Tag: rent control

Considerations on Rent Control

(On November 13, I was invited to testify before the Jersey City city council on rent control. Below is an edited version of my testimony.)

My name is J. W. Mason. I have a Ph.D. in Economics from the University of Massachusetts at Amherst, I am an assistant professor of economics at John Jay College of the City University of New York, and I am a Fellow at the Rosevelt Institute.

My goal today is to present some general observations on rent regulation from the perspective of an economist.

Among economists, rent regulation seems be in similar situation as the minimum wage was 20 years ago. At that time, most economists  took it for granted that raising the minimum wage would reduce employment. Textbooks said that it was simple supply and demand — if you raise the price of something, people will buy less of it. But as more state and local governments raised minimum wages, it turned out to be very hard to find any negative effect on employment. This was confirmed by more and more careful empirical studies. Today, it is clear that minimum wages do not reduce employment. And as economists have worked to understand why not, this has improved our theories of the labor market.

Rent regulation may be going through a similar evolution today. You may still see textbooks saying that as a price control, rent regulation will reduce the supply of housing. But as the share of Americans renting their homes has increased, more and more jurisdictions are considering or implementing rent regulation. This has brought new attention from economists, and as with the minimum wage, we are finding that the simple supply-and-demand story doesn’t capture what happens in the real world.

As of 2019, there are approximately 200 cities in the US with some type of rent regulation. Most of them are in three states — New York, New Jersey, and California. Other areas where rent control was once widespread, such as Massachusetts, have seen it eliminated by state law.

A number of recent studies have looked at the effects of rent regulations on housing supply, focusing on changes in rent regulations in New Jersey and California and the elimination of rent control in Massachusetts. Contrary to the predictions of the simple supply-and-demand model, none of these studies have found evidence that introducing or strengthening rent regulations reduces new housing construction, or that eliminating rent regulation increases construction. Most of these studies do, however, find that rent control is effective at holding down rents.

A 2007 study by David Sims and a 2014 study by Autor, Palmer, and Pathak both look at the effects of the end of rent control in Massachusetts, after the passage of Question 9 by Massachusetts ballot referendum in 1994. Sims found that the end of rent control had little effect on the construction of new housing. He did however find evidence that rent control decreased the number of available rental units, by encouraging condo conversions. In other words, rent control seemed to affect the quantity of rental housing, but not the total quantity of the housing stock. Unsurprisingly, Sims also found significant increases in rent charged after decontrol, suggesting that rent control was effective in limiting rent increases. Finally, he found that rent controlled units had much longer tenure times, supporting the idea that rent control promotes neighborhood stability. Autor and coauthors reached similar conclusions. They also found that eliminating rent control also raised rents in homes in the same area that were never subject to the controls, reinforcing the idea that rent control contributes to neighborhood stability.

A 2007 study by Gilderbloom and Ye of more recent rent control laws here in New Jersey finds evidence that rent controls actually increase the supply of rental housing, by incentivizing landlords to subdivide larger rental units.

A 2015 study by Ambrosius, Glderbloom and coauthors also looks at changes in New Jersey rent regulations. As with the previous study, they find that rent control in New Jersey has not produced any detectable reduction in new housing supply. However, they also find that many of these laws,  because of their relatively generous provisions, in particular vacancy decontrol, only limit rent increases on a relatively small number of housing units. 

The most recent major study of rent control, by Diamond McQuade, and Qian in 2018, uses detailed data on San Francisco housing market to look at the effect of the mid-1990s change in rent control rules there. They suggest that while the law did effectively limit rent increases, and had no effect on new housing construction, it did have a negative effect n the supply of rental housing by encouraging condo conversions. 

The main conclusions from this literature are, first, that rent regulation is effective in limiting rent increases, although how effective it is depends on the specifics of the law. Vacancy decontrol in particular may significantly weaken rent control. Second, there is no evidence that rent regulations reduce the overall supply of housing. They, may, however, reduce the supply of rental housing if it is easy for landlords to convert apartments to condominiums or other non-rental uses. This suggests that limitations on these kinds of conversions may be worth exploring. Third, in addition to their effect on the overall level of rents, rent regulations also play an important role in promoting neighborhood stability and protecting long-term tenants.

