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'Renters Are Struggling': Economists Back Tenant-Led Push for Federal Rent Control
(www.commondreams.org)
this post was submitted on 06 Aug 2023
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Capitalist/free market* economists.
Rent control works just fine in a more socialist model, especially when the government is a prime builder of housing without seeking profit, as almost every European country was during the 50s-70s. It's only when government gets out of house building and everything gets privatisated and for-profit that rent control fails.
Can you name some countries/policies where it's a continuing success?
Depends on your definition of "success." Countries such as Holland, France, Canada, Germany, and China all have caps on the amount by which a landlord can increase rent in any given year, usually by law it's less than 5%, or indexed to inflation (but with 5% as the max). These laws are incredibly popular with renters and have been around for decades.
Berlin implemented a hard rent freeze in 2020 which was extremely popular with renters, but not with landlords, naturally.
However, rent control isn't just a hard price cap like back during the war, there are many nuanced aspects, see here for information: https://www.theguardian.com/commentisfree/2021/apr/23/berlin-rent-cap-defeated-landlords-empty
You may want to look at how rent control turned out there, and why Europe is broadly turning against rent control, and seeing it as a mistake https://www.bloomberg.com/opinion/articles/2021-03-02/berlin-s-rent-controls-are-proving-to-be-the-disaster-we-feared?in_source=embedded-checkout-banner
I unfortunately can't read that article as it's paywalled, but looking at the link, it's an Opinion piece, so not factual reporting. It's also from Bloomberg, one of the most pro-capitalist publications out there, second only to The Economist in its championing of all things pro globalist and pro capitalist.
The main stream media which is all very pro capitalist (as they're all owned by billionaire oligarchs) has been shitting on rent control for decades.
Here's a more nuanced article on the matter which doesn't come from such a pro-capitalist, classical economic outlook: https://www.theguardian.com/commentisfree/2021/apr/23/berlin-rent-cap-defeated-landlords-empty
That article is literally about how rent shot up because of rent control policies.
Also it is an opinion article and written as if rent control is a good thing.
Rent didn't shoot up, how could it, the whole point of the law was it was frozen.
I think you're missing the forest for the trees in this entire conversation: rent has been skyrocketing everywhere, in every G8 country, for the last 20 years. Especially in places like London, NYC, LA, Seattle, Paris, Toronto, Bay Area, etc. Hell, even in Salt Lake City where I used to live my rent went from £1816/mon to £2600/mon for the same flat, in just 2 years. And none of those cities have classic rent control (NYC has a few places which have it, but overall it doesn't). So clearly with a free market, pure capitalist approach, rents have only been skyrocketing. Same thing for housing to buy, have you tried buying a house lately?
So to claim that rent control or rent freezes lead to higher rentals or less supply is wrong, because rents are going up in a free market too, and supply is already at an all time low (hence the prices shooting up).
So you're fucked in either situation. The real problem is there just isn't enough supply of shelter for people, and that's because if you leave it to the free market, there's no incentive to build affordable housing with no profit. Hence, because shelter is something required by citizens, government should be building it even at a huge loss. Just like government provides fire brigade and military at a financial loss, because people need these things. You don't leave essential services to the private market because it may not be profitable to do them, for example, rural communities have shite internet, why? because it's not profitable to dig and lay fibre optic cable into some rural hinterland for just a few hundred customers. So in Norway, the government steps in lays that fiber optic at a financial loss because it wants its citizens to have a better life. Same for housing. If the private sector isn't doing it, the government should be. Just like in the 60s.
Rent goes up because we have insufficient housing construction, and we have insufficient going construction becuause zoning laws prevent housing construction. Literally none of the places you bring up have anything approaching a free market wrt housing construction.
I am aware that the government can encourage building and it should do so. Vote locally to repeal zoning laws.
If government says the private sector cannot do something, then yeah you'll see few or no businesses doing that thing.
Zoning is only a small part of the problem. Even if you zoned a bunch of new land today, if you let the private, free market have its course, then what do you think will be built on that land? Highly unaffordable luxury flats/houses, because that is what leads to the highest profit margins for the private sectors builders. And those flats will be bought up by investors or wealthy individuals to create more unaffordable rent.
