A Hypothetical Housing Win–Win

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INTO PERSPECTIVE
By Amanda Williams, 05/31/2012
A Hypothetical Housing Win–Win

 

Last month, the Supreme Court declined to hear arguments on rent control’s constitutionality—a shame, in my view, given sound economic reasons rent control is rather misguided. Over and above those economic reasons, though (which I outlined in greater detail on Fisher Investments’ MarketMinder), it’s entirely possible ending rent control would help not only the rental market (renters and landlords alike), but could also incrementally help the housing market as a whole.

Consider: Rent control was intended to keep rent prices low for low-income individuals. A fine goal. However, doing so creates a market distortion. Keeping prices artificially low is not a cost-free decision. Rent control limits supply (since landlords receive typically below-market rents and are therefore less incentivized to rent out properties) and creates more intensive competition among renters, thereby ultimately resulting in higher overall prices for units which come on the market. Lower prices for some (many of whom are not, in fact, low income) and higher prices for many more seems to run counter to the original purpose of rent control—the law of unintended consequences. Continue reading

New York Gets To Keep Its Broken Housing Market

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By  May 18, 2012, 8:00 AM

New York City has, without a doubt, the most dysfunctional housing market of any large city in America. A lot of New Yorkers like it that way – and it looks like they will be able to keep their broken system for the foreseeable future.

If you live someplace where normal forces of supply and demand govern housing, you may be surprised to learn that New York tenant advocates were quite pleased when Mayor Michael Bloomberg recently declared that his city is experiencing a housing emergency. This “emergency,” defined in this case as a vacancy rate in rental housing of less than 5 percent, has existed continuously since 1969.

In most other places, such a tight housing market would have long ago been brought into balance by some combination of rent increases and new construction. The two are related. Rent increases would prod some tenants to look for cheaper housing outside the five boroughs, and it would encourage more development of new housing stock by boosting economic returns for landlords.

But under New York’s 1969 Rent Stabilization Law, so long as the city continues to face a housing emergency, it can set maximum permissible rent increases for about 1 million apartments, according to The New York Times.

The Supreme Court recently declined to hear a case that challenged the constitutionality of the rent stabilization law. The court had, somewhat unexpectedly, asked for some additional information before ultimately deciding not to proceed with the case. This led to some brief speculation that the longstanding rent controls might be in danger. Continue reading

The Supreme Court Denies Certiorari in Challenge to NYC’s Rent-Control Law

 

Posted by Trevor Burrus

Today, the Supreme Court declined to review Harmon v. Kimmel, a case challenging New York City’s rent control law. For a case that merely had the possibility of getting to the high court,Harmon has received a surprising amount of attention. A lot of this attention is due to the persistence of Mr. Harmon, who has admirably been fighting this important battle on behalf of thousands of similarly situated landlords who are forced to subsidize cheap rents, often for tenants who can easily afford to pay the market price. According to the Wall Street Journal, one of the Harmons’ rent-controlled tenants even “owns a second home near the shore in Southampton, where she spends weekends gardening and playing tennis.”

As I said in January in a Reason.tv video, rent control is something that nearly every economist can agree on: it lowers the amount of housing, it lowers the quality of housing, it raises the total costs of finding and securing housing, and it doesn’t even guarantee that those who need cheaper housing will get it. Nevertheless, it seems as if rent control will remain as much a part ofNew York City’s culture as Broadway theatre and pizza.

In addition to the ill-effects of rent control on a housing market, perhaps the most pernicious aspect is that it allows lawmakers to force the costs of subsidizing others onto private individuals. New York Citycould certainly create a program in which tax dollars are used to directly subsidize the rents of those in need by giving money either to the tenant or to the landlord. The city could also provide more state-built, low-income housing. Either program could achieve the goals of rent control without many of the accompanying negative effects (although, of course, both programs would have many horrible problems of their own).

Such taxpayer-funded programs, however, would not serve the immediate goals of many city politicians: to provide benefits seemingly without cost. In a way, rent-control laws are a lot like the individual mandate of Obamacare currently under challenge in the Supreme Court. Both allow lawmakers to use regulatory requirements in lieu of raising taxes to pay for a program (I discussed how this works in Obamacare here). Rent-control laws permit lawmakers to avoid the political accountability of taxpayer-funded, on-budget subsidization by forcing individual property owners to subsidize tenants in the name of the “public good.” Whatever the merits of such a proposal, innocent landlords such as the Harmons should not be forced to become pawns in lawmakers’ attempts to avoid losing the next election.

It is unfortunate that the Court will not hear the case, but I applaud Mr. Harmon for bringing much-needed attention to an important issue.

Prof. Richard Epstein Responds to Critics

 

Rent-Control Laws Hamper New York’s Housing Market

LETTERS | January 13, 2012
Richard Rafal’s letter (Jan. 10) replying to my “Rent Control Hits the Supreme Court”(op-ed, Jan. 4) shows a slender grasp of economic principle when he defends New York’s stringent rent-control laws by observing, “New York, the most rent-regulated city in the country, has always had some of the most expensive real estate in the world.” So it does, for two reasons.
The rent-control laws perpetuate the low level of utilization of key properties. Also, New York’s punitive Uniform Land Use Review Procedure places enormous local hurdles in the path of new development, to further constrict the supply. The high real-estate values to which Mr. Rafal refers are confined to those lucky enough to survive the process. Huge swaths of land remain undeveloped, perpetuating these monopoly rents.
Richard A. Epstein
Palo Alto, Calif.
Richard Rafal dismisses the movement to abolish rent control by stating that such abolition would only benefit the owners. Of course it would, in the same way that restoration of stolen goods benefits the victim of a robbery. The beneficiary of rent control is legally taking advantage of an immoral law.