Rent control is also not great for labor market outcomes

I had never thought of this before:

This paper, using a novel data set on rent stabilization in New  York City, takes a first step in investigating the policy’s unintended consequences on tenant labor market outcomes, while also exploring the impact of policy awareness on those outcomes. Recognizing the potential endogeneity of living in a rent-stabilized unit, this paper uses three decades of housing vacancy data to construct an instrumental variable leveraging variation in the availability of rent-stabilized units across New York boroughs over time. The sorted effects method in Chernozhukov, Fern´andez-Val, and Luo (2018) is also applied to investigate heterogeneous effects beyond their averages. The main results demonstrate that rent-stabilized tenants are more likely to be unemployed compared with tenants in private market-rate units. These effects are particularly salient among white and high-skilled tenants.

That is from the job market paper of Hanchen Jiang of Johns Hopkins University.

Comments

Rent control has the neat side effect of adding to the ranks of NIMBY. Then they start giving the glare to every newcomer like they've been there for generations. Everybody knows the real solution is supply but NIMBY get really emotional about it.

Thanks, but I do not like slums in my neighborhood.

http://www.lulu.com/shop/corey-cananza/online-marketing-tips-and-methods/ebook/product-24312126.html

Rent control; affordable housing; all just synonyms for free stuff paid for with other people's money. It is unsustainable and unconstitutional.

One man's slum is another man's mansion

Maybe you should make your house, not my neighborhood, into a mansion for other people.

If he did make his house into a mansion for other people, your logic would dictate you can veto that action if his house was in your neighborhood.

And that’s why we have the housing problems we do.

Heard there are six million vacant housing units in the US, plus millions more lots on which the required public services exist for building millions more housing units.

The problem is most of those millions of lots and housing units are in Red America which is seeing more people fleeing than flocking to.

Are conservatives vetoing even conservatives from occupying vacant housing units and building more housing on vacant lots?

Clearly markets do not efficiently allocate people in the US in need of housing to the existing housing supply in the US, which is in excess of need.

Or it could be that 'Red' America is seeing more supply being built because they don't put crazy roadblocks in people's way - like rent control.

Oh, and California - the largest of the 'Blue' states - has net *out* emigration. It is, however, seeing a massive 'income disparity' as the only people moving in are those in the upper and those in the lower economic classes. The middle-class is bailing on it.

You own a whole neighborhood Charbes? What, no?! You mean to tell me you own one house yet demand the right to tell other people a mile away from you how to live?

You tell him comrade!! It's the government's job to tell you how to live. Who does this citizen think he is that he should have any say in his community or country?

Other citizens are allowed to build and buy homes too.

A radical idea perhaps, but your property rights end at the boundary of your property.

Finding an apartment in rent-controlled Santa Monica in 1980 was extremely complicated and took me 5 months to do. Finding an apartment in non-rent-controlled Chicago in 1982 took me a weekend.

"I had never thought of this before": thought of what? I mean, it's obvious to the meanest intelligence that those people privileged with a sub-market rent will be disproportionately disinclined to move, and that that labour immobility will bring in its train such disagreeable consequences as greater unemployment and, no doubt, working on the sly.

Agree, but I think he means that the highly skilled are more likely to be unemployed. Maybe it's the degree of specialization of skill; there could be a greater mismatch of housing and employment opportunity.

If "high skilled" means specialised then that too is unsurprising, isn't it? The rent subsidy acts as a drag on their moving to parts of the country where their specialised skills are in demand. Whereas the nature of people without specialised skills is that they can get work anywhere that there is sufficient demand for unskilled workers.

Its not 'specialization'.

Its a combination of lower-than-market rents making them immobile coupled with sufficient unemployment benefits that they feel comfortable staying on the dole rather than taking a 'less suitable' job.

'I was making 60k a year before and my rent is locked in to where it was in 2010. I'm not moving for a 40k a year job somewhere else'.

Are you aware that unemployment benefits are of limited duration, generally six months?

While labour mobility is economically efficient, it ignores the social value of people being allowed to put down roots. Even if real estate barriers are removed there are countless reasons that people would want to stay put and why society might want that as well.

Can one simultaneously favor renting over owning and favor rising (market rate) rents that renters cannot afford? It seems that renters would be resigned to frequent moves to locations that presumably are farther from the well paying jobs. That inevitably results in a segregated (by income) city. An aside, my sunbelt city recently approved the development of two high rise residential buildings that will have only what are called micro apartments (200 to 400 sq. feet). Is that the market's alternative to rent control, living in a closet?

