Rent control and housing shortages go hand in hand. Why build if the government gets to set prices for you?
Mark Glennon at Wirepoints hits the nail squarely with his piece Rent Control Would Intensify Housing Crisis.
A Chicago Democratic lawmaker’s second attempt at eliminating Illinois’ rent-control ban would predictably worsen the state’s housing crisis – or solve it in a negative way – the founder of an online news outlet said during a recent interview.
“If you want to see the supply of housing plummet, pass rent control laws,” Wirepoints founder and executive editor Mark Glennon said in an email interview with Chicago City Wire. “Ironically, maybe there’s some perverted logic to that. We won’t be needing much housing in Illinois if crazy ideas like this continue to drive people out of Illinois.”
Glennon’s comments followed Rep. Will Guzzardi’s (D-Chicago) introduction last month of House Bill 255 to repeal the the Illinois Rent Control Preemption Act of 1997. As its name implies, the state’s rent-control ban bars the state’s municipalities from enacting laws to control rent on residential or commercial property.
Why Not?
Illinois is so totally screwed already. Why not let socialists put on the finishing touches?
Mike “Mish” Shedlock
Thats is actually not true. Here in Sweden we have both; rent control for govermental housing ( some people choose to rent even if they can buy) and you can purchase your flat ( but if you rent it out you cant charge market value only cover your costs plus 30% on top of that). Rent control has worked pretty well the only thing that happen was that the politicians ( shortsighteed as bankers are risk averse when they get a fat bonus) did not investing in new housing since 1980 that let to a shortage of housing. The execution of the plan was bad. But it does work. Reg from Sweden
Several trends point to the reality we should expect rents to edge higher in the future. While many economy watchers tout the line any economic crisis will result in massive defaults and deflation hidden forces may prove them very wrong. Over the last few decades, a great amount of wealth flowing into paper promises rather than tangible assets has masked true inflation but it is everywhere. One place it is most obvious is apparent in the replacement cost of buildings and infrastructure destroyed or damaged by natures fury.
The other side of rent control is that it frees up uncontrolled units to charge whatever they wish. In Aspen Colorado they have very strict rules for low income housing, but they aren’t at all interested in increasing supply because that might have a negative effect on all the investment/vacation homes, many of which sit empty for most of the year. Many of these homes are sited on enough land to build a multi-family building, but because it might detract from the “charm” of the city they are strictly verboten from making any changes. Of course the real reason is because the neighborhood might evolve, and the last thing you want when you have a $10 million investment is any sort of risk.
Cars would be expensive too, if I was in a position to ban any of them aside from mine, in order not to detract from the “charm” of driving down empty LA freeways whenever I felt like it……
Come to think of it, the same illiterate rabble that serially fall for the Aspen housing version you describe, also do so for the LA car version. New, expensive, impractical Teslas being granted their own lanes and all…
Housing is a fd market. In SF there is onlt rent control in parts of the downtown – that parts where all the fwits point to and say “yuck isn’t SF horrible”. The same fwits whine about the fact that a one bedroom appt costs $4k/month or more.
House/Rent prices are more a reflection of the quality/speed/cost of transportation than availability of housing stock and too many people denigrate high quality, high speed public transport.
Carlos, Mish thinks that if housing were left to the market, supply would grow and costs would remain affordable. After rent controls, no one will build because it will be impossible to make money. In that case, maybe the city elders should consider building nice gray poured concrete buildings like those now abandoned in Warsaw.
“No zoning laws, no building codes, no permits, no inspectors, no bullshit. I have to pay $23/month in property taxes, but there’s no escaping that anywhere.”
That will allow anyone to build a dump next to your property. Wouldn’t you love it
At least the dump is next to you. Rather than all around you…
In the real world, noone builds anything that can be built and function equally well anywhere, in an area of great residential desirability, like on a lake. Instead, they build in on land wit no other use. Or they go out of business trying to compete with those building on cheaper land. That entire class of imaginary hobgoblins, despite being regurgitated to no end by pliant government apologists everywhere, only exists in the well indoctrinated childish fantasies of the hopelessly economically illiterate.
To the contrary, in practice, people DO live next to dumps. But only, specifically, BECAUSE zoning and land use laws prevent them, and others, from building enough residential space to meet demand, in the areas they would ideally want to live. Which is where the more equals deciding where dumps are allowed to be built, live. That’s the real world. Exactly, as always, as predicted by proper deductive economics. Rather than mindless and childish progressive hyperbole and government apologia.
Hey Carlos, the reason you buy 20 acres is to control the neighborhood. I can’t see or hear any neighbors unless they are running a chainsaw or getting their venison for the winter. The reason so very few Americans treasure the concept of liberty is that they would rather put up with the ten million problems associated with governments rather than put up with a few consequences of liberty such as a guy building a dump next door to your place. I’ll take freedom any day of the week! Fortunately, most Americans agree with you and that keeps them flocked in the the cities instead of cluttering up my county. (That’s not a personal jab at you by the way!)
Ah yes the quaint “living out in the country is great – city baaaad” I wonder how getting each household 20 acres will scale in a more than 300M inhabitants … BTW what keeps your neighbor from dumping on your land? Oh sure a beautiful wall I suppose
“Illinois is so totally screwed already. Why not let socialists put on the finishing touches?”
