[roenxi]

> This paper studies the effects of rent control on the housing wealth of renters, landlords, and homeowners. Over the nine months following the passage of rent control in St. Paul, Minnesota in 2021, average property values fell by 4.4% to 5.8%.

This seems like too short-term a study. The argument against artificially holding prices down is that people won't produce as much as they would otherwise and people won't be able to get the thing they would otherwise buy. So what we're predicting a rent control policy will do is cause a shortage of rental accommodation in the area.

Now how that expresses itself in an accounting sense, who knows (probably the economists). Good question to study. But I doubt the impacts of rent control would appear in the market this quickly, it'd take years for the market signals to be measurable. Initially rent controls will probably be set near the previously ideal market price, I'd guess there are a lot of 12 month leases and housing construction projects probably don't reset that quickly either.

[heylook]

> But I doubt the impacts of rent control would appear in the market this quickly, it'd take years for the market signals to be measurable.

Hard disagree. Rational investors have no problem whatsoever projecting the impact to future cash flows and adjusting the amount they're willing to pay now. That's like saying the stock market wouldn't respond quickly to changes in next year's tax law.

[servo_sausage]

You probably won't see new commencement of building projects, but it probably doesn't mean ongoing projects would be scrapped...

And these things have a lead time of years

[Schiendelman]

You don't have to build for the market to change - the projection of future rents changes behavior in more efficiently operationalized landlords.

[AnthonyMouse]

> Rational investors have no problem whatsoever projecting the impact to future cash flows and adjusting the amount they're willing to pay now.

That's not accounting for the time value of money.

Suppose you have a rental unit and before rent control you were planning to rent it out. That now has far less attractive returns and it suddenly makes more sense to sell it as a condo to an occupant rather than keeping it to rent it out. Likewise, other prospective landlords no longer want to buy it at the previous market price (returns went down and they can invest in stocks or housing in some other city instead), so the short-term effect is to increase the number of property sellers and decrease the number of buyers. Short-term, property values going down is the expected thing.

But construction going down is also the expected thing, for the same reason. If property values are lower then the number of viable construction projects is lower and less construction happens.

The lack of construction then continues until rents, even after rent control, are high enough to justify more construction, i.e. are even higher than they were originally, because now to justify the same investment as before you need the current rent to be high enough to account for the inability to increase it later. And with less construction happening, that's the natural result in a growing area. More people have to bid on the same number of units, rents go up. So the short-term effect is lower real estate prices, the long-term effect is higher.

Now you say, if we expect real estate costs to be higher later, why don't investors take advantage? Which is the "time value of money" issue. If you invest there now because the prices will be high later, what do you do with the property in the meantime? If you don't rent it out, paying $1 today to get $1 in ten or twenty years is dumb, so you only buy if the current price is at a discount. If you do rent it out, then you'd be stuck trying to sell a building with a rent-controlled tenant, which isn't worth as much as the same building as empty as you bought it which you could sell as condos or rent out at current rents instead of price controlled ones, and then you still need a discount. And so the current seller has to provide a discount even if the real estate costs will be higher in a few years.

[linkregister]

This argument presupposes multiple levels of assumption. By the point where the assertion is made that construction costs would drop, the prediction's error bars equal the entire range.

There's no reason to believe that construction companies would accept jobs at prices below the cost of materials and labor. Construction companies frequently let workers go rather than accept large negative cash flows.

[stymaar]

> There's no reason to believe that construction companies would accept jobs at prices below the cost of materials and labor.

Who's talking about cost of material and labor though?

Not only construction companies make good money, but the price of the land is a significant part of housing cost. And this price is entirely driven by the value of the real estate that will sit on it.

[AnthonyMouse]

There is no assumption that construction costs would drop. The premise is that construction activity would decline until the lack of construction induces enough scarcity for even rent-controlled properties to cost enough to justify construction costs.

[pushcx]

The stock market has liquidity, fungibility, low transaction costs, etc etc. https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terri...

[tverbeure]

I think you're wildly overestimating the rationality of investors.