Let me now turn to the question of why the textbook story is wrong. There are several features of housing markets and of rent control that help explain why the simple supply-and-demand model is inapplicable.

First, these arguments misunderstand the goal of rent regulation. In part, it is to preserve the supply of affordable housing. But it also recognizes the legitimate interest of long-term tenants in remaining in their homes. A rented house or apartment is still a family’s home, which they have a reasonable expectation of remaining in on terms similar to those they have enjoyed in the past. Just as we have a legal principle that people cannot be arbitrarily deprived of their property, and just as many local governments put limits on how rapidly property taxes can increase, a goal of rent control is to give people similar protection from being forced out of their homes by rent increases. 

Second, and related to this, there is a social interest in income diversity and stable neighborhoods. In the absence of rent control or other measures to control housing costs, an area that sees rising productivity or improved amenities may see a sharp rise in rents and become affordable only for higher-income households. Besides the questions of equity this raises, there are economic costs here, as it becomes difficult for people holding lower paid jobs to live within commuting distance; an area that becomes more homogenous may also lose the social and cultural dynamism that caused the improvement in the first place. Similarly, the evidence seems clear that in the absence of rent regulation, turnover among tenants will be higher, leading to less stable communities and discouraging investment by renters in their neighborhoods. The absence of rent regulation may also create political obstacles to efforts to increase housing supply, attract new employers, or otherwise improve urban areas, since current residents correctly perceive that the result of any improvement may be higher rents and displacement. Rent regulation removes these conflicts between the social interest in thriving, high-wage cities and the interests of current residents. This makes it an important component of any broader urban development program.

Third, rent regulations in general affect only increases in rents. When a new property comes on the market, landlords can charge whatever the market will bear. And when they make major improvements, again, most existing rent regulations, including the current Jersey City law, allow them to recapture those costs via higher rents. So what rent control is limiting are the rent increases that are not the result of anything the landlord has done — the rent increases that result from the increased desirability of a particular area, or of a broader regional shortage of housing relative to demand. There is no reason that limiting these windfall gains should affect the supply of housing.

Fourth, in many high-cost areas, housing supply is relatively fixed. The reason that existing homes in many large cities cost multiple times more than the costs of construction, is that the ability to add new housing in these areas is very limited, by some mix of regulatory barriers like zoning, and physical or economic barriers. In economists’ terms, the supply of housing in these areas is inelastic  – it doesn’t respond very much to changes in price. This fact is widely recognized, but its implications for rent regulation are not. In a setting where the supply of new housing is already limited by other factors  – whether land-use policy or the capacity of existing infrastructure or sheer physical limits on construction –  rent regulation will have little or no additional effect on housing supply. Instead, it will simply reduce the monopoly profits enjoyed by owners of existing housing.

Fifth, housing is very long-lived. According to the Bureau of Economic Analysis, the average age of a tenant-occupied residential structure in the US is 42 years. In much of the northeast and in older cities, the average age will be greater. The fact that housing lasts this long has important implications. No one constructing new housing is thinking about returns that far out. Most business investment is expected to repay its costs in less than 10 years. Housing construction may have a longer payback period — as we know, much construction is financed with 30-year mortgages. But the rents 40 or more years in the future are simply not a factor in the construction of new housing.  This means that there is a great deal of space to regulate the rents on existing housing without affecting the decision to build or not build

The bottom line is that rents in the everyday sense are often also economic rents. When economists use the term rent, they mean a payment that someone receives from some economic activity because of an exclusive right over it, as opposed to contributing some productive resource. When a landlord gets an income because they are lucky enough to own land in an area where demand is growing and new supply is limited, or an income from an older building that has already fully paid back its construction costs, these are rents in the economic sense. They come from a kind of monopoly, not from contributing real resources to production of housing. And one thing that almost all economists agree on is that removing economic rents does not have costs in terms of reduced output or efficiency. 

