I'm going to trot out on of my favorite economics essays on the topic (and its video counterpart). Discussing the supply/demand curve as Samuelson applies it to bread: While scarcity can raise...
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.
I'm going to trot out on of my favorite economics essays on the topic (and its video counterpart). Discussing the supply/demand curve as Samuelson applies it to bread:
The claim that the rise in the price of bread will encourage more production is transparent apologetic nonsense. There can not be the smooth upward sloping supply curve that he shows when the harvest fails. If the harvest has failed, it has failed and no more wheat can be harvested for a year. So the rise in the price of bread will have no effect on production. The rising price of bread will be no more effective in bringing better weather next year than prayers to Ceres, the Goddess of wheat would have been.
While scarcity can raise prices, raised prices has little to no impact on production. We see this in numerous sectors across the board. And while raising prices does suppress people's abilities to afford things, it doesn't change the demand for them. Especially for essentials. We all need several hundred calories a day to survive, price merely affects how luxurious we eat. And that's why jacking up the price of insulin was such a solid moneymaker.
In the case of wages: Raising minimum wage doesn't reduce jobs because companies are already doing their best to function with the fewest staff they possibly can at the lowest rates they can get away with. If McDonalds could fire their workforce and make every customer cook their own fries they would.
The studies all found that rent behaves a lot like the discussed bread: Scarcity drives the prices up, but the price doesn't really impact the production in any tangible way.
I don't think the wheat analogy really makes sense. Food is often very volatile, and there won't be an increase in supply for short term volatility, but absolutely supply will increase in the...
I don't think the wheat analogy really makes sense. Food is often very volatile, and there won't be an increase in supply for short term volatility, but absolutely supply will increase in the agricultural sector for sustained increases in demand (and therefore prices). Examples include avocados, quinoa, and almonds. Coffee is another example. An example that's negative for the environment is palm oil production.
Like it's exactly because price increase -> more supply is broadly true that large swathes of southeast asia is plagued by palm oil plantations.
If there was, for some reason, a sustained interest in wheat relative to other grains, absolutely more farmers would swap to wheat farming.
Scarcity drives the prices up, but the price doesn't really impact the production in any tangible way.
That's not because it's like bread, it's because the limitation of supply is mainly regulation and zoning.
What happens when you don't have those? You get Tokyo. Notice how flat the price for a 1 bedroom is? Tokyo is a very nice place to live. If you compare the trend of rent prices to NYC, it's day and night.
Or on a more local, American scale: see, Minnesota
I think what they show is that prices aren't magic. For them to make a difference, there needs to be someone in a position to act on them. They can't fix a failed harvest. They can attract grain...
I think what they show is that prices aren't magic. For them to make a difference, there needs to be someone in a position to act on them. They can't fix a failed harvest. They can attract grain shipments from somewhere else in the world where the harvest was better. Some countries would starve without international grain shipments.
Getting back to housing, higher rents aren't going to increase supply if there are other things blocking developers from building new housing. The other problems need to be fixed.
If the money is good enough, though, you can see neighborhoods gentrified and apartments converted to AirBnB's. That shows that higher prices really do work, in some sense - but you might not necessarily like the result.
"The studies all found that rent behaves a lot like the discussed bread: Scarcity drives the prices up, but the price doesn't really impact the production in any tangible way." This is a short...
"The studies all found that rent behaves a lot like the discussed bread: Scarcity drives the prices up, but the price doesn't really impact the production in any tangible way."
This is a short sighted view of economics. Obviously, in the very short run, supply can be very fixed... but most business owners are smarter than thinking about how they price what's on their shelves at the moment. They look at what are their expectations are for the future and will set production tied to those expectations (and risk, etc). If there is a shortage of housing today, I can make a mint if I think the shortage of housing will continue by building housing and adding to supply.
They have... see SB9 in California. but they're not overcoming the people who already own housing want their houses to continue to rise in value due to government restrictions on zoning, etc.
They have... see SB9 in California. but they're not overcoming the people who already own housing want their houses to continue to rise in value due to government restrictions on zoning, etc.
Minimum wage raises can make certain markets no longer viable and thus lead to employers exiting the market. A small local restaurant or fast food joint is already living in the margins and...
In the case of wages: Raising minimum wage doesn't reduce jobs because companies are already doing their best to function with the fewest staff they possibly can at the lowest rates they can get away with. If McDonalds could fire their workforce and make every customer cook their own fries they would.