That's the core issue, individual private sector interests are not aligned to be altruistic interests for the good of society. They want to maximise profit, nothing more. Hence, you need someone willing to build houses and sell them at a loss, so average people can afford housing again. Only the government can sell for a loss and remain in business.
Ergo, you can zone all the land you want, but if you only let private sector builders have it, then you'll just get more and more unaffordable properties built, chasing rich foreign investors, tech millionaires, or pension funds.
This is the core issue with Thatcherism/deregulation/privatisation. An individual company's profit margins don't always align with the good of society, but society needs essential services (water, sewage, electricity, food, housing, defense). These things need to be provided to all citizens, urban and rural, but doing so doesn't always guarantee a profit, so you can't just leave it to the private sector only.
You're so close! Once you figure out those luxury flats will go for quite a lot, then free up downchannel housing you'll understand how this all actually shakes out when people can build.
But that's not what actually happens!! It's like the Laffer Curve, we don't actually see any of these benefits of letting the free market try to create all these supposed benefits and efficiencies. The textbooks say they should happen but in practice they never do. Even when the UK government releases state owned brownfield land, developers build overpriced flats no one in the local area can actually afford. So it doesn't actually create any net new living space because 1) the local populace can't afford it, 2) it gets bought by investors.
How does having investors scoop up luxury flats release downchannel housing at all? I have never seen that happen. Even in places where land is cheap and zoned for residential, like in areas of Utah, they never actually build affordable housing on it. People end up locked into renting.
The Ladder Curve is not a concrete thing. It's a metaphor to explain optimal taxation. It was literally first drawn on a napkin
How does an increase in supply that outpaces demand not lower prices? That's the question you need to answer.
"Locked into renting" and "affordable housing" have no meaning and are useless terms for discussion.
It's not a metaphor, it's as you say, an economic theory for the optimal rate of taxation, which exists somewhere between 0% and 100%. However, in the USA it has been put into practice over the past 30 years, where taxes on the extremely wealthy have fallen drastically over that time, with the thinking being that this would raise government revenue and also all that trickle down hogwash. Only it hasn't, and it has only served to weaken revenues at the local community and state level, and caused wealth inequality worse than the gilded age.
In terms of housing, you are correct in principle, if the supply of housing was to drastically increase such that it outpaced demand, then sure, prices would fall. But this is a specious argument for a number of reasons. First, even if zoning was abolished tomorrow, it's impossible to actually build new housing in most of the world's most expensive cities, such as NYC, London, and LA, because there's simply no space to build anywhere, except on the extreme periphery. London still has some brownfield land, but LA is boxed in by mountains, and Manhattan literally has no more space because it's an island. So where do you actually build? Vertically, okay, but then you have destroy existing structures.
Secondly, and perhaps more importantly, even if you allowed easy zoning, and cleared out lots for mega towers, who is going to actually build so much supply so as to flood the market in order to crater prices and make housing affordable? That's the dumbest thing ever, no builder wants to see prices come down, that would be like DeBeers flooding the market with diamonds, massively increasing supply and dropping the price, and killing their own profits/margins. Builders want high prices, not low, they have no incentive go on a building boom like in 2007 such that prices drop.
So you're left with my original argument: you can't leave housing solely to the for-profit, private sector. They have no incentive to build affordable housing, or flood the market with over supply in order to drop prices.
Yes existing structures need to come down. Homes built for one family should be purchased and turned into large homes for many families.
Yeah but by whom? What's the incentive for private sector builders to do that at scale if it means lower prices and lower margins by dramatically increasing supply?
Why do you think this will significantly impact margins? If a builder builds a house for $300k right now, the cost of the lot is eating a shitload of that $300k. If my home doubles in value (which it has), the land itself is more valuable.
By the same token, if I build a 4 story apartment building on my same lot, I make significantly more money over time than I would selling it once to a homeowner.
Your own answer from earlier said so: increase supply massively whilst demand stays constant, means prices come down. Fair enough.
Well, if prices come down, margins by definition decrease, because building materials and labour aren't decreasing too.
