on the rate increase, not a complete rent price cap. However, you are correct in that rent controls tend to dencentivise new construction, but there are other factors besides rent control that go into that. In other words: it’s complicated
I was curious why as well but then saw the community name and I came from browsing all.
It’s definitely not black and white though. And perhaps some well-planned and well-written rent control legislation can avoid the negatives that are commonly found.
Interesting. Yes, it’s definitely not black and white. I didn’t find the income inequality argument quite as confusing though. While it is good for existing tenants to be able to stay, I feel that increased inequality could lead to richer tenants putting pressure on poorer tenants, or their landlords, to leave, as they don’t “fit” in the neighbourhood, which is a negative effect in my opinion.
Of course, that then brings in all the intricacies of how to properly manage gentrification…
“rent control” and “managed gentrification” are kind of two sides for same coin
The basic tenet is that downward pressure on any existing investment tends to put upward pressure on new investments from similar firms, sometimes pricing investors out.
In this case it’s rent control putting caps on return outside market fluctuations. It causes builder firms to take on the financial burden of getting return on investment by pricing newer units higher. This prices out people and sometimes locks them into the rent control system as they can’t afford the now higher priced newer housing.
This causes fewer units to be built as now you have to target a smaller but more financially viable market segment so “affordable housing” takes a slump.
The asterisk here is that people living in their current housing don’t end up on the street, but it severely hampers city growth, as new tenents can’t find affordable housing.
By Itself I don’t think rent control is a net positive thing for a community, but rent control to keep tenents in their existing homes combined with heavy investment into real estate development from the government is a great one-two punch to eliminate homelessness.
Problem is #2 costs money while #1 doesn’t so… Most of the time you only see politicians trying to focus down on the rent control.
The effect it has on housing supply is hard to figure out since there are so many other confounding factors.
It does have a more direct positive effect against displacement and evictions.
So it’s a tradeoff between housing stability on one hand and possibly lower rents for new residents and people moving.
So if your average renter is a family who is going to stay in one place for 20 years while they raise there kids then rent control is good. If your average renter is a 20 something moving around the city every couple years then it may negatively impact them.
Right, that’s similar to what the study I linked found. From the abstract:
… Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.
And the conclusion:
spoiler
We find that, on average, in the medium to long term the beneficiaries of rent control are between 10 and 20 percent more likely to remain at their 1994 address relative to the control group and, moreover, are more likely to remain in San Francisco. Further, we find the effects of rent control on tenants are stronger for racial minorities, suggesting rent control helped prevent minority displacement from San Francisco. All our estimated effects are significantly stronger among older households and among households that have already spent a number of years at their current address. On the other hand, individuals in areas with quickly rising house prices and with few years at their 1994 address are less likely to remain at their current address, consistent with the idea that landlords try to remove tenants when the reward is high, through either eviction or negotiated payments.
We find that landlords actively respond to the imposition of rent control by converting their properties to condos and TICs or by redeveloping the building in such as a way as to exempt it from the regulations. In sum, we find that impacted landlords reduced the supply of available rental housing by 15 percent. Further, we find that there was a 25 percent decline in the number of renters living in units protected by rent control, as many buildings were converted to new construction or condos that are exempt from rent control.
This reduction in rental supply likely increased rents in the long run, leading to a transfer between future San Francisco renters and renters living in San Francisco in 1994. In addition, the conversion of existing rental properties to higher-end, owner-occupied condominium housing ultimately led to a housing stock increasingly directed toward higher income individuals. In this way, rent control contributed to the gentrification of San Francisco, contrary to the stated policy goal. Rent control appears to have increased income inequality in the city by both limiting displacement of minorities and attracting higher income residents.
These results highlight that forcing landlords to provide insurance against rent increases can ultimately be counterproductive. If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of government subsidies or tax credits. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire. A point of future research would be to design an optimal social insurance program to insure renters against large rent increases.
Hasn’t it been found that rent control has a negative impact on improving housing supply, which would, in turn, make rent more affordable?