Minimum wage raises can make certain markets no longer viable and thus lead to employers exiting the market.
A small local restaurant or fast food joint is already living in the margins and federal minimum wage raises can seriously kick them in the teeth. It’s barely enough to even exist on in the cities that need it (New York/San Fran/ etc) and it’s a HUGE kick in the teeth to areas that are already struggling (basically all those rural areas)
This is also a problem is general for large corporate chains and what not because you just decide “yeah fuck it these 50 stores and 1000 supporting positions can go then”.
I don't think this exactly works on the other side of the analogy, so this is a minor nitpick, but in the case of harvest failure, price increases could incentivise storage for the next time a...
I don't think this exactly works on the other side of the analogy, so this is a minor nitpick, but in the case of harvest failure, price increases could incentivise storage for the next time a harvest fails, or diverting capacity from other less important uses where alternatives can replace it (if these exist)
This sounds a lot like just taking housing from landlords. This sentence here was really galling: "There is also some evidence that landlords seek to avoid rent regulation by converting rental...
This sounds a lot like just taking housing from landlords. This sentence here was really galling: "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. "
That is basically saying that rent control works as long as we permanently stick the landlord with the ownership of the units that they can't sell and they can't raise the price on. And somehow that's going to solve the housing crisis??!?
The answer is simple - build more housing. When San Francisco is at a 12 year bottom for housing completions - all of the regulation, rent controls, and other interventions offer nothing.
I'm not going to dispute that bad government policy leads to poor outcomes -- we just disagree on what good government policy would be, because you're a liberal and I'm a communist.
I'm not going to dispute that bad government policy leads to poor outcomes -- we just disagree on what good government policy would be, because you're a liberal and I'm a communist.
Even from the full communist pov, building more housing pretty much MUST be the first step. Say you just government control the housing. Ok...so who gets it? We've already well established there's...
Even from the full communist pov, building more housing pretty much MUST be the first step.
Say you just government control the housing. Ok...so who gets it? We've already well established there's not nearly enough in area's like california, so who gets to take a bus to work and who's got a 2 hour drive? Who gets the nice stuff and who doesn't? Who has to wait for additional housing and who gets to go now? When are they going to have to move out? etc
Even if you just flipped the country to communist overnight, I believe you're still going to have to have some sort of cutover period of 2+ years where you have a massive civil works project trying to build up to the demand.
I still think such things move from "who can afford it" to "who can afford to bribe the right people", because beachfront property is beachfront property, but I believe in general you've got to tackle the supply side of housing first no matter what. Anything else quickly becomes a mess.
I absolutely agree that in most places with rent issues building more housing is necessary. I think that's pretty inarguable in a lot of these areas, where supply is genuinely too low. I just...
I absolutely agree that in most places with rent issues building more housing is necessary. I think that's pretty inarguable in a lot of these areas, where supply is genuinely too low. I just don't think that building the right kinds of housing in the right places for the right prices is very likely to happen without state intervention.
I think you're not exploring the full intent of the original sentence. The problem is not landlords selling houses, the problem is the conversion into a unit for sale that eventually circles back...
I think you're not exploring the full intent of the original sentence. The problem is not landlords selling houses, the problem is the conversion into a unit for sale that eventually circles back to the unit being placed on the market but without all of the prior restrictions. The sale process, in this case, is a way for landlords to circumvent rent controls but continue renting the property. A sane regulation would provide an easy path to legitimately selling a unit but would remove the loophole that allowed the presumptive sale process to discharge the prior rent control history. That's all the article is addressing here.
Well, we've already established that it's a bad idea to prevent them from selling, haven't we? All the proposed regulation would do is prevent people from using the selling process to circumvent...
Well, we've already established that it's a bad idea to prevent them from selling, haven't we? All the proposed regulation would do is prevent people from using the selling process to circumvent the restrictions placed on the rental market, which is only an issue if they are renting currently and would like to keep renting. If they are renting currently and want to stop renting, they can sell it.
I'm sure that preventing landlords from charging obscene rents or making arbitrary rent increases would absolutely cause a drop in rental inventory, but we'd only be losing the units belonging to those landlords who do not wish to participate in a system in which they would be barred from undesirable behaviors. Such people weren't really contributing to the health of the rental market anyway.
I’d you’re removing the units from the rental market regardless of whether the landlord is good , bad , or whatever - the price of rentals will increase. I don’t have a way around that.
I’d you’re removing the units from the rental market regardless of whether the landlord is good , bad , or whatever - the price of rentals will increase. I don’t have a way around that.