Finally, I would like to offer a few design principles for rent regulation, based on my read of the literature.

First, rent control needs to be combined with other measures to create more affordable housing. The main goals of rent regulation are to protect renters’ legitimate interest in remaining in their homes; to advance the social interest in stable, mixed-income neighborhoods; and to curb the market power of landlords. Other measures, including subsidies and incentives, reforms to land-use rules, and public investment in social housing, are needed to increase the supply of affordable housing. These two approaches should be seen as complements.

Second, there are good reasons that most existing rent control focuses on rent increases rather than the absolute level of rents. Rent control structured this way allows new housing to claim the market rent, giving the developer a chance to recover the costs of construction. Rent increases many years after the building is finished are more likely to reflect changes in the value of the location, rather than the costs of production. From the point of view of allowing existing tenants to remain in their homes, it is also makes sense to focus on increases, rather than the absolute level of rents.

Third, since rent regulation is aimed at the monopoly rents claimed by landlords, it should allow for reasonable rent increases to reflect increased costs of maintaining a building. At the same time, there is a danger that landlords will engage in unneeded improvements if this allows them to raise rents more than they would otherwise be allowed to. A natural way to balance this is to adjust the allowable rent increase each year based on some measure of average costs or a broader price index, as in the current Jersey City law.

Fourth, for rent control to be effective, tenants also need to be protected from the threat of eviction or other pressure from landlords. To give renters genuine security in their homes, they need an automatic right to renew their lease, unless the landlord can demonstrate nonpayment of rent or other good cause.

Fifth rent control is more likely to have perverse effects when the controls are incomplete. When rent regulations do reduce the supply of affordable rental housing, this is typically because they have loopholes allowing landlords to escape the regulations. In particular, vacancy decontrol or allowing larger rent increases on vacancy significantly reduces the impact of rent control and may encourage landlords to push out existing tenants. There is also some evidence that landlords seek to avoid rent regulation by converting rental units into units for sale. To avoid these kinds of unintended consequences, rent regulations should be as comprehensive as possible, and options to remove units from the regulated market need to be closed off wherever possible. 

Thank you.

The Return of the Renter

Every month, the Census releases new numbers on new housing construction. As an indicator of current economic conditions, June’s numbers didn’t give any dramatic news one way or another. But they did highlight a trend that I think should get more attention: the decline of single-family housing in the US.

To market watchers, housing is an important sign of business cycle turning points. A well-known article argues that Housing Is the Business Cycle.  From this point of view, June’s numbers were not very informative. They told the same story the last several months’ did: After steadily rising from the end of the recession, housing construction has stabilized — housing starts and permits issued have been basically unchanged since early 2017. Last month’s housing starts were almost exactly the same as last summer’s. The fact that housing construction is no longer rising might perhaps be seen as a sign of economic weakness; but it’s hard to take it as a sign of a crisis or imminent downturn.But pulling back from the month by month variation, the most recent numbers reflect two related trends that may be more important than the ups and downs of the business cycle.

The first trend is the secular decline in housing construction. Housing starts, while higher than  a few years ago, are still very low by historical standards — not just compared with the boom period of the 2000s, but with most earlier periods as well. On a per capita basis, new housing construction is at a level seen only at the bottom of the worst recessions before 2007.  Compared with an annual average of 6.5 new units per thousand people in the 1980s and 1990s, the current rate is less than 4 per thousand, and shows no sign of returning to the old rate.

It’s hard to say how much this decline in new housing construction is a specifically post-bubble-and-crisis phenomenon, and how much it reflects longer-term trends. People sometimes suggest that low rates of housing construction are the flipside of the housing boom of the 2000s. There was a strong case for this in the years immediately after the recession, when the fraction of vacant houses was well above historical levels. But since then, the inventory of vacant houses has come down toward more normal levels.

