This to me is the big one. So in addition to rents being more affordable (even if wealthier renters capture most of the gains) limiting the rental market profits also makes houses more affordable to buy? The paper is trying to argue this is bad, but I’m not seeing it.
It’s almost like “rent-seeking behavior” is a negative pejorative of an actor’s actions that negatively influence the market.
You can almost hear yakitty sax playing in the background. I bet if you met the researchers you could honk their nose.
> Similarly, we need to consider any one-time confounding events in control cities. Most notably, Minneapolis would be a natural control for St. Paul. However, in addition to the ballot measure on rent control, Minneapolis’s ballot also included referenda on mayoral power and policing. These confounding events mean that if property values in St. Paul changed relative to Minneapolis, we could not attribute the change to rent control.
their mistake is that they excluded Minneapolis for a bullshit reason here. you might as well do the analysis and then tell us. of course, they did, and found all the same effects as st. paul despite no rent control, so they chose not to talk about it.
Is this a metro area with serious rental price pressure where rent stabilization is greatly altering the market conditions, or is housing so available to begin with that it’s more of a feel-good legislation that doesn’t shift prices around?
It looks like from a quick search that over half of people in this metro area own their own home.
I imagine that rent control in many Midwestern metros is effectively pointless. The rent is already being controlled by flat or declining populations, cheap land, and high homeownership rates.
IMHO, the problem now is bad zoning. The rich car-centric suburbs are preventing denser housing- to their own financial detriment. A recent fight is that the state has forced them to allow higher density housing around commuter rail stops. Similar fights about rail trails, future abutters are afraid of change but they are valuable everywhere they exist- in that they are a desirable feature and raise your house's value.
Another problem is that they overbuilt $100/sqft bio-lab space. These are sitting empty, and the owners refuse to lower the rent.. I don't understand how the owners remain solvent.
> I don't understand how the owners remain solvent.
I think that tells you everything you need to know about who's renting them out.
[1]: https://constructioncoverage.com/research/cities-with-the-mo...
Their rent control used to have no exemptions, but now it's become very similar to SF rent control. Strict limit on how much rent can go up for current tenants, but can reset close to market rate when there's a 'just cause' vacancy. And all buildings built after X date are exempt entirely. (X=2004 in St. Paul, X=1979 in SF). Developers argued that any rent control at all limited their ability to finance housing projects.
I think results of studies like this were hugely influential to the changes in rent control that followed.
Unfortunate policy, and generating weird incentives to get people to leave!
In Queensland (not exactly perfectly managing the rental crisis but...) their policies include not being able to raise rent more than once every 12 months (leases tend to be 12 months). Importantly it's linked to the property, not the tenants.
There's no actual cap in practice on how much you can raise it by ("reasonable" I believe is the nonfalsifiable term used) but it doesn't generate perverse incentives to kick people out
Are landlords allowed to increase rents when the tenant changes? If so then yes, I would expect them to do so, so if they don't, there needs to be some other explanation.
If they don't, then obviously they'll prefer to keep their long-term, pays-on-time, probably-not-wrecking-the-place existing tenant.
People can argue about whether that's what should happen, and there are nuances on both sides there, but that is undeniably what will happen.
The truth of the situation here is that there is more than enough demand for new housing anyway, much of it gets directly financed by wannabe homeowners, that ‘investment’ goes 90% into existing stock, not new builds, and that investment properties actually create rental demand as investors crowd out would-be owner-occupiers from both existing houses and new-builds opportunities.
In Melbourne, where measures to reduce the attractiveness of investment have already happened, the price of housing has levelled off comparative to other capitals in Aus, and rental availability has actually gone up.
The underlying problem is of course supply, but there appears to be a limit to how fast the building industry can actually build more stock, so with huge demand and limited supply, we don’t need to encourage as much speculation or landlordism in the market.
Price ceiling is the surest way in economics to create a shortage.
If the construction strike by commercial investors is replaced by public housing then the better outcome can emerge.
And these things have a lead time of years
That's not accounting for the time value of money.
Suppose you have a rental unit and before rent control you were planning to rent it out. That now has far less attractive returns and it suddenly makes more sense to sell it as a condo to an occupant rather than keeping it to rent it out. Likewise, other prospective landlords no longer want to buy it at the previous market price (returns went down and they can invest in stocks or housing in some other city instead), so the short-term effect is to increase the number of property sellers and decrease the number of buyers. Short-term, property values going down is the expected thing.
But construction going down is also the expected thing, for the same reason. If property values are lower then the number of viable construction projects is lower and less construction happens.
The lack of construction then continues until rents, even after rent control, are high enough to justify more construction, i.e. are even higher than they were originally, because now to justify the same investment as before you need the current rent to be high enough to account for the inability to increase it later. And with less construction happening, that's the natural result in a growing area. More people have to bid on the same number of units, rents go up. So the short-term effect is lower real estate prices, the long-term effect is higher.