That's actually a very good point I had not seen discussed before. If I can rent a 2BR for say $1,000 a month, that would drastically reduce the appeal of any comparable condo costing more than that.
That's actually a very good point I had not seen discussed before.
If I can rent a 2BR for say $1,000 a month, that would drastically reduce the appeal of any comparable condo costing more than that.
Lots of landlords - are mom and pop - 65% of landlords are individuals and more than half of land lords own 1-2 properties with between 1 and 4 units. While there are some rich and giant...
Lots of landlords - are mom and pop - 65% of landlords are individuals and more than half of land lords own 1-2 properties with between 1 and 4 units. While there are some rich and giant operators, they're not the norm and they're not the largest holders of property.
My father in law bought a building very cheap in the 90s, renovated it in his off hours mostly by his own labor. He kept rent affordable and ensured the stock was well maintained until he sold it to fund his retirement. My in laws are by no means even well off, but that building helped keep them afloat.
Then I don't see what you have to worry about? A well written law should barely be noticeable for responsible landlords - it's to protect renters from the predatory ones who charge as much as they...
He kept rent affordable and ensured the stock was well maintained
Then I don't see what you have to worry about? A well written law should barely be noticeable for responsible landlords - it's to protect renters from the predatory ones who charge as much as they can get away with.
The article specifically calls for rent control and bans on people selling property. That causes an impossible situation for landlords - and probably further reduces the stock of buildings...
The article specifically calls for rent control and bans on people selling property. That causes an impossible situation for landlords - and probably further reduces the stock of buildings available for rent.
Lower rents will definitely reduce the incentive to build more housing, though it may be the case in certain instances that there already exists sufficient incentive to build more housing. I...
Lower rents will definitely reduce the incentive to build more housing, though it may be the case in certain instances that there already exists sufficient incentive to build more housing. I wouldn't say there's no evidence that rent control has a negative effect on housing stock. The 2014 Autor et al. study they cite itself says that eliminating rent control in Cambridge, MA corresponded to a 20% increase in building permits (though that includes both improvements and new construction).
I think policymakers should be mindful that there is a tradeoff, though it may still be worthwhile if having more affordable housing outweighs greater total housing investment (the total of either improvements, construction, or increased sale value/liquidity for current property owners) or if they're confident there's other strong reasons to build housing. Exceptions for new construction gets around much of the concern, but it still risks reducing rental stock, even if total stock remains the same, from landlords selling to owner-occupants. Personally, I'd say it would help if renters more seriously considered moving each year in search of a better deal. Rents will naturally ratchet upwards if tenants don't shop around enough, and American tenants are moving less than they used to.
I was that guy who bounced between rentals annually. In the span of 7 years before I bought a house, I moved 6 times. Once between cities, and the rest within a mile of each other. My record was 3...
I was that guy who bounced between rentals annually. In the span of 7 years before I bought a house, I moved 6 times. Once between cities, and the rest within a mile of each other. My record was 3 blocks.
After about the third move, you've abandoned all but your most prized possessions, especially if they are heavy or bulky.
Edit: Also, I wonder if lower rates of homeownership contribute to renter stability. If the average person stops renting in their 20s in 1988, but by today people are priced out until their 30s, that would slow the rate of rental churn if people who would otherwise buy want a stable home but can't afford it. Particularly if there are more kids in rentals and parents don't want to constantly uproot their children's lives.
The homeownership rate in 2017 was ~64.2% and in 1988 was also ~63.8%. At first glance, it doesn't seem related to homeownership rate, although it could be. Perhaps we need to break down...
The homeownership rate in 2017 was ~64.2% and in 1988 was also ~63.8%. At first glance, it doesn't seem related to homeownership rate, although it could be. Perhaps we need to break down homeownership rate by demographic in 2017/1988 and compare it with average renter age in 2017/1988.
I'm going to trot out on of my favorite economics essays on the topic (and its video counterpart). Discussing the supply/demand curve as Samuelson applies it to bread:
While scarcity can raise prices, raised prices has little to no impact on production. We see this in numerous sectors across the board. And while raising prices does suppress people's abilities to afford things, it doesn't change the demand for them. Especially for essentials. We all need several hundred calories a day to survive, price merely affects how luxurious we eat. And that's why jacking up the price of insulin was such a solid moneymaker.
