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Tyrone on rent control
Johan Almenberg, a loyal MR reader, asked me to ask Tyrone why rent control is a good idea. I walked over to Tyrone's crawl space, knocked, and posed the query. He ridiculed me and told me the question was really not worth his while:
You Troglodyte, surely you know the happiness literature shows that better or larger living quarters don't make people much happier. It's one of the pleasures we most quickly get accustomed to. So if rent control pushes everyone into a lower price, lower quality equilibrium for residences, that's for the better. If you want high cost living, go to Monaco or Aspen; low rents were what made New York City great. The greatest American city, during the highest cultural peak of its existence, had lots of binding rent control.
Rent control also encourages new or refitted buildings to have a greater number of smaller units. In other words, it brings more population to the city and we all understand the external benefits from having more people around. Furthermore the external social benefits of cities are highest for the elderly poor, who can't afford cars and would require external aid, and bagel-seeking young'uns, high in human capital, low in liquid wealth, and able to do great things for the world if only they are removed from the suburbs. That's exactly who rent control puts into your city.
Johan himself offers an interesting argument:
...if rent control makes it harder to live in a particular city temporarily, this encourages long-term commitments. This, in turn, could increase the repeated-game character of that city, which in turn could be good for cooperation. These sort of arguments – admittedly vague – tend not to get mentioned.
Did I mention that Tyrone is biased, because he lives under rent control himself? That's right, he lives upstairs in the crawlspace. It is the strongest force in the world that won't let me charge him a price any higher than zero. And the resulting arrangement seems to work out just fine.
Posted by Tyler Cowen on December 8, 2007 at 07:39 AM in Economics | Permalink
Comments
Hmm, a defense that relies on Jackson Pollock.
Posted by: josh at Dec 8, 2007 10:36:50 AM
All the benefits of rent control accrue to incumbents at the expense of new entrants. It's a wealth transfer from one generation of tenants to another.
Posted by: at Dec 8, 2007 11:13:27 AM
But that is not all it is, since Rent Control also discourages the construction of new property. While it is true that people quickly get used to more space, limiting the available space in New York does not limit it elsewhere, and New Yorkers visiting friends in Chicago will see the stark contrast in living space.
Similarly, while it may encourage new units to be built smaller, it should cut down on the volume of space constructed far more than it will drive up density, thus making fewer units available, however they are organized, and thus fewer people can fit in the city than otherwise.
Posted by: LoneSnark at Dec 8, 2007 11:19:33 AM
Once again it appears that I'm not economically smart enough to identify your bad arguments from your real ones if you didn't hang "Tyrone" on the posts.
Posted by: Noumenon at Dec 8, 2007 12:54:21 PM
I like Jackson Pollack, his best works are amazing(and what is presented is some of the best--not "Blue Poles" or anything but still very good) but the connection to "greatest cultural peak" is tenuous at best. And the conection between the "strongest force in the world" and evolution, well--???
Posted by: lee at Dec 8, 2007 1:03:02 PM
I wonder what Tyrone thinks about the usual practice of forbidding renters-in-possession from trading or renting their legal right of occupancy (e.g., by subletting at market prices). I am far from NYC, so when Tyrone puts on his wise economic planner hat and calculates that the benefits to the bagel-seeking and the elderly outweigh the costs imposed on others, who am I to second-guess him? But what if the bagelderlies themselves second-guess him? Does he believe that his calculation is so reliably exact that the tenants benefit from being forbidden to exchange their de-facto ownership rights for things they judge to be more valuable? If so, why? And if not, how does he like it over here on the subversive libertarian side?
Posted by: William Newman at Dec 8, 2007 1:40:26 PM
Nice post. Two things:
1. Could we get some background on Tyrone's anthropological makeup?
2. Could you please have Alex ask Axel to comment on 'The Golden Compass'?
Posted by: Bill at Dec 8, 2007 1:55:57 PM
For a while now I have been casually trying to build a model where poor renters are hostile to public goods because the provision of public goods will raise rents and force them out. Rent control thus acts as coalition-building for the provision of public goods. I think it works and is reasonably realistic. Thoughts?
Posted by: asdf at Dec 8, 2007 2:25:44 PM
It's not obvious that the "lower price, lower quality equilibrium" is in fact an equilibrium.
It's also not obvious that more people are always good on the margin. There is probably some population of NYC, for example, that balances the positive effects of having a lot of people (i.e. better restaurants, theaters, etc) with the negative effects of congestion (e.g. traffic, parking, waiting for tables at restaurants, etc). It seems that rent control would have a difficult time striking that balance.
Posted by: Scott W at Dec 8, 2007 4:01:27 PM
Mike O'Hare has a very good rebuttal to this post at: http://www.samefacts.com/archives/_/2007/12/price_controls_in_the_funhouse_mirror.php
He and his fellow bloggers have decided they don't want the mud of comments sticking to their skirts anymore, so there's no chance to talk about it there. My own anecdotes about rent control are from Cambridge, where I lived for a number of years - a buddy of mine who was a landlord regularly took 'key money' in large amounts from people who were in Cambridge for graduate school. He was particularly fond of MBA students because he was confident that they would actually move out when their student days were over. One of the stories he told me was about one of his controlled tenants who was giving him advice on how to speculate in Krugerrands...
Any rent controlled situation, if the actual value of the unit is more than the amount you are allowed to charge for it, results in people sneaking around - people who have long since moved to New Mexico subletting their rent controlled apartment to at market rates, landlords choosing only single people without children to be tenants, etc.
asdf is right, though, that rent control does give, to the random few who get the benefit, a stake in the community like that which owners have, and leads to more community involvement. The usual problems of wanting to tax the hell out of 'the rich' to pay for nice-to-have amenities, but also involvement in ward committees, etc.