Ergo, even if zoning restrictions were relaxed massively, and permits handed out quickly and easily, there's no incentive to flood the market like in 2007. This is especially true of big high rise, high density properties, as there usually are only a few companies who can build such buildings (in central London there's like 4), so it makes collusion to keep supply low much easier. Sort of like how OPEC works.
This is not accurate.
This is not how the housing bubble popped. It was demand-side, due to (absurdly) loose credit. Home prices were still rising dramatically in 07 - supply was not keeping up with demand.
Why is it not accurate? House prices come down but cost of materials and labour stay constant or go up, what am I missing?
Also, I feel like we have gotten so far off track so as to forget what exactly we are arguing about.
The original discussion was how to fix the housing market so as to create way more affordable housing. My original argument was the government has to do that, by building houses at a loss, which only the government can do.
Your argument seems to have originally been that the true problem is the zoning and government red tape, but I feel like we have both come to the conclusion that neither of those is true. Firstly, even if zoning isn't a problem, in places like LA and NYC there's no physical space left to build, except vertically. In London, the only new land to build is way outside Zone 5. Furthermore, what incentive is there for private sector builders to flood the market with new supply, either horizontally or vertically? No industry likes it when the price of their product goes down, not a single one, and no industry is going to help that happen.
Finally, building vertically requires way bigger companies to get involved, meaning there are fewer of them, meaning it's easier for them to collude to keep prices high. Building a ranch house out in Wyoming can be done by some local two-bit builder, but a skyscraper in Manhattan would need to be some big multinational. Ergo, even if the only solution is Shanghai style vertical flats, the prices are even more suspectible to collusion by the few big companies able and willing to build them.
Or, like I said, bypass all this bollocks and have the government build loads of houses and sell them at a loss, flood the supply and bring prices down for the altruistic, non-profit motive of getting more people into housing. Done and done.
Materials and labor are relatively static compared to home costs. A 10% rise in housing costs was like another 15-20 grand in most cases, before housing costs exploded, factoring in inflation.
Compare that to the doubling (or more - my home is over 250% of what I paid) of home prices (tied to lot value) and the difference is stark.
Even assuming a dramatic increase in parts/labor of like 50% of those costs and you're barely hitting on the final value, all things considered.
Space is the problem and building vertically (even just 2-4 stories) is the answer.
If it helps, consider that parts and labor are generally 30-50% of home costs (assuming "normal" values) and even a doubling of that cost is less than the growth of home prices.
By far, the biggest cost increase has been lot value.
Don't know if you've noticed this yet, but the United States has a capitalist economy.
The US has lots of socialized losses but privatized profits. To call it a capitalist economy is a gross oversimplification which glosses over the fact that no corporation is actually competing in a free market at this point.
And it's failing
Semi. It's got bits and pieces of all systems, which is a hint that the "-ism" powering any country's economy doesn't have as big an impact as its leaders.
Unfortunately, capitalism tends to reward corruption, it's much easier and profitable to be corrupt than to do the right thing™.
Libraries are socialist. Otherwise every person in a fully capitalist system would be expected to buy their personal copy of a book.
Libraries are not socialist. Socialism is not, in fact, when the government does things.
Thank you, boring and incorrect pedant.
It truly depends on the definition of socialism. Is it socialist anytime a service is provided by the govt? Or solely when public policy limits the abilities of capital?
You and I disagree, and that's ok cuz I don't care.
Yes we disagree on the meaning of a word, which means one of us is correct, and it's me
You're wrong again and contribute nothing, as usual. How sad.
What you're referring to is called a "mixed economy" https://en.wikipedia.org/wiki/Mixed_economy
And you're right - there are scales with capitalism and socialism weighing against each other in basically every economy. Finland, Norway, France are examples where it's tipped a bit more in favour of the "socialism" side. But the US has plenty of elements of socialism, from housing coops in the Bronx, to utility coops in the midwest (that helped pave the way for the electrification of rural America), to credit unions, to welfare policies, to the Alaska social wealth fund, and I could keep going.
Finland and Norway have among the highest percentage of private investment in the world, to the extent that investment is the leading economic driver in Nordic countries.
They are not socialist countries.