Tyrone on rent control

by on December 8, 2007 at 7:39 am in Economics | Permalink

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.

josh December 8, 2007 at 10:36 am

Hmm, a defense that relies on Jackson Pollock.

LoneSnark December 8, 2007 at 11:19 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.

lee December 8, 2007 at 1:03 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–???

Bill December 8, 2007 at 1:55 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’?

Scott W December 8, 2007 at 4:01 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.

Pavel Kohout December 9, 2007 at 11:06 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?

asiequana December 10, 2007 at 9:54 am

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.

Michael December 10, 2007 at 6:38 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?

Johan Almenberg December 20, 2007 at 1:52 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?

MIKE December 27, 2007 at 12:11 am

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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