Boomers got their McMansions, Gen Z gets roach motels. #OkBoomer

While it's true that rent control represents long discredited Big Government ideology that Boomers like Elizabeth Warren and Bernie Sanders still cling to after 40 years, it's not obvious that the current push for rent control isn't being driven by Gen Zers that just haven't learned from Boomers' mistakes of the past.

Micro apartments have been common in Hong Kong for a long time. The promotional materials for the micro apartments in my sunbelt city always depict a young single, a woman, sitting alone at her tiny desk next to her bicycle hanging from the wall. The real photos of real people living in the micro apartments in Hong Kong reveal six or eight people living together, sharing space not large enough for one. Are the living conditions why the young people in Hong Kong are protesting? Is this the future for America's cities?

No, the young people in Hong Kong are protesting the elimination of their promised alternative system to the totalitarian, government-dominated system of mainland China. Hong Kong's alternative system, which the protesters want to preserve, is the one that is consistently ranked among the top 2 in the world in economic freedom.

"market rate rents that renters cannot afford"

Where are these market-rate apartments that sit empty? If an apartment is occupied, then there must be a renter that can afford it.

"Is that the market's alternative to rent control"

The market's alternative will be to produce whatever renters demand. If something about the government approval process, however, favors micro-apartments over other types, then it would be possible for those government interventions to prevent the market from responding to renter demand.

As housing is a necessity people will pay what is required, even if it means foregoing meals, healthcare, mental health, and any elective spending, or going into debt. Just because people can pay doesn’t mean they can afford. And just because eating as much consumer income as possible is good for landlords, doesn’t make it good for society.

As long as demand outpaces supply the incentive is to develop what is most profitable. This is almost always the smallest unit bearable priced to the absolute limit of what the market can finance. The solution is still some combo of increased supply and demand control for non-residents.

Living the good life in Hong Kong: https://www.nytimes.com/interactive/2019/07/22/world/asia/hong-kong-housing-inequality.html

You sparked my curiosity, so I just looked. In my sunbelt city, about $1100 a month for 700 sq feet. It’s about 5 years old, I drive by most days, good location. Competitive finish, marble counters, etc. and excellent (9 or 10 out of 10) schools. And parking. Multiple units available today. Or there are other similar choices. Maybe you need a better city.

Define sunbelt city.

Cities in the Sunbelt of the United States.

https://en.wikipedia.org/wiki/Sun_Belt

Its an old, long-defined, term.

I'm not sure who the developer of the micro apartments in my sunbelt city is targeting, but here's a guess. Millennials prefer urban living, and many don't even have a driver's license. But housing in or near the urban core is expensive, magnified by the geography (water means that growth can go in only two directions, so housing in the burbs is far away from the core). As with most new cities, my sunbelt city has no transit to speak of. Up until the flight to the suburbs in the 1960s and 1970s, the urban core was a thriving place, with shopping, restaurants, and housing. The flight to the burbs all but eliminated living in the core, so at night the urban core workers would leave, leaving behind a ghost town. In the past 15 years or so, the city has promoted residential and other development in the core in the hopes of drawing residents. Many high and mid-rise residential buildings have been constructed, but they are expensive. Some businesses have opened to accommodate the residents, but it's been slow in coming, due in part to the absence of places for the employees in those businesses to live.

So here's my best guess about the micro apartments: they are targeted to those who work in the businesses in the core, the restaurants, the shops, the office staff, etc. These are relatively low pay positions, and they cannot afford the apartments and condos located in or near the core. By providing a place, the micro apartments, in the core they can afford, it will accelerate development of the core as a place not only to work but to live, those with relatively high paying jobs in the high rise office buildings as well as those with relatively low paying jobs in the businesses that make an area an attractive place to live. It it works, then my sunbelt city can having a thriving urban core like in older cities.

But there's a lesson here for those older cities with a thriving urban core: if the employees of the businesses that make living in the urban core appealing have no place to live, those businesses will eventually fail and the urban core will become the ghost town that was the fate of my sunbelt city in the flight to the burbs.

If cities are areas of dense population, then by definition they are relatively small. If cities are still the main engines of commerce then they will be expensive places to live in and around. These are fundamental facts that cannot really be gotten around by housing policy or anti NIMBY crusades.

"But there's a lesson here for those older cities with a thriving urban core:" Don't let your liberals use your kids in their social engineering schemes.

