Arguments against rent control boil down to two basic propositions, though there’s a nearly infinite number of venal presentations of these twin heresies. The first is that rent control distorts the basic functioning of economic markets by giving outsize power to the tenant over the landlord, protected by state policy. The second is of a similar vintage but focuses on somewhat broader issues, in which this ‘monopoly power’ distorts overall opportunities within the housing market. Both are stupid.
Competition
This last week has seen two broadsides against rent control in large national publications. Laura Marsh’s and Alex Pareene’s The Politics of Everything, which begins with a roundtable lamentation about how high NYC rents are (and they are high!) and ends with economist Dean Baker being wheeled out to lament rent control’s “protection of incumbents” – that is, decrying the fact that rent control allows people to stay in their homes for extended periods of time – and fails to promote the sorting or filtering effect wherein an equilibrium rent price is achieved. Baker:
People have pointed out that rent control is not necessarily helping the people whom you might most want to help, because just as a factual matter, it tends to be the case that lower-income people move more frequently. They have less stable jobs.
The clever little twist here – the insinuation that rent controlled apartments are occupied by the lazy and shiftless middle class free riders – does not bear out empirically, as you imagine. From the 2021 New York City Housing and Vacancy Survey (NYCHVS):
In 2020, rent stabilized tenants had a median household income of $47,000, which was statistically the same as the inflation-adjusted median income from the 2017 NYCHVS (which was $48,050 measured in 2020 dollars). In 2020, private unregulated renters had a median household income of $62,690, significantly lower than the inflation-adjusted median income from the 2017 NYCHVS (which was $72,250 in 2020 dollars)…Households in rent-controlled units and rentals regulated in some other way had…a median household income that was about half of the citywide median, though higher than those in public housing. [emphasis mine]
Of course, a good economist won’t let simple facts stop them. Baker is describing a long tradition of market freebooters, whose typical arguments for total capital mobility and price information are quite common and not in need of elaboration here. But it’s important to point out that, at bottom, this is a question of competition, and a bitter complaint that it doesn’t work the way it should. The pathetic complaint against rent control is a fundamental consequence of the way in which economists like Hayek (who treats with rent control extensively throughout his career, particularly in work with the Fraser institute in the 70s and his book Constitution of Liberty) are forced to, encountering in the market a lack of the perfect competition that is required for their theories to work (with infinite numbers of infinitely small capitals), cast about for a reason for this simple failure. Of course, they settle upon the idea of control as an abstract attitude and practice of the state within an economic context, most often manifested as a “central planning” of production or consumption. This is an attack on “authoritarianism” i.e. the USSR i.e. the terrifying potential of socialist activity even within the capitalist bastions of Euro-America (I know you know all this, bear with me please). The version of this argument within the housing sphere is that there is a dual monopoly at work wherein the state’s privileged monopoly status as an economic actor protects individual rent controlled tenants who are then unduly allowed to exert a power (against exploitation by the landlord) that these types find unconscionable.
Basically, this means that Hayek et. al (that is, anti-rent control types across the “political spectrum”) are left in in the unfortunate position of having to argue counterfactually for a capitalist housing market which could be by recourse to the very un-Hayekian theory of “imperfect competition” (as it was developed by the postwar institutionalist economists in order to address the problems in fitting perfect mobility, information, and infinitesimally small firms to real-world applications). As Alex Ferrer pointed out on Twitter, there is longstanding empirical evidence that assures “that moderate rent control had no or minimal significant impacts on measures of rents, housing size, quality, and quantity of rental housing stock”. Would that it did!
This is also why, in the present day, there has been a shift in identifying the boogeyman of state monopolistic activity as not rent control but zoning. This is so insipid it’s not really worth getting into, but I will say that it can be seen as another element of “control”, so to speak, but also as I have addressed previously here at Realm of Kevin, simply a way for municipal governments to leverage founder’s profits on land plots via the unfettering of developers’ ability to develop. That is, it’s not about locking the market down, its about local government reserving their ability to introduce an adrenaline shot into its functioning (a concept Hayek & Co. only rarely consider). Zoning is, in this sense and in reality, more about rezoning. In a rezoning, competition remains fully in effect as developers and owners scramble to capitalize on their newly-valued properties within a short window.
It is also worth noting here that in almost every municipality in the United States (including New York City), new builds are exempt from most rent controls of any type.