In the case of wages: Raising minimum wage doesn't reduce jobs because companies are already doing their best to function with the fewest staff they possibly can at the lowest rates they can get away with. If McDonalds could fire their workforce and make every customer cook their own fries they would.
The studies all found that rent behaves a lot like the discussed bread: Scarcity drives the prices up, but the price doesn't really impact the production in any tangible way.
I don't think the wheat analogy really makes sense. Food is often very volatile, and there won't be an increase in supply for short term volatility, but absolutely supply will increase in the agricultural sector for sustained increases in demand (and therefore prices). Examples include avocados, quinoa, and almonds. Coffee is another example. An example that's negative for the environment is palm oil production.
Like it's exactly because price increase -> more supply is broadly true that large swathes of southeast asia is plagued by palm oil plantations.
If there was, for some reason, a sustained interest in wheat relative to other grains, absolutely more farmers would swap to wheat farming.
That's not because it's like bread, it's because the limitation of supply is mainly regulation and zoning.
What happens when you don't have those? You get Tokyo. Notice how flat the price for a 1 bedroom is? Tokyo is a very nice place to live. If you compare the trend of rent prices to NYC, it's day and night.
Or on a more local, American scale: see, Minnesota
I think what they show is that prices aren't magic. For them to make a difference, there needs to be someone in a position to act on them. They can't fix a failed harvest. They can attract grain shipments from somewhere else in the world where the harvest was better. Some countries would starve without international grain shipments.
Getting back to housing, higher rents aren't going to increase supply if there are other things blocking developers from building new housing. The other problems need to be fixed.
If the money is good enough, though, you can see neighborhoods gentrified and apartments converted to AirBnB's. That shows that higher prices really do work, in some sense - but you might not necessarily like the result.
"The studies all found that rent behaves a lot like the discussed bread: Scarcity drives the prices up, but the price doesn't really impact the production in any tangible way."
This is a short sighted view of economics. Obviously, in the very short run, supply can be very fixed... but most business owners are smarter than thinking about how they price what's on their shelves at the moment. They look at what are their expectations are for the future and will set production tied to those expectations (and risk, etc). If there is a shortage of housing today, I can make a mint if I think the shortage of housing will continue by building housing and adding to supply.
Then why haven't housing developing companies lobbied incredibly hard to build dense housing in California?
They have... see SB9 in California. but they're not overcoming the people who already own housing want their houses to continue to rise in value due to government restrictions on zoning, etc.
Minimum wage raises can make certain markets no longer viable and thus lead to employers exiting the market.
A small local restaurant or fast food joint is already living in the margins and federal minimum wage raises can seriously kick them in the teeth. It’s barely enough to even exist on in the cities that need it (New York/San Fran/ etc) and it’s a HUGE kick in the teeth to areas that are already struggling (basically all those rural areas)
This is also a problem is general for large corporate chains and what not because you just decide “yeah fuck it these 50 stores and 1000 supporting positions can go then”.
It’s really not that simple
I don't think this exactly works on the other side of the analogy, so this is a minor nitpick, but in the case of harvest failure, price increases could incentivise storage for the next time a harvest fails, or diverting capacity from other less important uses where alternatives can replace it (if these exist)
This sounds a lot like just taking housing from landlords. This sentence here was really galling: "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. "
That is basically saying that rent control works as long as we permanently stick the landlord with the ownership of the units that they can't sell and they can't raise the price on. And somehow that's going to solve the housing crisis??!?
The answer is simple - build more housing. When San Francisco is at a 12 year bottom for housing completions - all of the regulation, rent controls, and other interventions offer nothing.
As a voice from the other end of the political spectrum, it doesn't sound enough like just taking housing from landlords.
I'm pretty liberal... but the housing market is the starkest example of the failure of government intervention and poor policy leads to poor outcomes.
I'm not going to dispute that bad government policy leads to poor outcomes -- we just disagree on what good government policy would be, because you're a liberal and I'm a communist.
Even from the full communist pov, building more housing pretty much MUST be the first step.
Say you just government control the housing. Ok...so who gets it? We've already well established there's not nearly enough in area's like california, so who gets to take a bus to work and who's got a 2 hour drive? Who gets the nice stuff and who doesn't? Who has to wait for additional housing and who gets to go now? When are they going to have to move out? etc
Even if you just flipped the country to communist overnight, I believe you're still going to have to have some sort of cutover period of 2+ years where you have a massive civil works project trying to build up to the demand.
I still think such things move from "who can afford it" to "who can afford to bribe the right people", because beachfront property is beachfront property, but I believe in general you've got to tackle the supply side of housing first no matter what. Anything else quickly becomes a mess.