Micro apartments are a response to increasingly scarce development sites, or increasing land development costs. If the parcel acquisition, planning and fees is a huge burden, you will be sure to squeeze as many units out of each site. If development work is easy, you build what sells fastest.

_Evicted_ by Matt Desmond provides tantalizing clues of a possible 3rd equilibrium in which landlords set impossible rents and are incentivised to evict tenants, and basically compensated through eviction, when the tenants do not pay the impossible rent. Through greased judicial systems and laws with bonus paternalistic features.

Winds up with a strong "social credit" vibe in that an eviction record lowers a tenant's status in obtaining access to unaffordable rental properties and eventually disqualifies them. This is surely compatible with California's climate and could politically be blamed on the preexisting homeless problem if it precesses toward this equilibrium.

Explain how evictions help a landlord? I am a landlord and can tell you eviction is an expensive option to be avoided at all costs.

Whenever you read a post by anonymous/anon/shrug/bear you have to view it through the lens of white privilege.

ChisA +1 As written, this makes no sense.

I’ve read the book. Nothing he said is even remotely on par with the content.

Most likely he read a tweet by someone who read the book, and is now shoe-horning his left wing views into a thread about rent control, to paint it as a success.

Quelle surprise.

Read the book then. The incentive takes at least two forms, one in evictions shielding the landlord from beating responsibility for tenant behaviors under Wisconsin or Milwaukee law ( forget which ), and the other in capturing economic goods from the tenants directly, either leftover deposits or in rents ( typically services, property maintenance for example ) extracted in reverse from the tenants under threat of eviction.

Uh, none of that makes sense.

People who can't make rent don't have good stuff to take. People who can make rent are more valuable than the stuff in their apartment.

The *point* of renting a place to someone is that you're trading a bunch of money up front (the cost of the place) for an income stream over time.

Renters that can pay rent on time are worth multiple times their monthly rent check and landlord will put up with a lot of shit from them - none of them are kicking them out so they can pocket the deposit or nick whatever furniture they leave behind.

True. The only times evictions are good for landlords is when/if it unlocks a rent controlled unit in a growth market or occupancy encumbers a transaction

"Recognizing the potential endogeneity of living in a rent-stabilized unit, this paper uses three decades of housing vacancy data to construct an instrumental variable leveraging variation in the availability of rent-stabilized units across New York boroughs over time. The sorted effects method in Chernozhukov, Fern´andez-Val, and Luo (2018) is also applied to investigate heterogeneous effects beyond their averages."

The author needs to learn how to write in English.

Not if he wants to publish and get a tenured job.

If you want to be in the priesthood, it is very important to develop the ability to speak in ways only the other priests can understand.

Are the effects of rent control
Any different than
Prop 13 tax caps in California
Which keep people in their homes
Rather than moving to a retirement community
And selling their homes
To families.

Prop 13 is rent control on a paid off house. Just by another name.

Prop 13 allows the property owner the resources to maintain the property while rent control starves the owner of them.

The negative effects on reallocation should be the same for rent control and Prop 13. Big monetary benefit to maintaining current occupant.

It’s also not clear why we want to give resources to the property owner rather than the renter. That’s just a distributional issue (and a progressive tax scheme would seem to align with valuing the renter more highly). If the point is that rent control leads to under-investment in the quality of the housing stock, that’s a problem for regulation or we can subsidize the “good” housing stock investments to offset the low return due to rent control.

In California, we’ve gotten a mess of lock-in to the old housing stock because people don’t want to move (if they can afford it). Instead you get bigger housing on existing lots but no gain in actual housing units. This seems like subsidizing the wrong kind of housing investment, but maybe living in McMansion neighborhoods is what some folks are looking for...

". . . that’s a problem for regulation or we can subsidize the “good” housing stock investments to offset the low return due to rent control. "

So, the answer to bad regulation is to layer on more regulation. It always is. Who ever considers just repealing the bad regulation?

Then eliminate property taxes and rent control. Problem solved!

Yes, that would be an obvious effect of rent control. But within the social-democratic frame of tent control advocates, that’s not necessarily negative. The point of social democratic policies like rent control is to give workers a degree of insulation from the brutal, inhumane destructiveness of the market. If we think that community or family has value that isn’t properly captured by the market, we should enact policies that preserve community and family ties against the brutal logic of the free market — people can’t sell their children, etc.