Meanwhile, if we look at new housing construction per capita over a longer period, there is a fairly steady long-term decline – it’s not clear that the most recent period is exceptional. If you draw an exponential trend from 1959 through 1999 (the start of the housing bubble), as shown in the figure below, the current level of housing starts falls right on that trend. And relative to the shortfall in new construction during 2008-2015 is not too much greater than the excess of new construction during 1999-2007. To put it another way, the percentage decline in housing starts per capita over the past 20 years, is not much bigger than the average decline over any 20 year period since the 1950s. 

Of course, this is just one way of looking at the numbers. There are many ways to draw a trend! And one might argue that, historically, the top of a boom should see new housing starts well above trend, suggesting that the recent decline is something new after all. You might also reasonably wonder whether the long term trend has any substantive meaning at all. The political economy of housing the 1950s and 1960s was different from today on all sorts of levels. It wouldn’t be hard to look at the same data in terms of a structural break, rather than — or in addition to — a downward trend.

For macroeconomic purposes, though, it doesn’t necessarily matter. Whether it reflects the ongoing effects of the subprime crisis  or whether it reflects longer-term factors — slowing population growth, an aging population, the end of suburbanization – or whether it’s some mix of both, the decline in new housing construction remains an important economic fact.

Among other things, it is important for macroeconomic policy. Mortgage lending is central to the financial system: Housing accounts for over 70 percent of household debt, and housing finance plays a central role in financial instability. Conversely, residential construction is the economic sector most sensitive to financial conditions, and to monetary policy in particular. So the shrinking weight of housing in the economy may be a factor in the Federal Reserve’s inability to restore growth and full employment after the crisis. Looking forward, if conventional monetary policy works primarily through residential construction, and residential construction is a permanently smaller part of the economy, that is another argument for broadening the Fed’s toolkit.

Housing construction may be down for the count, at least compared with historical levels. But — and this is the second trend – it is not down across the board. The recent decline is limited to single family housing. Multifamily construction has been quite strong, at least by the standards of the post-1990 period. Compared with the two decades before 2007, single-unit housing starts in the past year are down by a third. Multifamily starts are up by a third. Per capita multifamily housing starts are actually higher than they were at the height of the housing boom. These divergent trends imply a major shift in the composition of new housing. Through much of the 1990s, less than 10 percent of new housing was in multifamily projects. Today, the share is more like 30 percent. This is a dramatic change in the mix of housing being added, a shift change visible across much of the country in the form of suddenly-ubiquitous six-story woodframe apartment buildings. The most recent housing data released suggests that, if anything, this trend is still gathering steam: A full third of new housing in June was in multifamily buildings, an even higher proportion than we’ve seen in recent years. In the areas that the Census designates as metropolitan cores, the shift is even more dramatic, with the majority of new housing units now found in multifamily buildings. 

The shift in new construction away from single-family houses is consistent with the decline in homeownership. At 64 percent of households, the share of homeowners is 5 points lower than it was in the mid-2000s. In fact it’s back almost exactly where it was 30 years ago, before the big expansion in homeownership of the 1990s and 2000s. 

To be sure, multifamily housing and rental housing are not the same thing. But there is a very substantial overlap. Over 80 percent of detached single-family homes are owned by their occupants. Less than 20 percent of units in larger buildings are, and the share drops as the number of units in the building rises. While homeownership rates have fallen across the board over the past decade, these relative patterns have not changed. (See the figure below.) So it’s fair to say that the decline of homeownership and the shift toward multifamily developments are, if not the same trend, at least closely linked.The aggregate figures understate the decline in homeownership, because over this period the population has also been aging, and older families are much more likely to own their homes. (For a good discussion of these trends, see here.) For younger families, homeownership rates are lower than they have been in many decades. Compared with 40 years ago, homeownership rates are substantially lower for every age group except those 65 or older. Even compared with a decade ago, there has been a substantial fall in homeownership rates in younger age groups. As a result, the typical homeowner today is much older than in the past. Only a quarter of US homeowners today are younger than 45, compared with nearly half in the 1980s.

