Sunday, June 16, 2019

Real estate ups and downs

In a delightfully YIMBY "Americans Need More Neighbors" the New York times gets it almost all right.
Housing is one area of American life where government really is the problem. The United States is suffering from an acute shortage of affordable places to live, particularly in the urban areas where economic opportunity increasingly is concentrated. And perhaps the most important reason is that local governments are preventing construction.

It goes on, even noting flagrant progressive hypocrisy
Increasing the supply of urban housing would help to address a number of the problems plaguing the United States. Construction could increase economic growth and create blue-collar jobs. Allowing more people to live in cities could mitigate inequality and reduce carbon emissions. Yet in most places, housing construction remains wildly unpopular. People who think of themselves as progressives, environmentalists and egalitarians fight fiercely against urban development, complaining about traffic and shadows and the sanctity of lawns. 

It noticed the sordid racial past of zoning restrictions
... many residents said they were surprised to learn that single-family zoning in Minneapolis, as in other cities, had deep roots in efforts to enforce racial segregation. Cities found that banning apartment construction in white neighborhoods was an effective proxy for racial discrimination, and the practice spread after it was validated by the Supreme Court in 1926. 
Heavens, it even allows for the freedom to spend money, as long as it's not subsidized
People should be free to live in a prairie-style house on a quarter-acre lot in the middle of Minneapolis, so long as they can afford the land and taxes. But zoning subsidizes that extravagance by prohibiting better, more concentrated use of the land. 
Usually I would expect the NYT to jump on the opposite bandwagon and prohibit such houses.  The NYT even realizes that more market-rate apartments is the best way to provide more low priced housing

OK, the Times being the Times, it has to argue for some vast new subsidy,

 Governments need to provide subsidized housing for people who cannot afford market-rate housing. 
But here too, it gets a lot right. The bulk of the long oped is not about repeating the disaster of public housing projects, or more "affordable housing" mandates. It's just about build -- move the supply curve to the right. Berating its own a little more, it recognizes substitution and depreciation
...advocates for affordable housing should be jumping up and down and screaming for the construction of more high-end apartment buildings to ease demand for existing homes. Those new buildings are filled with people who would otherwise be spending Saturdays touring fixer-uppers in neighborhoods newly named something like SoFa, with rapidly dwindling populations of longtime residents.
Today’s market-rate apartments will gradually become more affordable, just as new cars become used cars. 
Meanwhile, in progressive political reality, and lest you get too optimistic, the Wall Street Journal, in a spectacularly mis-titled article, covers New York State's new rent control law. The title is "New York Passes Overhaul of Rent Laws, Buoying Wider Movement to Tackle Housing Crunch"  It's not an overhaul, it's a massive expansion, and it will not tackle the housing crunch, but it will make it spectacularly worse.
The New York legislation brings increased power to tenants in roughly one million rent-regulated apartments in New York City. It makes it more difficult for the owners of those apartments to increase rents, while enabling more tenants to sue landlords for rent overcharges. Also, tenants around the state will have more protections against eviction.
Proposals to limit rents are advancing in a number of state legislatures, including in California, where a statewide cap on rent passed the California Assembly in May, and in Oregon, which passed the nation’s first statewide rent control in February, limiting annual rent increases to 7% plus local inflation.
The times will probably get its way on housing subsidies, already a popular idea here in California. Imagine a subsidy for any house or rent above 30 percent of your income, plus a continued block on new construction.

It's interesting that economists spend a lot of attention on the minimum wage, and less on rent control plus housing supply restrictions. I guess nobody has made a big stir with a diff in diff regression claiming that rent control doesn't shrink housing supply. Perhaps someone should, just to ge the outrage going.

And, if you're wondering about the wealth tax, it's here. A limit on rents is a pure tax on the landlord's  property, transferring its value to the current renter, but destroying much of that value along the way.


  1. "rent control appears to be the most efficient technique presently known to destroy a city — except for bombing."

    Assar Lindbeck

    Governments pass anti-landlord legislation and then are surprised when no one builds rental apartment buildings.

  2. When I lived in Minneapolis in the 1980s the goal (from city officials) was to reduce housing density while building up downtown. Meanwhile they were talking about building SRO (sleeping room only) apartments because urban renewal had torn down the older buildings providing cheap one room apartments.

  3. i think a couple of fixes would go a long way. The imposition of rent control should be considered a taking and the rent controlling government should be required to compensate them for their loss in value.

    We also need a federal push to increase the housing supply. We should withhold all federal housing aid to any city where the growth in population is faster than the growth in the housing supply. If a city isn't willing to let the supply of housing grow, we shouldn't be subsidizing people's rents there.

  4. Great post.

    As a practical matter, it is often true that rent control does not constrain new supply, but property zoning does.

    In Los Angeles, for example, new residential construction is not rent-controlled. Given the exorbitant rents, there is plenty of incentive to build housing in Los Angeles. But it remains a criminal act to build dense housing in most of Los Angeles, due to property zoning.

    The sad reality is there is little to no chance that America's cities will unzone property. Show to me the owner of a single-family detached homeowner who longs for a 10-story condo with ground-floor retail, being constructed directly across the street. It has been said that there are no free-marketeers-Libertarians when neighborhood property-zoning is under review

    If this is the reality, that America's cities will be permanently zoned, is rent control on extant stock a reasonable palliative?

    Be that as it may, I salute John Cochrane for a balanced approach to the issue.

    1. I think the spectre of rent control being passed at anytime in LA is a big negative incentive to build.

  5. Normally I would be shaking my head and tsk tsk-ing about the stupidity of it all....except I am truly surprised that the New York Times has come as far as it has in understanding the market distortion that is the cause of the problem.

    Of course, you did point out the request for further subsidy. Two steps forward, one step back, I suppose.

    The legislatures in these states are still legislating out of economic ignorance. But if the Times can get a glimpse of the truth, often enough and for long enough, perhaps other progressives will eventually enter the promised land...., not for a long while.

  6. I'm trying to figure out if there is a silver lining to NY, CA, and other usual suspects' laws on rent control, and in the offing, heightened minimum wages. How's this? Both states will lose population more rapidly than heretofore. Will be less able to finance their dysfunctional giveaways. Lose electoral votes. Looks OK for the long run so long as states are not bailed out by the Feds. Except for all the poor people who have to pay moving costs. But what politico ever cared about them? :-(

  7. The link //

  8. Sometimes building restrictions are a good thing, as when it prevents roads from becoming overcrowded.

  9. ... houses are built with 15th century tech, cars 21st century and planes 20th century (baaed on idisyncrasies of regulation, human nature and "culture"). Let there be housing innovation. Please don't tell me why I can have cars costing $15K and can face tornadic forces with a fraction of an inch steel shell and can relocate anywhere! but houses should cost 100s of thousands with lousy quality?

  10. Just issue a decent land value tax. It has no distortionary effects; unlike capital land is static so it makes a lot of sense to implement such a tax with no negative incentive effects.
    And it is a decent from of rent control. Not rent in the sense of renting an apartment but economic rent. There is no reason at all that somebody who owns a piece of a land in a huge city should profit from owning that piece of land which is only so valuable because everybody has publically invested into creating a decen urban infrastructure without which this very piece of land would be borderline worthless.


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