Posted by: David Schutz at Dec 9, 2007 8:42:02 AM
Tyrone's arguments are idiotic. Rent control is in fact the biggest obstacle to forming human capital as it makes living more expensive for the non-privileged young talented people. Why do you think that New York City is no longer the centre of innovations and technological progress?
Posted by: Pavel Kohout at Dec 9, 2007 11:06:48 AM
Hi, Dave (and Amy)
thanks for the props. The comments are down, and regretted, but only until our wonk figures out how to protect them from the avalanche of spam that buried them, indeed she's working on it now.
The link in your comment doesn't click, readers can try this http://www.samefacts.com and scroll down to Dec 8 afternoon.
Posted by: Michael O'Hare at Dec 9, 2007 12:28:59 PM
Only reiterating what others have mentioned, but good in theory but doesn't work that way in practice.
Those that benefit from rent control are merely the lucky. Those who happen to have parents or grandparents who never moved out of their rent controlled apartment since WWII. Rent control certainly would benefit the elderly that have been in NYC all their life but does not benefit artists or the young, bright and hungry. They are religated at this point to living out in Queens (even Brooklyn has gotten too expensive).
Also it pushes up rent elsewhere in the building so the owner can be compensated for the leeches.
Case in point, in one building I lived in there was a single guy who lived in a rent controlled apartment but he owned his own business, had a driver pick him up every morning and owned a very nice house out in the Hamptons. The rest of the apartments were not rent controlled so the rest of the building's occupants essentially subsidized this one person's lifestyle.
Also rent controlled apartments are not necessarily smaller. From the one's I have seen, at least, they actually tend to be bigger than average.
Posted by: asiequana at Dec 10, 2007 9:54:21 AM
From my experience here in Toronto, rent control means that virtually all the new buildings are condos... no one is building new apartment buildings.
Posted by: Rex Rhino at Dec 10, 2007 1:14:28 PM
There seem to be two different issues here: (1) rent control for the current tenant, whose income is below a certain threshold; and (2) inheritance rights under rent control (a different story altogether). The egregious abuses appear to come from those who have inherited the right to rent control -- how did it manage to become inheritable, anyway?
As I recall, Giuliani made some efforts to severely restrict the application of rent control. Since then -- and of course there may have been many other factors at play -- rents have only continued to increase. If a building owner knows that he can get a market-plus rent for an apartment (market plus the offset for the rent-controlled tenant(s)), won't he raise the price of all the apartments to the market-plus rate, rather than the market rate?
Posted by: Michael at Dec 10, 2007 6:38:45 PM
The argument doesn’t get “mentioned” because it is flawed.
Rent control does not encourage cooperation or long term trust building. The people that stay in the some place longer because of rent control are those who don’t really want to live there (if not subsidized), at the expense of those that have a stronger desire to live in that neighborhood.
If anything in most cities where there is a mix of rent control and parallel free market or a gray market it DISCOURAGES cooperation, by creating resentment between people. Arbitrarily giving huge rents to insiders people at the expense of outsiders is not exactly a great recipe for group solidarity.
What collectivists often misunderstand about theories about cooperation is that trust, reciprocity and solidarity are best created through voluntarily cooperation, not coercion and social engineering.
As most readers already pointed out the obvious why the idiotic policy of rent controls continues is that most voters don’t like to give away privilege.
The only other rationale for rent control is that many voters have a preference against income based segregation. As I think Cowen himself once pointed out the best way to solve that is not rent control, but allowing small (even micro) and less luxurious residencies to be mixed in the high price neighborhoods.
Posted by: Edell at Dec 10, 2007 7:53:48 PM
First, let me clarify that I am a vehement and outspoken critic of rent control. The arguments against RC are well known and utterly, utterly plausible. The idea here was simply to try to come up with some good, and economically meaningful (which doesn't have to mean plausible) arguments in favour of RC. Simply as a mental exercise.
Why? For the simple reason that the people who usually defende rent control tend to do a very sloppy job, and people who are opposed to it usually can't control their resentment toward it enough to even try to play devil's advocate for a moment. I think the comments above show exactly this - with one notable (and interesting!) exception, the comment by asdf.
But let's face it, RC has lots of supporters, at least in mild support of it, and this includes people who already own their apartments. So can we economists explain why this would be the case?
Posted by: Johan Almenberg at Dec 20, 2007 1:52:28 PM
Having just read Michael O'Hara's "rebuttal", at samefacts.com, I feel the need to make this point even more clearly. Asking an economist to give arguments AGAINST rent control is like asking a fighter pilot to ride a bicycle. Yes, the fighter pilot will most likely be able to do so, and no, this will not surprise (or impress) anyone. Especially not the econ blog readership.
Willingness to make a real effort to comprehend if there could be a sound basis to one's opponents arguments is a sign of healthy, intellectual curiosity. I believe Tyrone, as a figment of TC's imagination, fills an important role for this reason. People who claim to know with dead certainty that something is wrong because they can't think of any reason why it would be right should learn a thing or two about science.
Posted by: Johan Almenberg at Dec 20, 2007 2:14:12 PM
It seems so trivial. We live in a so called civilized sociaty.
Investors still want to have a guarenteed profit,
even if it means gouging one tenent till he or she bleeds, and/or moves on to greener pastures.
Of course the land LORD is right. and all little people must pay, that is civilized ?
It seems so trivial. We live in a so-called civilized society.
Investors still want to have a guaranteed profit,
Even if it means gouging one tenant till he or she bleeds, and/or moves on to greener pastures.
Of course the land LORD is right. And all little people must pay, that is civilized?
I know all is not right. It would be good that Land LORD could keep on raising the rent, and we could keep on paying with all the money we make.!!!!
Take care
We are here and growing stronger by the day.
Michael
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