[jjav]

If other investors are irrational that's a wonderful arbitrage opportunity. But good arbitrage opportunities are rare and don't last very long, so maybe they are rational.

[rcxdude]

That does depend on the underlying market. Often you can make money (especially as a small participant) only if you can predict when the other participants in the market will snap back to reality. This can be pretty difficult when the market is more detached from the underlying activity it's supposed to represent (and property markets are often not very transparent or fast-moving).

[tverbeure]

You’re really asking for a Keynes comment here. :-)

He flirted with bankruptcy multiple times.

[WalterBright]

If you're smarter than other investors, you can make a lot of money doing the opposite of what they do.

[WalterBright]

The failures and dislocations and "unanticipated" side effects of rent control are always a consequence of the Law of Supply and Demand.

You cannot repeal that law, though they try again and again and again.

[stymaar]

In a beauty contest, being right alone against everyone else just makes you lose.

Markets can remain irrational much longer than you can remain solvent.

[roenxi]

In a highly liquid commodity market full of professional traders, I'd agree. But the housing market isn't that liquid over 9 months and there are a lot of small timers. It seems more likely there'd be some sort of initial wobble as sophisticated participants reposition, then a period of calm, then the actual impacts set in over a few years.

It might not happen that way - someone does need to check - but at 9 months I wouldn't read much in to this study. The physical market would still be reorganising and it seems entirely possible that the eventual impacts are just different than what this study suggests. I'd want a period of more like 5 years to be confident that the data had given everyone in the market enough time to feel the impacts of artificially low rents and reposition appropriately.

[ameon]

both can be true if we separate short-term from a long-term effect. Panic or other emotional reactions are quick, that's for sure.

[avs733]

Except the housing market, especially the rental market, is still significantly driven by small rental property owners and is a significant source of generational wealth transfer.

Starting with the assumption that all or even most investors / actors are rational is a continuing pox on both economic scholarship and societal thinking

[joshribakoff]

It doesn’t require all or most investors to act rational. A small percentage of rational actors still moves prices.

[dwallin]

Moving prices is not the same as moving the market, and famously the market might cause them to go insolvent faster then the market goes rational. Which would mean that they weren’t actually rational and this is all circular reasoning?

[datadrivenangel]

actors are in aggregate rational and self interested, but emotions are important.

[vannevar]

The plot on page 39 certainly looks like the St Paul market turned somewhere around July of 2020, over a year before the rent control, and the downward trend accelerated over the next couple of years. I'm skeptical of the authors' ability to tease out the contribution of rent control to a process that had already begun well before the alleged causal event.

[ryukoposting]

I lived there at the time. The George Floyd riots were in late May/early June 2020. I went to the protests by the police station in the Powderhorn neighborhood, that's the police station that got burned down. I got the hell out before that, though.

Most of the damage was concentrated in Minneapolis, a little south of the river. But what happens in Minneapolis affects St. Paul, and vice versa. St. Paul wasn't unscathed, either. Property values dipped as a result of the riots, and I'd go find more evidence of that if it wasn't just taken as a fact by the people who live there.

There was also an arson on a construction site in downtown St. Paul later that summer that spooked a lot of folks too.

There's also George Floyd Square, an ad-hoc memorial at the intersection where he was murdered. For reasons beyond me, this was a source of controversy for well over a year, and I know a lot of MN righties who took the city's willingness to leave the memorial there as "capitulating to crime" or something.

In short, don't use Twin Cities property values in the early 2020s to make generalizations about economics or policy. It took years for those scars to heal. Things didn't really go back to normal until 2023 at the absolute earliest, and some things haven't ever gone back to the way they were.

[MAustriaGA]

“For reasons beyond me”

It’s not like he was a hero or anything.

[inigyou]

Neither was Anne Frank but we remember her. We remember victims of atrocities.

[colechristensen]

It's terribly hard to isolate rent because of the supply/demand shock (in geographically dependent directions) that COVID had on the market. It made people move, a lot of people got a lot of free money and were out of work, among many other changes.