The same pattern is visible over the post-housing crash period, as shown in the figure below. Among those aged 30-44 – the ages when most Americans are starting families – the rate of homeownership is nearly 10 points lower than it was just a decade ago. The shift in housing construction toward multifamily buildings reflects the fact that Americans in their prime working years are much more likely to be renters than they used to be. This shift is important for politics as well as the economy. Tenant organizations were once an important vehicle for mass politics in American cities. In the progressive imagination of a century ago, workers were squeezed from one side by landlords and high rents just as they were squeezed from the other by bosses and low wages.   

After World War II, the focus of housing politics shifted away from tenants’ rights, and toward broadening access to home ownership. This shift reflected a genuine expansion of homeownership to middle class and working class families, thanks to a range of public supports — supports, it should be noted, from from which African-Americans were largely excluded. But it also reflected a larger vision of democratic politics in terms of a world of small property owners. Homeowners were expected — not without reason — to be more conservative, more ready to imagine themselves on the side of property owners in general. As William Levitt, developer of the iconic Long Island suburb, is supposed to have said: “No man who owns his own house and lot can be a communist.”

The idea of a property-owning democracy has deep roots in the American political imagination, and can be part of a progressive vision as well as a conservative one. Baby bonds – an endowment or grant given to everyone at the start of their life — are supposed to be a way to broaden property ownership in a way that opens up rather than shuts down possibilities for radical change. Here for example is Darrick Hamilton in his 2018 TED Talk. “Wealth,” he says, 

is the paramount indicator of economic security and well-being. It provides financial agency, economic security… We use words like choice, freedom to describe the benefits of the market, but it is literally wealth that gives us choice, freedom and optionality. Wealthier families are better positioned to finance an elite, independent school and college education, access capital to start a business, finance expensive medical procedures, reside in neighborhoods with higher amenities… Basically, when it comes to economic security, wealth is both the beginning and the end.

Descriptively, there’s certainly some truth to this. And with homes by far the most important form of middle-class wealth, policies to promote homeownership have been supported on exactly these grounds. Homeowners enjoy more security, stability, a cushion against financial setbacks, and the ability to pass their social position on to their children. The policy problem, from this point of view, is simply to ensure that everyone gets to enjoy these benefits. 

One way to keep people secure in their homes is to allow more people to own them. This has been the focus of US housing policy for most of the past century. But another way is to give tenants more of the protections that only homeowners currently enjoy. Outside a few major cities, renting has been assumed to be a transitory stage in the lifecycle, so there was little reason to worry about security of tenure for renters. A few years ago I was a guest on a radio show on rent control, and I suggested that apart from affordability,  an important goal of rent regulation was to protect people’s right to remain in their homes. The host was genuinely startled: “I’ve never heard someone say that a person has the right to remain in their home whether they own it or not.”

There are still plenty of people who see the decline in homeownership as a problem to be solved. But the shift in the housing stock toward multifamily units suggests that the trend toward increased  renting is unlikely to be reversed any time soon. (And even many single-family homes are now owned by investors.) The experience of the past 15 years suggests that, in any case, home ownership offers less security than we used to think.

If more and more Americans remain renters through their adult lives, the relationship with the landlords may again approach the relationship with the employer in political salience. Strengthening protections for tenants may again be the basis of political mobilization. And people may become more open to the idea that living in a place, whether or not you own it, gives you a moral claim on it — as beautifully dramatized, for example, in the 2019 movie The Last Black Man in San Francisco. 

We may already be seeing this shift in the political sphere. In recent years, there has been a resurgence of support for rent regulation. A ballot measure for statewide rent control failed in California, but various bills to extend or strengthen local rent regulation have gotten significant support. Oregon recently passed the nation’s first statewide rent control measure. And in New York, Governor Cuomo signed into law a sweeping bill strengthening rent regulation where it already exists — mainly New York City – and opening the way for municipalities around the state to pass their own rent regulations.

