Credit John Cochrane for a brilliant blast of rent controls.
A Way Out of the Affordability Crisis [Not]
Let’s start with an inane post on the New York Times Economists Hate This Idea. It Could Be a Way Out of the Affordability Crisis.
That’s a free link for those who wish to get nauseated. It’s by By Neale Mahoney and Bharat Ramamurti. Mr. Mahoney is an economist and Mr. Ramamurti is a former deputy director of the National Economic Council.
That post was the impetus for the excellent post by Cochrane on rent controls.
The amusing (or do I mean pathetic) thing about the NYT article is Mahoney and Ramamurti make the proper case against rent controls, then support them anyway on grounds they will be temporary.
Cochrane blasts the NYT article in his post, Price Control Apologia, which we will now discuss in detail.
Price Control Apologia
Prelude: In his post, Cochrane, notes “Mahoney is also the director of the Stanford Institute for Economic Policy Research, of which I am a part.”
It’s not often academics for the same institution blast each other. Even rarer is a blast of one’s boss and the organization too.
Cochrane sarcastically comments “when the boss writes a New York Times oped in favor of price and rent controls, that inevitably tells you something about the strategic direction of the organization.”
Indeed! And it also says something about the integrity of Cochrane who is willing to criticize his boss in a column.
I will leave out Cochrane’s point-by-point blast of Mahoney until the end. Mostly I just post the key ideas from his article.
Please consider Price Control Apologia by John H. Cochrane, The Grumpy Economist. Emphasis is mine.
A rent control is the same as a tax on landlords used to subsidize the rents of current tenants. You may picture a giant corporation, but many landlords are sympathetic individuals who worked hard and saved and use the apartment to fund their retirement.
A rent control only makes rental “affordable” for the lucky recipient. It does not make rental housing more “affordable” for society as a whole. It does not increase the number of people who have housing. Indeed it reduces that number. It just changes who gets it. It does not even make housing more “affordable” on average. For those who want it must now pay with time, and inconvenience, or pay by foregoing the great opportunities that moving to the city provided.
There is no blob of “government” money, or “policy” that can make something affordable for one without making something else less affordable for another.
Remove the barriers tomorrow — zoning, planning, density and height restrictions, dozens of separate permits, labor restrictions (unions, high minimum wages), and so on — and you could get actual new housing before the next presidential election.
Everyone is focused on building, but “supply” is so much more than building. There is tremendous supply in using more efficiently what we have now. Most cities have laws against renting parts of single family homes, or sharing larger homes. Think how many spare bedrooms are empty every night. There is plenty of housing supply in the US, it’s just not in places where people want to move. Others moving out is “supply,” and greatly impeded.
Older people stay in too-big houses and apartments, in locations close to work and school opportunities that young families desire, but the older people no longer need. Why? If they sell, they are taxed on capital gains, even just due to inflation. They lose property tax exemptions, and, of course, rent control protection. Each older person who cashes in, downsizes, or moves to a more neighborhood more suited to them, supplies a house or apartment.
The non-portable fixed rate 30 year mortgage, an invention of our federal housing subsidy regime, leads people to stay where they are rather than move to where they want to go, and free up a scarce house or condo for someone else.
Strong apparently “consumer protection” laws in rental contracts dry up the supply, especially to the marginalized. If you can’t kick people out, you’re much more careful who you let in. Limits on short term rentals limit rentals. Remove rent controls, permanently, and houses and condos can be rented. Many houses and apartments need rehab, not new construction, which can happen very quickly once owners know they will not be robbed of their investment. Even “affordable” housing leads people to stay where they are, rather than move to better opportunities for them and free up an apartment for someone else, because it’s rationed with long waiting lists.
When Javier Milei ended rent control in Buenos Aires, rent went down. Instantly. Nothing had to get built. It can happen in Manhattan.
Contra Mahoney and Ramamurti’s assertion that price or rent controls are alternative to demand subsidies, they are exactly the same thing as a tax on suppliers used to fund demand subsidies. With a fixed supply, the number of people who have houses is fixed. The only effect of rent controls or demand subsidies is to change who gets the houses.
New York put in “temporary” rent controls in WWII. 80 years ago. Congress passed “temporary” Obamacare subsidies during the pandemic, and we just shut down the government for a month and a half over that. “Rent caps on existing units” have been tried by every single failed rent control regime in history. Tax away the hard-earned investment of existing landlords. But apartments need maintenance and even the Times runs stories of apartments vacant in Brooklyn because it’s not worth it for landlords to fix them, since they were built before the last “existing unit” freeze in 1974. Plus, every investor knows that what can be done “just this once” can be done again. “Government investment in new housing?” California specializes in that, featuring $1 million one bedroom units for homeless people. Come tour the ruins of Chicago’s housing projects. And once again, just where is this endless pot of money? Let’s see, 3 million homes at $500,000 per home is $1,500,000,000,000 yes one point five trillion if I got my zeros right. Not exactly couch change on the government budget.