[rcxdude]

I think this argument depends on what exactly is constraining supply: if prices are at a level where there is still a profit to be made building new housing, it will be built anyhow. If developers and landlords truly are capturing an outsize fraction of the value in building and renting new property, then it might redistribute that value without affecting supply. But in that case the supply is being constrained by something else and it might be better overall to focus on relieving that constraint instead (property development and rental is an area with lots of room for creative accounting, and it seems to vary a lot who is making money and how, I would love to see some detailed breakdown on this).

[xtiansimon]

> “…average property values fell by 4.4% to 5.8%”

I’m not clever enough to follow these arguments, but I’m struck by the idea of home prices going down in the face of so much demand. And I think it’s a miracle to have discovered such a lever.

[inigyou]

easy work around for that btw: don't control new construction (unless it replaced controlled old construction. no demolishing and rebuilding just to avoid control)

[port11]

I propose the Invisible Hand… ahm, Grenade: it is likely impossible that a thread about rent control can exist without it being quickly dismissed because of the Free Market.

Housing policy debate is not allowed nuance, as unregulated capitalism is the ultimate goal of Humanity.

[WalterBright]

The key to understanding the effects of rent control is understanding the Law of Supply and Demand.

Artificially holding down rents will result in housing shortages. The lower the rent controlled price, the worse the shortage.

If the rent goes too low, the building owner will stop doing maintenance. Eventually, the building gets abandoned.

[usernametaken29]

Then again we have high rates of abandoned or unused housing as investment properties that sit idle even with uncapped markets… might as well cap the market if the effect is the same but people pay less rent

[WalterBright]

If you look closer, it's still Supply & Demand ruling.

Housing is unused when the revenue from rents is less than the cost of taking care of the renter. Renting out a place can have high costs, like having a bad renter.

[WalterBright]

BTW, rentals can also remain unrented because if the landlord rents it at the current rental rate, rent control laws may force him to maintain that low rent for the long term.

Hence, it is less risky to just leave it vacant.

Rent control has all kinds of self-defeating consequences.

[usernametaken29]

Or you just force people to rent out vacant flats. You have 60 days once a formal letter is received and you have to rent it to someone in that time, or you’ll be fined. That’s one way to force supply of a good that isn’t actually scarce but has artificial scarcity. Worked pretty well in some of the European metropolita and it works in New York now too. We have to stop treating housing like a simple commodity

[uoaei]

Supply and demand is and always has been a useful first-order approximation. Reality is a lot more complicated.

Dear reader, never believe anyone who says a serious societal problem is "just" anything. Especially on the internet when they use merely a pesudonym to assert their authority.

Especially when the person behind the pseudonym is a one-time washed-out author desperately clinging to their housing stock in Atherton.

[WalterBright]

> Reality is a lot more complicated.

It's still the Law of Supply and Demand. Just like F=ma always applies, even if the results are complicated.

[uoaei]

No, it's not a law in the same way as physical laws. Most of the failures in economics of the past 50 years can be mostly directly attributed to a fatal overcommitment to the belief that these attributed relations are incontrivertible.

What really exists, closest to the limit we will call "hard science" or "physics", is the microcosmic focus on individuals interacting in a market. Everything else -- supply and demand as a theory definitely included -- is a statistical extrapolation from micro-scale interactions. Hence the label of "dismal science". It's dismal because every hardline assumption is inevitably contravened by real life physics.

[WalterBright]

The supply and demand curves are different for every person and every business. That makes it complicated - but not wrong.

[uoaei]

That's what makes it a model, not a law.

[danaris]

No, no, see, of course it's a law! Now, I'll explain it to you:

First, assume a spherical economy in a frictionless vacuum...

(/s)

[henrycrutcher]

Technically, the earth is a spherical economy in a frictionless vacuum

[WalterBright]

Yah, I'm old and I've heard that joke my entire life.

[999900000999]

On the flip side section 8 acts as a price floor.

No easy solutions here. I do think if rent exceeds half your earnings as a minimum wage worker that’s a failure of the social contract.