The revival of rent regulation reflects, in the first instance, political conditions – in New York, years of dogged organizing work by grassroots coalitions, as well as the primary defeats of most of the so-called Independent Democratic Conference, nominal Democrats who caucused with Republicans and gave them control of the State Senate. But it is not diminishing the hard work by rent-regulation supporters to suggest that the housing-market shift toward rentals made the terrain more favorable for them. When nearly half the population are renters, as in New York State, there is likely to be more support for rent regulation. The same dynamic no doubt played a role in the opposition to Amazon’s new headquarters in Queens: For most residents, higher property values meant higher rents, not windfall gains. 

To be sure, the United States is not (yet) New York. The majority of American families still live in homes they own. But as the new housing numbers remind us, it’s a smaller majority than it used to be, and likely to get even smaller in the future. Which suggests that, along with measures to democratize property-ownership, there is a future for measures like rent control, to ensure that non-property owners also have a secure claim on their part of our common wealth.


(Figures 1, 3 and 4 are my analysis of series from FRED: HOUST, HOUST1F, COMPUTSA, and POPTHM. Figure 2 is from the Census Housing and Vacancy Survey. Figures 5 and 6 are my analysis of ACS data.) 

Pity the Landlord

So, speaking of rent control, here’s an article on San Francisco’s system. It’s pretty much the usual — the headline bleats that rent control “subsidizes the super rich,” a claim for which no evidence is presented unless you count an income of $100,000 as super-rich, which in San Francisco, um, no. And then there’s the sob stories of “mom and pop” landlords. Apparently, by some unexplained moral calculus, because some landlords own just a few units and have blue-collar backgrounds, the City of San Francisco should pursue higher rents as a policy goal.

Noni Richen, a former school cafeteria cook, and her husband, who once worked on the Alaskan pipeline, put their life savings into buying a four-unit Western Addition apartment building in the 1980s. “We had $20,000,” Richen said. “That was a lot of money to us, and we put that down.”

I am, let’s say, unsympathetic. (How much do you think that building is worth today?) But from another perspective, this is directly relevant to the previous post. There are strong political as well as market pressures that keep asset returns above some minimum acceptable level. Is Noni Richen the liquidity trap? In a sense, yes, she is.

Anyway!

That’s not what I’m writing about. What I’m writing about is the claim that a large share of rent-regualted units are occupied by high-income households, making it a perverse form of redistribution. Is that true?

I don’t know about San Francisco, but in New York this is an easy question to answer. The city’s Housing and Vacancy Survey gives very detailed breakdown of rental units by rent regulation status, including the residents’ incomes. And… here we go:

Income
Rent-Regulated Apartments
Market-Rate Apartments
All Households
under $25,000
37.3%
27.3%
27.9%
$25,000 to $50,000
25.6%
25.5%
22.1%
$50,000 to $100,000
25.2%
28.3%
27.0%
over $100,000
6.7%
12.1%
23.1%
Median
35,531
46,000
50,038
Mean
52,157
71,307
77,940

In other words, compared with the city as a whole, rent-regulated tenants are only moderately more likely to be poor, but they are much, much less likely to be rich. So can we nip this meme in the bud, before it spreads to the East Coast? Rent control is not a subsidy for super-rich tenants at the expense of their hardscrabble landlords. It’s a way of stabilizing middle-class and working-class neighborhoods in the face of gentrification, just like it says on the tin.