Apparently, that is what it needed for a Chicago tax revolt. France got to taxes being 46% of GDP, when a Paris Accord fuel tax was the straw which broke the tax payers back.
But in France there was revolt bc taxpayers couldn’t escape. In Illinois people are leaving because they can. I cant wait until the next recession. It is going to be a hard reality for Chicago.
“Illinois is so totally screwed already. Why not let socialists put on the finishing touches?”
Amen, Brother Mish. The entertainment value goes way up every time a new socialist gets elected in Chicago, or when the old ones want to try another insane idea destined for failure.
I spent five years in Shitcago, then walked into my boss’s office one day and told him I’d take a 50% cut in pay if he’d let me work from home from anywhere but Illinois. He said no problem. I googled George Mason University’s State Freedom Index and a few months later was living somewhere so cheap I didn’t even notice the cut in pay. I was renting a ghetto apartment in Chicago for $1,100/month. In my new location, I paid $325/month for a house on a lake while building my dream house and shop on 20 acres. The only rent controls here are old school: supply and demand. No zoning laws, no building codes, no permits, no inspectors, no bullshit. I have to pay $23/month in property taxes, but there’s no escaping that anywhere.
The view is great from here: watching Shitcago and the rest Illinois implode. Keep the excellent commentary coming Mish!
What state did you move to?
Mish so you think that if rent is left to the markets then supply will fall because of “more supply”. The problem is that supply is not elastic. In other words construction is always constrained. If workers can’t afford to rent then you get homeless workers. Don’t think the solution is rent control but is not free markets either because like I said supply is constraint.
In every even semi-free market out there, from cell phones to food, stuff literally get thrown away due to what the economic illiterates call “oversupply.” Free markets will always “oversupply.” Prices of anything will always be low enough to drive the least efficient out of business. That’s how freedom logically has to work, in any endeavor with any uncertainty at all.
Housing is no different. Nothing is any different. Let anyone charge what they can get in rent, and anyone build what they estimate they can slap together and rent/sell profitably. You’ll have “oversupply” in no time. With affordability trends mimicking that of cell phones and raw calories: The poorest and most destitute, are the ones most likely to sit on the couch ordering greasy food on their cell.
The only reason housing hasn’t followed that cost and affordability trajectory, is because markets are not free. So, with Venezuela style intervention in housing markets; we instead get affordability trajectories like they have for food in Venezuela. Now ain’t that a surprise…..
Not to mention landlords are discouraged from maintaining their properties. They want existing tenants out so they can sell the apartments as condos instead of enticing them to stay.
My mom was a slumlord in Washington DC. Not only were rents controlled, but the tenants wouldn’t pay the rent and then would rip the smoke detectors out and call the fire department. My mom couldn’t charge rent until the units were up to code. She tried going to court, but was the wrong demographic to have any chance of winning. As people moved out, she didn’t rent the units. Instead she converted them to condos and sold them.
Yes, that is the result you get, and the result you should expect to get. No one will build new, and older units will be demolished or converted to condos. Since rent can’t go up, maintenance will go down. In the long run, the result is lower quality units, and higher rents.
In Chicago, it may work somewhat differently, given the rate at which people are leaving. There will be little market for condos, so the incentive to convert to condos will be lower. There will also be a declining number of potential renters, so as the supply falls, the demand will fall with it. It’s an open question whether rents will rise or fall long term. The only thing we can be certain of is that real estate values will fall, which will lead to increased budget problems, and a need for higher tax rates, which will increase the exodus, and further reduce property values. Illinois seems to have entered an irreversible death spiral.
Until prices are allowed to decline relative to income and tax receipts nothing will change.
On the bright side, California ruled against some pension holders and left open the possibility of reducing pensions under other clauses.
I lived in Illinois for a long time (too long) but I always figured eventually the voters would get tired of the stupidity and corruption of Illinois politics and straighten it out. I finally realized that (for reasons I still do not understand) Illinois voters would never get smart, so I gave up and left the state. That day was one of the happiest days of my life.
Oregon was quicker off the mark.
Why has no one mentioned Oregon?
Oregon, the Rent Control State – WSJ
“Governor Kate Brown signed legislation last week making Oregon the first state to enact statewide rent control.”
https://www.wsj.com/articles/oregon-the-rent-control-state-11551649913
Hmm…rent controlled cities are where some of the most expensive real estate exists. No one correlates one or the other, even when the evidence slaps them in the face.
Anyone simultaneously: 1)Sufficiently intelligent to correlate anything and; 2) sufficiently decent to not simply be out to justify stealing stuff; is necessarily simultaneously too intelligent and too decent to fall for any facet of progressivism whatsoever in the first place.
Like in all socialist societies…
Socialist programs benefit those in power and friends of those in power.
For the rest of the masses? You better vote the right and not cause any political problems or your name goes to the bottom of the list.
Mark Glennon has it right. This is perfect for Illinois. As they drive people out with taxes, there need some housing to go away, too. Of course, rent control will also crush the value of real estate, which in turn will crush property tax receipts, but they can always increase the rates even more, I suppose.