[CPops]

As nice sounding as rent-control is, you can't change economic law with the power of good intentions.

When the price of some good is artificially capped below the market equilibrium price, a shortage always occurs.

Rent control benefits some people at the expense of harming a larger number of people.

[rbranson]

There are a few problems applying pure supply/demand theory onto the problem of available space in NYC. There are some heavy external costs involved: moving expense, employment churn, desirable local culture. People aren't going to leave NYC, they'll just keep moving around the same area for a better deal. Instead of efficient allocation, you'll have something more akin to musical chairs, which could have serious consequences for the local economy.

So, economists loves to look at situations like NY rent control and pass judgement, but it's just a much more complex situation than that, even beyond the moral implications of kicking grandma out. I used to think the way you did and was skeptical of rent control, but research has led me to understand it, at least somewhat. The Wikipedia article has some good insight into why it's helpful from an economic point of view.

http://en.wikipedia.org/wiki/Rent_control#Economic

[jobeirne]

> Instead of efficient allocation, you'll have something more akin to musical chairs, which could have serious consequences for the local economy.

It seems to me that you're neglecting the economic reality that, were rent control dropped, landlords would be buying up land within the city left and right. Since price ceilings wouldn't be inhibiting profit potential and introducing negative incentives into maintaining apartments, opening apartment buildings would be an extremely attractive investment. The market would be flooded with new dwellings. Thus, should rent control be killed, a natural market equilibrium would be sought, the middle class could again reasonably live in NYC, and the city itself would bloom.

[rbranson]

I'm not sure which city are you talking about, because there isn't any land left in NY to buy up and build on. If you are talking about dozing and rebuilding, well, there's not much incentive to do this anyway, since existing investments are often so profitable that it's pointless to incur risk. Opening apartments _IS_ an extremely attractive investment and happens constantly, but you are talking about an area with EXTREME scarcity. No amount of flood of new development is going to bring housing prices down in Manhattan, an area with a residential population of 13 people per square foot of land.

Modern rent control laws only really prevent the landlord from raising rent (EDIT: more than a certain percentage every year) on existing tenants. This is considered "rent stabilized," which covers almost half the available units in NYC. Less than 2% of the available rental units in the city area are considered rent controlled, which is where the government actually mandates a certain rent level. The pricing of over a third of the rental units in NYC are unregulated.

[hugh3]

If you are talking about dozing and rebuilding, well, there's not much incentive to do this anyway, since existing investments are often so profitable that it's pointless to incur risk.

How to make money:

1. Buy up a row of those five-storey brownstones which seem to cover most of Manhattan (say, a hundred apartments)

2. Knock 'em down, build a 30-storey tower (say, a thousand apartments)

3. Sell 'em off as condos.

That doesn't sound all that risky to me. In fact, it sounds like a great way to make a crapload of money very quickly and I would happily invest my money in a scheme like this. The fact that there's virtually zero new high-density condos being constructed in NYC means there's some kind of regulation seriously screwing with the system, because high-density construction should happen naturally when medium-density housing gets insanely expensive.

[rbranson]

Sounds simple, but apparently you don't understand NY construction projects... the devil is in the details:

1. Good luck. Brownstones in Manhattan are pretty rare these days, and they're quite expensive, largely because you'll be finding them in the Upper West Side. There are wealthy families who have lived in these for decades and aren't about to move out. In order to compel people to move out and find a new place, you'll have to pay them 2-3x market rate, especially if they get wind that you're a developer, which will work out to be around $15-100 MILLION DOLLARS per building, if we're talking about a decent section of Manhattan. If you're lucky, you'll find someone to finance this operation. It will take you years to do get all of this done. In the mean time, you'll be getting sued by the people you didn't buy out because you are going to be blighting the hell out of their neighborhood.

2. 30 story towers don't have 1,000 units. Usually you'll see 200-400 units on new construction for a 30-ish story building. However, let's say for a moment you WERE able to get a cluster of 30 brownstones (15x2), you'd have about 50,250 square foot of land (1675 sqft per brownstone) to build on. You'll only be able to use about 75% of that on each floor, and given a 10% allowance for common space, and eliminating the first floor for management, you'll have about 33,918 sq ft on each floor (983,622 sqft total). You divide them up into 30% 600sqft studio, 30% 850sqft 1bdrm, 15% 1200sqft 2bdrm, 10% 1500sqft 2bdrm, 5% 3000sqft 3bdrm, and sell off four half-floor penthouses. That would leave you with 491 studios, 347 1bdrm, 122 sm 2bdrm, 65 big 2bdrm, 16 3bdrm, and 2 penthouses. At market rates, you'd be able to sell as follows: 491 studios for $600k each, 347 1bdrm for $800k each, 122 sm 2bdrm for $1.2m each, 65 big 2bdrm for $2m each, 16 3bdrm for $4m each, and the penthouses for $15m each. That's a cool $972.6m of revenue. Not bad, eh? Well, you paid $750 million for those brownstones (30 at 25 million a pop), and you spent $400m in construction ($400/sq-ft average construction cost in NYC). Oh, and your real estate agent charged you 8% to sell off the units, which ate up another $77.8m in revenue. It took you 5 years to complete the project, and you borrowed $1 billion at 5%, so the bank wants $250m in interest. You're now out $505 million.

3. We're talking about rental units aren't we? There are no price controls on condos.

Perhaps you should try attacking other forms of government regulation that actually inhibit growth such as the lengthy and bureaucratic building permit process and availability of non-union labor. I think you'll find that even regulation aside, the economics of in-filling in Manhattan are still quite prohibitive. Density is expensive, at least from a construction point of view. This is demonstrated time and time again in dense cities.

> The fact that there's virtually zero new high-density condos being constructed in NYC means there's some kind of regulation seriously screwing with the system, because high-density construction should happen naturally when medium-density housing gets insanely expensive.

You're letting your ideology guide your conclusion. There is constant new development happening in NYC, but it's expensive and complex, therefore impossible to outstrip the demand.

[hugh3]

Wow, thanks for your in-depth reply, with a lot of delicious mathematatics.

You're right, I don't understand New York construction projects very well. You've convinced me, there's a lot more going on here than just rent control. Thanks again!