A Quick Note on Rent Regulation

I really want to write about the household debt-dynamics paper, but first a quick followup to yesterday’s rant:

Even more fundamental than the arguments I mentioned yesterday, the thing about rent control is that rents contain an element of, well, rents. (Separating the two senses of the word so cleanly has got to count as a big victory for right-wing ideology in economics.) This is especially true because buildings are so fricking long-lived. The average age of a multi-unit residential structure in the United States is about 30 years. In most cities with rent regulations, it’s much higher. For instance, the building I live in was built in 1902. The significance of this is that, even if an asset lasts forever, the share of its present value — which is what matters for the decision to buy/build it — that comes from the later years of its life goes arbitrarily close to zero. Say the discount rate is 6 percent. Then 95 percent of the value of a perpetuity comes from the returns in the first 50 years. 99.7 percent comes from returns in the first 100 years. In other words, even if the exact future rents of the building over its whole life were known with certainty, the rent being paid today would have had essentially zero effect on the decision to undertake the expense of  putting up my building 110 years ago. Which means that it is not in any way compensation for that expense. Which means — apart from the costs of maintenance and improvements, which rent regulations always allow landlords to recoup — the rent I am paying is pure economic rent.

(This, by the way, is how economics classes should frame the question of rent control. Students would actually learn something! — like about discount rates, and the age of the capital stock. Just wait til I write my textbook.)

So the Econ 101 point isn’t just a gross oversimplification — tho it is that — it’s substantively wrong even in its own abstract terms. It’s analyzing the market for the services of very long-lived assets as if it were the market for currently produced goods and services. In some respects, apartment buildings are analogous to intellectual property. The difference, of course, is that charging market rents doesn’t (usually) result in apartments being left unoccupied, so there aren’t the same kind of efficiency losses from enforcing perpetual property rights in apartment buildings that there are from perpetual copyrights. But there aren’t efficiency gains, either; it’s purely a distributional question. Regulation that only limited rents in buildings older than 50 years (which, as it happens, is more or less what we have) wouldn’t have any effect on the supply of new housing, it would be a pure transfer from landlords to tenants.

Of course, the landlords are still in control of the buildings, so they’ll allocate units somehow, just not on the basis of price. The haters will say that it will be on the basis of race/ethnicity and social ties; more plausibly, it will be on evidence of  responsibility, sobriety, steady habits, etc. (which, ok, sometimes the same thing); or maybe it will just be by luck. But in any case housing will be more available to those with less income, which is pretty much what affordable means.

(And then we should really get into the actual circumstances that precipitate rent control, namely an unforeseen increase in housing demand, together with regulations that (for better or worse) make it hard to increase the supply. Obviously, to the extent that a windfall increase in demand for housing in a given area (perhaps even in part thanks to their existing tenants) increases rents, and new entry is difficult, landlords are recipients of pure monopoly profits which can be taxed or regulated away at no social cost. That rent regulations are almost always part of a second-best solution in the context of other, development-restricting regulations that boost market rents, should also be a staple of intro textbooks. It isn’t.)

Economists: Actively Evil Neoliberal Ideologues or Soulless Technocratic Hacks?

… or in other words, does economics (as it’s currently constituted) inherently promote a vision of markets for everything and no rights but property rights? (A vision that, obviously, conforms nicely to the interests of the owners of capital.) Or is the role of economics in upholding neoliberalism mainly the work of apolitical technicians, administrators and scientists manques, who could just as comfortably supply arguments for more regulation and a larger public sector if that’s what those in power were asking for?

Well, like nature vs. nurture, or whether to get the sweet brunch or the savory, it’s a debate that will never be fully resolved. (Go with savory, unless you’re, like, 12 years old.) But new evidence does sometimes come in.

Like those those polls of economists that the University of Chicago business school does; has everybody seen those? For those of us who’ve been debating this question, these things are a gold mine.

The latest question, on rent control, has Peter Dorman rightly exercised. As he points out, the question — whether rent regulations have had “a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them” — omits the genuine goal of rent regulation, neighborhood stabilization:

The most compelling argument for rent control is neighborhood stabilization, the idea that social capital in an urban environment requires stable residence patterns.  If prices are volatile, and this leads to a lot of residential turnover, the result can be a less desirable neighborhood for everyone.  … not a single textbook treatment of rent control mentions stabilization as an objective, even though this is a standard element in the real-world rhetoric surrounding this issue. 

