What are the effects of rent control, both good and bad?
In: 257
Good – The rent for an existing renter does not rise, or only rises with inflation (or whatever).
Bad – Where do we begin
* Rent for new renters are higher, to compensate for the controlled rent of the pre-existing renters.
* There is less or no incentive to build new housing, since the builders will not be able to profit.
* There is less or no incentive to maintain the existing housing, since the cost to do so will usually increase but rent can’t.
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Any reply that demonstrates ignorance of economics will be blocked.
Edit
Looks like the communists found this post.
Rent control perturbs the market for rental housing. Markets don’t like that, and tend to correct. For example, in NYC rent control caused many landlords to get out of the rental market and convert their building into condos. To prevent this correction, you need more perturbations. Eventually you get Soviet-style central government management of that part of the economy, or you find some acceptable perturbed state.
get rid of the rentiers and make all rented residential properties coops under the control of those who live there. Oh, and get rid of the rentiers, too. There are no ill effects from prices going down except if you ask capitalists and their simps.
Rent control isn’t trouble free though. I’m somewhere wsith rent control. Let’s just say landlords are having fun not caring about the law, lying, making pressure to you, threading you, forcing you to get out from a relative for the minimum requirements by law, then doing that on someone else (if they don’t cheat by having 2 housings), making small repairs to get a waiver, …
I mean, it is still nice to at least have some kind of protection.
But our (Quebec from Canada) also suck and won’t care about all issues with the landlord we already had… so I guess they won’t really care now either.
if there are too many residents and too few houses, you have three options:
1. build more housing
2. kick out residents (not sure how you’d do that)
3. figure out a way to distribute the limited houses to the too-many residents
“rent control” is #3 with the rough heuristic of, “whoever has been living here the longest gets a house”
this has the effect of not addressing the root cause (supply/demand imbalance), preventing younger/new residents from moving in, and removing incentives to build new housing
you can extrapolate why that would be bad, for example when new parents want to move closer to the grandparents but can’t because they’re priced out. it also shields existing residents (who can vote on local issues) from housing supply problems since their rent isn’t changing to communicate the severity of the issue. the hypothetical new residents (who would move in if they could afford it) can’t vote in local elections (they don’t live there) so you can see why few of these situations have resolved themselves
edit: I forgot to list pros! the main pro is that you don’t disrupt communities. if someone owns a local shop, has been living there for 20 years, etc. then kicking them out first disrupts both their life and the health of the community. so it’s a decent heuristic if you’re forced to pick one, but it’s the maybe-best of a bunch of bad options
One thing that a lot of people miss is the effect on residents.
You basically cap their rent. Many people choose to stay at low income job and don’t upskill to increase the value of their labor as a result. I lived in a rent controlled area in Los Angeles and this was super common.
The effect on residents was that when big changes happened in the economy like recessions or they lose their job, they fell off a cliff because they couldn’t adapt to the new economic environment.
Those residents also tended to work at low skill simple jobs for a long time because they could afford to do so. Mainly high capital intensive low margin companies. Without cheap labor, these companies couldn’t survive. It prevented other more competitive businesses from thriving so the entire region misses out on new companies coming in that could possible pay more. It was one factor that prevented creative destruction in the economy.
It also created a large mass of workers who could be underpaid making wages low.
Rent control only helps those that already have it, and not those that are in need of it. There are long waiting lists for rent controlled housing, and with no term limits it’s almost impossible to get people to move out.
Rent control is fantastic for ‘legacy renters.’ If you live in a rental unit rent control can freeze the cost of the unit or make life affordable. Rents for the longest time were cheapest in India because rents were permanently frozen in many units at 1905 levels. For the people in these units it was great! They were paying pennies for housing. In a lot of cases people would die and their children would take over the lease so you had inter-generational housing. And this is the case in most rent controlled housing. Having the lease becomes an asset to itself for the person who gets the lease. No one gives up those spots.
The downside is the supply crunch. If you set controls on rent prices it will eventually make developing new rental properties unaffordable. The market will shift more to home ownership and the people who will get homes are those who can afford them. Which is what ended up happening in India.
India ended up happening to India. They first tried to encourage rentals in 1999 by setting a different standard of rental properties made after 1999 compared to ones before 1999. So you still had those historic low price properties (that are literally vanishing after every single earthquake). But now you get about 6 million new homes per year.
The Indian parliament put in place more measures to encourage even more new housing by further restricting rent controls again. This is because a lot of the new homes that were being built were laying vacant because they couldn’t charge enough rent to cover the cost of these homes.
Rent control is a form of price ceiling.
Normally in a free competitive market the price of a good will be determined at the market equilibrium (the point at which the quantity of the good supplied is equal to the quantity of demand for it)
This ensures that everyone who want to pay the price for that good will receive it.
When you artificially lower the price by introducing a price ceiling then the quantity demanded will exceed the actual supply because people will buy more of a thing if it is cheaper. This creates a housing shortage, meaning that not everyone who wants a house will be able to get one. even if you are willing to pay extra for it you cant legally because of the price ceiling.
This is bad for both parties because the renter doesn’t get to rent the thing they want and the seller doesn’t get to rent it out at the price they want. This is called dead weight loss.
A better way of dealing with high rent prices might be to develop public housing, or give out rent subsidies.
Good; maintains rent, despite profit motive to constantly increase it to the limits of the markets ability to bear. Less homelessness, because prices aren’t constantly rising beyond renters ability to pay.
Bad; reduces profit margins for investors, so they tend to release less of their money towards new builds. In the long run, if the rent control isn’t handled as a holistic thing, you create a situation where people can survive where they are, but nowhere else, and new people are screwed, because the private sector doesn’t build as many homes.
Seeing as it’s rare that Rent Control gets passed as it’s own thing, and that exists in an economic context, it’s a fairly complex issue.
Long story short, it’s never a long term fix, but it buys you time to implement something more sustained, like social housing commissioned by the Government, which acts as a competitive counterbalance to price-gouging in the private market.
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