I absolutely agree that in most places with rent issues building more housing is necessary. I think that's pretty inarguable in a lot of these areas, where supply is genuinely too low. I just don't think that building the right kinds of housing in the right places for the right prices is very likely to happen without state intervention.
I think you're not exploring the full intent of the original sentence. The problem is not landlords selling houses, the problem is the conversion into a unit for sale that eventually circles back to the unit being placed on the market but without all of the prior restrictions. The sale process, in this case, is a way for landlords to circumvent rent controls but continue renting the property. A sane regulation would provide an easy path to legitimately selling a unit but would remove the loophole that allowed the presumptive sale process to discharge the prior rent control history. That's all the article is addressing here.
So then the landlords will sell the house to private buyers who don't want the house for a rental... thus, rents go up even further.
Well, we've already established that it's a bad idea to prevent them from selling, haven't we? All the proposed regulation would do is prevent people from using the selling process to circumvent the restrictions placed on the rental market, which is only an issue if they are renting currently and would like to keep renting. If they are renting currently and want to stop renting, they can sell it.
I'm sure that preventing landlords from charging obscene rents or making arbitrary rent increases would absolutely cause a drop in rental inventory, but we'd only be losing the units belonging to those landlords who do not wish to participate in a system in which they would be barred from undesirable behaviors. Such people weren't really contributing to the health of the rental market anyway.
I’d you’re removing the units from the rental market regardless of whether the landlord is good , bad , or whatever - the price of rentals will increase. I don’t have a way around that.
Rent control might help keep the price of housing from rising too much in that sort of situation.
That's actually a very good point I had not seen discussed before.
If I can rent a 2BR for say $1,000 a month, that would drastically reduce the appeal of any comparable condo costing more than that.
Lots of landlords - are mom and pop - 65% of landlords are individuals and more than half of land lords own 1-2 properties with between 1 and 4 units. While there are some rich and giant operators, they're not the norm and they're not the largest holders of property.
My father in law bought a building very cheap in the 90s, renovated it in his off hours mostly by his own labor. He kept rent affordable and ensured the stock was well maintained until he sold it to fund his retirement. My in laws are by no means even well off, but that building helped keep them afloat.
Then I don't see what you have to worry about? A well written law should barely be noticeable for responsible landlords - it's to protect renters from the predatory ones who charge as much as they can get away with.
The article specifically calls for rent control and bans on people selling property. That causes an impossible situation for landlords - and probably further reduces the stock of buildings available for rent.
Lower rents will definitely reduce the incentive to build more housing, though it may be the case in certain instances that there already exists sufficient incentive to build more housing. I wouldn't say there's no evidence that rent control has a negative effect on housing stock. The 2014 Autor et al. study they cite itself says that eliminating rent control in Cambridge, MA corresponded to a 20% increase in building permits (though that includes both improvements and new construction).
I think policymakers should be mindful that there is a tradeoff, though it may still be worthwhile if having more affordable housing outweighs greater total housing investment (the total of either improvements, construction, or increased sale value/liquidity for current property owners) or if they're confident there's other strong reasons to build housing. Exceptions for new construction gets around much of the concern, but it still risks reducing rental stock, even if total stock remains the same, from landlords selling to owner-occupants. Personally, I'd say it would help if renters more seriously considered moving each year in search of a better deal. Rents will naturally ratchet upwards if tenants don't shop around enough, and American tenants are moving less than they used to.
I was that guy who bounced between rentals annually. In the span of 7 years before I bought a house, I moved 6 times. Once between cities, and the rest within a mile of each other. My record was 3 blocks.
After about the third move, you've abandoned all but your most prized possessions, especially if they are heavy or bulky.
Edit: Also, I wonder if lower rates of homeownership contribute to renter stability. If the average person stops renting in their 20s in 1988, but by today people are priced out until their 30s, that would slow the rate of rental churn if people who would otherwise buy want a stable home but can't afford it. Particularly if there are more kids in rentals and parents don't want to constantly uproot their children's lives.
The homeownership rate in 2017 was ~64.2% and in 1988 was also ~63.8%. At first glance, it doesn't seem related to homeownership rate, although it could be. Perhaps we need to break down homeownership rate by demographic in 2017/1988 and compare it with average renter age in 2017/1988.
Life expectancy in 1988 was 74ish and in 2017 it was 78ish. People living longer also has an effect.