I would just add that a diversity of income levels in a neighborhood is also a goal of rent regulation, as is recognizing the legitimate interest of long-time tenants in staying in their homes. (Not all rights are property rights!) So by framing the question purely in terms of the housing supply, the Booth people have already disconnected it from actual policy debates in a way favorable to orthodoxy. Anyway, no surprise, orthodoxy wins, with only a single respondent favoring rent regulation. (And I think that one might be a typo.) My favorite answer is the person who said, ” Rent control will have similar effects to any price control.” That’s the beauty of economics, isn’t it? — all markets are exactly the same.

Some of the other ones are even better. Check out the one on education, which asks if all money currently being spent on K-12 education should be given out as vouchers instead. (Why not cash?) By a margin of 36 to 19 (or 41 to 23 when the answers are weighted by confidence) the economists vote, Hells yeah, let’s abolish the public school system. Presumably they’re mostly reasoning along the same lines as Michael Greenstone of MIT: ” Competition is likely beneficial on average. Less clear that all students would benefit leading to tough questions about social welfare functions” — which doesn’t stop him from signing up in favor of vouchers. The presumed benefits of competition are dispositive, while distributional questions, while “tough” in principle, can evidently be ignored in practice. On the other hand, props to Nancy Stokely of the U of C (strongly agree, confidence 9 out of 10) for spelling it right out: “It’s the only way to break the unions.” (Yes, that’s what she wrote.) So, hardly definitive, but definitely some ammo for Team Ideologue.

People sometimes say that academic economists just reflect the views of the country at large, or even the more-liberal-than-median views of other academics or educated professionals. And on some issues, that’s certainly true. (Booth also gets a solid majority in favor of drug law reform.) But come on. Replacing the public school system with vouchers is a far-right, fringe position in almost any significant demographic — except, it would seem, professional economists.

Back to rent control. Jodi Beggs enthusiastically endorses the consensus, but her conscience then compels her to add:

Techhhhhnically speaking [1], if none of the housing in an area was deemed “affordable” before the price ceiling, then the price ceiling could, I suppose, increase the quantity of affordable housing. (In fact, Pinelopi Goldberg specifically points this out.) [True. Goldberg’s answers in general are a beacon of sanity.] In most realistic cases, however, the rent control laws are going to make builders think twice about putting up residential properties and make potential landlords think twice about getting into the rental business. 

It’s awfully hard not to read the drawn out adverb as a parapraxis, indicating resistance to the heretical thought that, in fact, economic theory gives no answer to the question of whether rent control laws increase or decrease the supply of affordable housing. More concretely, Begg’s “realistic cases” are a figment of her imagination, or rather her ideology; in all actual cases rent control laws, at least in major American cities (there are only a couple) only apply to units built before a certain date. In New York City, for instance, rent regulations DO NOT APPLY to anything built since 1974. Hard to believe that builders are thinking twice about putting up new buildings because of rent stabilization, when it hasn’t applied to new buildings in nearly 40 years. But hey, why should you have to actually know something about the policy you’re discussing, to walk through the old familiar supply and demand graphs showing why Price Controls Are Bad?

“Nothing dulls the mind,” says Feyerabend, “as thoroughly as a sequence of familiar notions.”

(I can’t resist putting down the quote in full:

Writing… [is] almost like composing a work of art. There is some overall pattern, very vague at first, but sufficiently well defined to provide … a starting point. Then come the details — arranging the words in sentences and paragraphs. I choose my words very carefully — they must sound right, must have the right rhythm, and their meaning must be slightly off-center; nothing dulls the mind as thoroughly as a sequence of familiar notions. Then comes the story. It should be interesting and comprehensible, and it should have some unusual twists. I avoid “systematic” analyses. The elements hang together beautifully, but the argument itself is from outer space, as it were, unless it is connected with the lives and interests of individuals or special groups. Of course, it is already so connected, otherwise it would not be understood, but the connection is concealed, which means that, strictly speaking, a “systematic” analysis is a fraud. So why not avoid the fraud by using stories right away?)