Rent control disincentivizes new housing construction because developers wouldn’t see a return on their investment, or have a risk of such if it were implemented in their area. With housing shortages nearly everywhere, thus high demand, thus high prices, would it not be in everyone’s best interest to instead incentivise construction to increase supply to meet that demand?
Edit for sources:
The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco
Why Rent Control Doesn’t Work (Freakonomics)
If private capital won’t develop homes, the government should fund the housing project of residents that want to live there.
Which government? The municipality, province/state, or federal? There’s already a significant lack of housing for the people who need it most, with the aforementioned three entities often fighting over who should pay for it. Along with that, there’s strong evidence that providing stable housing to homeless is quite effective in reducing public service costs elsewhere.
While I would love to see everyone have a stable home available to them, the lack of progress for even those needing it most, despite clear evidence of the return on investment of public funds, I am not hopeful that any government will be funding significant development projects that can have an impact on lack of housing supply anytime soon.
Which ever government has financing. It wouldn’t be free. The gov would collect interest and make money just like any private developer. Considering this is basically how Freddie Mac already operates with Single Family Homes it’s not a stretch to extend this gov financing to big multifamily projects owned by tenants.
Ah, I see what you mean. Not a bad idea if it can be done with a good design team and good construction oversight. I would fear government housing projects being built as cheaply as possible though, when well designed and constructed buildings bring far greater return.
This is just a cap on the rate increase, not a complete rent price cap. However, you are correct in that rent controls tend to dencentivise new construction, but there are other factors besides rent control that go into that. In other words: it’s complicated
Lol getting down voted for stating what the experts say and also backing it up with sources.
Thanks for trying.
I was curious why as well but then saw the community name and I came from browsing all.
It’s definitely not black and white though. And perhaps some well-planned and well-written rent control legislation can avoid the negatives that are commonly found.
So, this ain’t a HARD LINE finding, but it’s a popular opinion in economist circles.
Here’s a great video on the topic by unlearning economics:
https://www.youtube.com/watch?v=4epQSbu2gYQ&t=1259
Interesting. Yes, it’s definitely not black and white. I didn’t find the income inequality argument quite as confusing though. While it is good for existing tenants to be able to stay, I feel that increased inequality could lead to richer tenants putting pressure on poorer tenants, or their landlords, to leave, as they don’t “fit” in the neighbourhood, which is a negative effect in my opinion.
Of course, that then brings in all the intricacies of how to properly manage gentrification…
“rent control” and “managed gentrification” are kind of two sides for same coin
The basic tenet is that downward pressure on any existing investment tends to put upward pressure on new investments from similar firms, sometimes pricing investors out.
In this case it’s rent control putting caps on return outside market fluctuations. It causes builder firms to take on the financial burden of getting return on investment by pricing newer units higher. This prices out people and sometimes locks them into the rent control system as they can’t afford the now higher priced newer housing.
This causes fewer units to be built as now you have to target a smaller but more financially viable market segment so “affordable housing” takes a slump.
The asterisk here is that people living in their current housing don’t end up on the street, but it severely hampers city growth, as new tenents can’t find affordable housing.
By Itself I don’t think rent control is a net positive thing for a community, but rent control to keep tenents in their existing homes combined with heavy investment into real estate development from the government is a great one-two punch to eliminate homelessness.
Problem is #2 costs money while #1 doesn’t so… Most of the time you only see politicians trying to focus down on the rent control.
Even problem #2 can have a net positive return when the societal costs of homelessness are factored in.
The effect it has on housing supply is hard to figure out since there are so many other confounding factors.
It does have a more direct positive effect against displacement and evictions.
So it’s a tradeoff between housing stability on one hand and possibly lower rents for new residents and people moving.
So if your average renter is a family who is going to stay in one place for 20 years while they raise there kids then rent control is good. If your average renter is a 20 something moving around the city every couple years then it may negatively impact them.
Right, that’s similar to what the study I linked found. From the abstract:
And the conclusion:
spoiler