Want people to have kids, make it possible to raise them on a working class wage.

Rationally , since it’s impossible to raise a family on what most people make , people aren’t making people anymore. Not at replacement rates anyway.

[Danox]

Laughable the one thing that all the English speaking capitalistic countries share today is that most of its citizens most of whom don’t have rent control by the way are headed for a lifetime of being a renter all their life.

They are also headed towards paying more than 50% of whatever income they make to rent that’s the United States, Canada, Great Britain, Australia, New Zealand, and Ireland.

I can’t speak for the other countries, but in United States, the so-called luxury apartment is in fashion, and there is nothing luxury about them, except for the amount of money you will be charged to live there.

The shortage of affordable housing has nothing to do with rent control because over most of the country there is no real rent control effective rent control.

America is the land of luxury apartments currently popping up everywhere. What is also ironic is the fact that there are very few states that have anything like Prop 13 in California, which took a ballot initiative passed by the electorate and was not passed by the legislator’s who supposedly represent the people in short, there will be nothing forthcoming for the majority of people across the country. It’s sink or swim for most you are on your own in poverty.

[WalterBright]

> The shortage of affordable housing has nothing to do with rent control

Oh, it absolutely does. The abandonment of rent properties in NYC is ample evidence.

[stymaar]

The point of the comment you're responding to is that shortage of affordable housing is ubiquitous, and you can't blame rent control on that in most places (which don't have rent control in the first place).

I don't think rent control is the most efficient solution to the problem, but believing it's a greater problem than the status quo is delusional. The status quo suck, and it mostly sucks because over the past 30 years housing policies in the West have been driven by the belief that markets dynamics are a good way to manage housing.

[WalterBright]

Nobody has ever found a better way to manage housing than the free market.

In the past 30 years, the government has never been more involved in zoning and regulation of housing.

[stymaar]

> Nobody has ever found a better way to manage housing than the free market.

That's just a religious belief of yours. And it's especially off the mark on the “free” part: you can't have a free market for housing, ever, because barriers to entry are always going to be high (and sometimes impossibly high for geometric reasons; there's just so much coastline for instance), and housing is very much not a commodity.

On the flip side, mixed systems in places in most of Europe for several decades after WWII and they were immensely successful. Housing was way more affordable and available back then despite fast growing population and rapidly evolving housing standards that forced owners to constantly invest in their properties to upgrade them.

[aurareturn]

Yep. Rent control benefits the people who are already there, but punishes everyone else.

It will increase the price for new comers, lower the quality of buildings due lack of maintenance funding, and decrease new construction.

Rental control is NIMBY for renters who are already there.

[WalterBright]

> Rent control benefits the people who are already there

Not always. It can trap the person in the apartment, such as constraining where they can work.

[aurareturn]

It can't trap the person in the apartment because they can leave at anytime.

"Trap" here means the deal is so good that they don't ever want to leave.

[WalterBright]

Trap is when it is too expensive to leave, so they put up with a lower quality of life, such as not being near their jobs.

[aurareturn]

If it's too expensive to leave, it's too expensive for someone else to move in too.

[jjav]

> "Trap" here means the deal is so good that they don't ever want to leave.

Yes. I know someone who has a huge rent controlled place in San Francisco and has had it for many decades. Probably worth like 10K/month if you rented it today. I don't know what his rent it, but he says it is so low that he'll never give it up. He no longer lives in San Francisco, lives elsewhere. The SF place gets used occasionally on weekends. So it remains empty, mostly unused, off the rental market because it would be insane to let it go. This is what rent control does. It's great for him and I don't blame him, I'd do the same too. But it's the wrong incentive.

[freefaler]

There is a good paper about the effects:

https://www.sciencedirect.com/science/article/pii/S105113772...

Basically if you're in a "rent controlled" unit, you benefit, but live in a dumpster, because the owner don't have the reason to invest in the place.

But the supply of new units is down & all other renters are paying higher rates, because there is no incentive to build new units. NIMBY-ism has the same effect.