Supply and demand
A closely related but theoretically distinct argument against rent control is that its existence pulls units out of the market that may otherwise be available for “lower income” would-be tenants or whatever (this argument is a real crocodile’s tears moments for most that make it, uttered through gritted teeth). Here, I think it’s essential to offer a little parting shot by defining what supply and demand actually means for a stable consumption good like housing (or housing services, if you like). There is a long-standing tendency in housing economics discussions to focus more or less exclusively on new moves, that is, on the moment in which a household moves from one unit to another, as this represents an easily defined ‘purchase’. Of course, if that household are renters, they are actually making relatively continuous (usually monthly) purchases for extended leasing periods, usually of a year. This defines the purchase side of things, representing “demand” in the great dyadic formation here, wherein would-be tenants line up in the market and sift through available supply before making their purchases. There has been a considerable amount of complaining here, and rightfully so, about how miserable this process can be, especially in NYC, where landlords are able to exploit their position as owners of a unique commodity to increase asking rents and demand certain tributes over and above the typical ones required by a tenant-consumer purchasing the right to use a landlord’s property for an access price. This argument then usually completes by demanding the construction of more housing within the city to lessen landlord power and shift the balance in favor of tenants, who will then experience this same purchasing process as one in which a flowering of options allows them to be judicious and frugal in their choosing.
We may assume, for sake of argument, supply of housing for a particular market to be more or less fixed for a certain year. However, demand may rise or fall across that same time period – in fact it will, and is always in flux. As I.I. Rubin writes in Essays on Marx’s Theory of Value, “the volume of demand is determined not only by the given need of the present day, but also by the size of income or by the buyers’ ability to pay, and by the prices of commodities”. This is a rather simple but crucial insight: demand has strict limits. For example, I would love to move into a $3,000/month apartment, but have no ability to do so; I am fundamentally blocked from making this purchase by not being able to meet the landlord’s rent price, to say nothing of deposits or other fees extracted at the point of purchase. Demand must be actionable. Furthermore, Marx notes in Capital Volume 3 that demand “moves in a direction opposite to prices, swelling when prices fall, and vice versa”.
Again, this seems like a basic truth; but the ramifications are crucial. Rubin: “Demand is a quantity which is determined only for a given price of commodities”. That said, housing is a peculiar type of commodity: it is not quite a subsistence good like, for example, bread – though we may say there is a low elasticity to demand for housing (or to be more accurate, for leases). These lease prices rise and fall with much greater volatility than the number of tenants seeking them (though, of course, they generally rise except in periods of extreme economic distress). “The fluctuations of the volume of consumption of these commodities (leases), and thus of the demand for these commodities, are not as significant as the corresponding price fluctuations”. This makes clear the volatility of the present market: a rather obdurate demand for leases meets an insurgent supply of them.
With this appraisal, one thing is clear: the construction of new housing would, of course, set new leases onto the market. These would, temporarily, potentially create a purchasing environment in which buyers of leases (tenants) would enjoy favorable prices; but this will never be true across the board because demand is not even across the board. If a luxury building is built, this means absolutely nothing to me, because I know that I will at no point be able to realistically muster up the purchasing power to secure its lease. If a lease belonging to a building in my acceptable purchasing range goes on the market, this is also only useful insofar as it is perceived as a threat, with respect to competition in supply of leases, potentially undercutting these other lease-sellers’ ability to sell their lease and thus make a profit. If it is not – if, for example, it is snapped up too quickly to regulate a new base price in that particular segment of the regional housing market – then there will be no effect. If, however, a lease is put on the market that remains there for a time and is quite high with respect to other leases, and then sells, other lease holders will recognize this, and its sale, and thus adjust the asking sale prices for their leases accordingly.
The perhaps obtuse language here (not apartments but leases, not landlords but lease sellers) is to illustrate that there is a fundamental disconnect between the quality of the apartment (housing) being sold and what is actually sold on the market. Many renters find themselves moving into or existing in places that are far below what they would desire, but the lease was affordable. This dovetails back into a more developed understanding of supply and demand as permanently turbulent and emphatically not a free for all – there are regulating buyers and sellers who meet haphazardly at the point of purchase, and this is precisely what we’re supposed to fetishize as the great animator of the housing market.
Well this was more of a ramble than I thought. Probably the most thought anyone has ever put into anything published on Slate or uttered by Alex Pareene (at least I hope so).