Unemployment is only an unalloyed evil in the eyes of capitalism, which values workers only for their productive capacity. If you’re a worker and think that you might have one or two things in your life which are important other than your job, taking some time out of your life to do something other than working on behalf of capital (eg caring for a family member, working on your art, just taking a break) isn’t necessarily a bad idea. And having some protection against eviction in the event that you lose your job also isn’t a bad thing. But both of these will necessarily result in higher unemployment.

The link to the paper doesn't work. What is the mechanism supposed to be – a tax on mobility, or backward-bending labor-supply?

This is rather lamentable, a post like this.

First, let's get rid of property zoning. Then, in about 10 years, let's get rid of rent control.

You see Hong Kong? That is the result when a propertied elite controls the development of property.

I sometimes wonder about the United States. First let's Detroitify the Industrial Heartland, then let us Hong Kongify the coasts.

We must pay homage to globalization and free trade...and the rights of property owners.

Sometimes we don't want markets to clear -- like with college admissions and hiring. We want colleges and employers to discriminate in non-pecuniary ways because personal quality matters -- especially with fellow students and workers.

Why doesn't the same apply to communities? Why don't we want landlords to discriminate too? Wouldn't holding rents down encourage landlords to substitute into more desirable tenants, meaning more desirable neighbors?

What am I missing?

One of the apartment REITs that I follow routinely talks about their success in systematically improving their tenants mix, screening for factors like income, age, credit rating.

From their Q3 conference call - "perhaps most important, customer retention, driven by consistently improving levels of customer satisfaction and improved customer selection", and "we have very stringent credit and personnel requirements and we have more stable people and they have higher incomes".

This leads to lower turnover, lower operational costs, fewer problems generally, and I what would infer what most people would consider better neighbors. They systematically focus on customer satisfaction to retain these better tenants.

For one thing, rent control applies to "existing tenants". When an apartment becomes vacated, under most versions of rent control that I know of, the landlord can raise the rates to market.

Furthermore, sad to say but it is an empirical fact that the ability to pay is highly if not near perfectly correlated with desirable characteristics from the point of view of the landlord, i.e. someone who pays on time, is not too demanding, and won't wreck your place.

'For one thing, rent control applies to "existing tenants". When an apartment becomes vacated, under most versions of rent control that I know of, the landlord can raise the rates to market.'

Under the pernicious system we had in Britain from 1915 to 1988, there was a spell in the 1920s when a tenant could die and their children - however prosperous - could inherit the rent-controlled tenancy. Whether that was reintroduced during WWII I don't know.

But it arose again in 1964. WKPD: 'The Protection from Eviction Act 1964 of 17 December 1964 was an interim measure intended to run to the end of 1965 and then expire. This to give time for an overhaul of the legislation. It restricted the eviction of residential occupiers from their homes. Widows and widowers and members of the family living with the residential occupier at the date of death were also covered. ... It became unlawful to evict other than by proceedings in the county court ... On summary conviction, the offender was liable to a fine of £100 or six months’ imprisonment, or both.'

In 1989 'The right to succession of statutory tenants was restricted'. I note that WKPD doesn't say 'abolished'.

For one thing, rent control applies to "existing tenants". When an apartment becomes vacated, under most versions of rent control that I know of, the landlord can raise the rates to market.

Yes, under rent control current tenants cling to their homes.

That contributes to community stability.

Community stability, in turn, contributes to a high quality of life -- for obvious game theoretic reasons.

Furthermore, sad to say but it is an empirical fact that the ability to pay is highly if not near perfectly correlated with desirable characteristics from the point of view of the landlord, i.e. someone who pays on time, is not too demanding, and won't wreck your place.

Mmmm...good point but I think you overplay your hand a bit.

I'll grant some correlation -- higher once you go below a certain income level. But further up, working class folks seem to me to be just as good neighbors and tenants as rich folks.

Is the paper available? The link to it from JHU does not work. (I guess none of the previous 53 comments bothered to look.)

Kramer, George, Jerry, and Elaine were all either unemployed or quasi-employed.

I assume Kramer and George had rent-controlled apartments, Jerry and Elaine did not.

Getting rid of home stamp duty has been suggested to increase labor motility in Australia. I guess this would be part of what is called "closing costs" in the United States.

I'd say it makes sense as the actual cost of a title change is a lot less than the 3-4% of the sales price which is what people typically pay. (Just gotta introduce either a wealth tax or a carbon price to make up the for the lost revenue.)

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