Now you say, if we expect real estate costs to be higher later, why don't investors take advantage? Which is the "time value of money" issue. If you invest there now because the prices will be high later, what do you do with the property in the meantime? If you don't rent it out, paying $1 today to get $1 in ten or twenty years is dumb, so you only buy if the current price is at a discount. If you do rent it out, then you'd be stuck trying to sell a building with a rent-controlled tenant, which isn't worth as much as the same building as empty as you bought it which you could sell as condos or rent out at current rents instead of price controlled ones, and then you still need a discount. And so the current seller has to provide a discount even if the real estate costs will be higher in a few years.
I think of how I was absolutely shocked when a Big Mac meal was $10 during the pandemic (I think it cost about $2.50 the first time I bought it) and didn’t think I was going to buy 4% less of it but rather I skipped the fries.
The cost of the wood and the labor needed to build the house is unaffected by the rent control, so if cost remains the same, but the reward (or "revenue") from building the house decrease from $100K to $95K, then fewer houses will get built.
Haven't fully read the paper, just the introduction and skimmed through the rest, but it seems they're merely observing that a rent control law went into effect, and given some control variables, it seems like it depressed property values.
Their findings also suggest that while the wealth transfer of rent control factor is real -- that is, landlords are impacted more and existing renters see relative benefit -- that effect is greater among higher-income renters and less among lower income renters.
Second paragraph in the Conclusion:
"While the negative wealth effects for owners are large, our results show the positive effects of the law are poorly targeted. Though the intention is to benefit lower income renters, we find that the largest benefits are received in the neighborhoods of the city in which renters have higher incomes, are less likely to be minorities, and have more education. To the extent that price drops for rental properties reflect future rent savings, and thus housing wealth gains for tenants, our results suggest that the largest cost savings are going to be realized in the neighborhoods with the richest, most educated, and least diverse owners."
When I point this out in r/boston, cambridgema, and somerville I get downvoted to oblivion because obviously fuck the landlord class. But why on earth would anyone start renting a place if they know they could get soaked over time?
They also neglected the effect of travel time on behavior. Back in the day, I was commuting from a rich suburb to Cambridge, and to get to work on time, I had to get up early to accommodate a 30-minute commute to the train station, wait for the purple line and the red line, and then walk three-quarters of a mile. When I saw how little traffic was on the road, I said, "F it," and drove to work in the same amount of time as it took me to get to the train station.
In the Biolab space, it was a little overbuilt, and now it's tremendously overbuilt because of the killing off of NIH grants and subsequent reduction in investment in the biotech sector. I suspect the reason they don't drop the rent is that it would cause a bit of unraveling. You drop the rent; that changes the valuation of your building, which may mean you're underwater on the loan, the bank calls the loan, et cetera, et cetera. Then, similar properties would suffer devaluation and a similar unwinding. And if you agree with the contagion theory of deflationary environments, it'll all unwind all the way through your 401k and other investments. Sadly, the billionaires would be untouched.
roenxi•1h ago
This seems like too short-term a study. The argument against artificially holding prices down is that people won't produce as much as they would otherwise and people won't be able to get the thing they would otherwise buy. So what we're predicting a rent control policy will do is cause a shortage of rental accommodation in the area.
Now how that expresses itself in an accounting sense, who knows (probably the economists). Good question to study. But I doubt the impacts of rent control would appear in the market this quickly, it'd take years for the market signals to be measurable. Initially rent controls will probably be set near the previously ideal market price, I'd guess there are a lot of 12 month leases and housing construction projects probably don't reset that quickly either.
heylook•1h ago
Hard disagree. Rational investors have no problem whatsoever projecting the impact to future cash flows and adjusting the amount they're willing to pay now. That's like saying the stock market wouldn't respond quickly to changes in next year's tax law.
tverbeure•1h ago
avs733•1h ago
Starting with the assumption that all or even most investors / actors are rational is a continuing pox on both economic scholarship and societal thinking
joshribakoff•40m ago
dwallin•11m ago
datadrivenangel•17m ago
roenxi•1h ago
It might not happen that way - someone does need to check - but at 9 months I wouldn't read much in to this study. The physical market would still be reorganising and it seems entirely possible that the eventual impacts are just different than what this study suggests. I'd want a period of more like 5 years to be confident that the data had given everyone in the market enough time to feel the impacts of artificially low rents and reposition appropriately.
vannevar•51m ago
colechristensen•17m ago
ryukoposting•16m ago
Most of the damage was concentrated in Minneapolis, a little south of the river. But what happens in Minneapolis affects St. Paul, and vice versa. St. Paul wasn't unscathed, either. Property values dipped as a result of the riots, and I'd go find more evidence of that if it wasn't just taken as a fact by the people who live there.
There was also an arson on a construction site in downtown St. Paul later that summer that spooked a lot of folks too.
In short, don't use Twin Cities property values in the early 2020s to make generalizations about economics or policy. It took years for those scars to heal. Things didn't really go back to normal until 2023 at the absolute earliest.