You must live in quite a bubble not to know about the trillions of “government investment” in solar panels and windmills we already have. California leads the way. And also has the highest gas and electric prices in the nation. And you must have forgotten a lot of economics to not recognize that “household budgets” also have to pay the taxes that pay for these “investments.” California’s electric utilities and refiners are barely scraping by, rather than being effective pots of tax money, so that “shielding” of some household’s budgets will come from other households.
This is politics, not policy, redistribution in the name of electoral gain, as Mahoney and Ramamurti make clear. There is no “policy.” There is politics. This is redistribution by force. For better or worse, but don’t sugar coat what you’re doing.
“Step in if there are signs of price controls becoming permanent or spreading to other parts of the market.” Hello? 80 years is not permanent enough? Are not “policymakers” like the new mayor of New York “stepping in” precisely to extend and expand controls? Sunset clauses are sunrise clauses. “Targeting controls to well-defined groups — such as existing tenants and low-income households.” After “budget constraint” lesson 2 of Econ 101 is “incentives.” When existing tenants get a big break, they have a big incentive to remain existing tenants, see above. When households experiencing low incomes (I refuse to use “low-income” as an immutable characteristic) receive benefits they have a big incentive to remain low income.
The final paragraph [From the NYT article]
In a cost-of-living crisis, the question isn’t whether to intervene, but how to do so in a way that delivers relief today without creating new problems tomorrow.
Why would two excellent economists pander in this way, selling obvious fantasies to justify price controls that have been tried since Diocletian (300AD) and failed every single time? Well
In New York, the democratic socialist Zohran Mamdani ran for mayor on a simple promise to “freeze the rent,”.. like it or not, voters are demanding short-term price relief, and temporary price controls may be the only viable way to provide it.
Apparently, when voters want something and politicians want to promise it, our jobs as economists is to offer somewhat fantastical “policy tools” to justify it.
A last thought. Mamdani, if he does follow through on his policies, will indeed make Manhattan much more “affordable.” Chase away all the wealthy people, all the businesses and business owners, and apartments will be cheap. Detroit is affordable too. Be careful what you wish for, you just might get it.
Well Done Grumpy Economist
Thanks for blasting your boss in public. He deserved it.
One small correction: Regarding “Why would two excellent economists pander in this way, selling obvious fantasies to justify price controls that have been tried since Diocletian (300AD) and failed every single time?”
Why?
Could it be they are partisan hacks, not excellent economists?
It’s hard to call your boss a partisan fool in public, but Cochrane’s scathing rebuttal suggests that without saying it.
Meanwhile ….
Trump Proposes 50-Year Government-Backed Mortgages
FHA head, Bill Pulte said the proposal is a “complete game changer.” Yeah right.
Pulte is heir to homebuilder PulteHomes. Gee, does anyone spot the obvious conflict of interest problem?
Mish Alternate Proposal
The first thing I would do is fire Pulte.
More importantly, I would end the the FHA, HUD, Fannie Mae, and Freddie Mac.
Every one of those agencies increased demand for houses and thus prices. We need less interference by government not more.
On November 10, I commented Trump Proposes 50-Year Government-Backed Mortgages, I Propose Something Else
Government has no business in the home ownership business.
50-year mortgage would be another trap that will lock people in their homes, likely underwater on their mortgage if there is any serious decline in home prices, which I expect.
Please click the above link for comparison of interest paid on 15, 30, and 50-year mortgages over time.
“Show me the incentive, and I’ll show you the outcome.” -Charlie Munger
Folks want to live and work in the greatest city on earth AND they want it to be ‘affordable’.
When the city becomes squalid, unsafe and mediocre then they will get their wish.
Until then- good luck!
certain parts of NY city are long on their way
There are millions of people in NYC that have lived under rent control for decades. Some even live in very expensive parts of the city, in large apartments or lofts and pay next to nothing. Many are in their 60’s to 80’s. Rent control in NYC isn’t going away anytime soon.
Stop corporations from owning houses and the need for rent control will disappear.
Remove the tax benefits for owning houses and the price of houses will plummet.
Elect me President and I will make these things happen!
You all know this could go in an interesting direction.
Imminent domain has been used to take(by force) property for the “common good”, which really means it benefits corporations these days. Look at the data center issues going on now.
When housing interests become a public interest, maybe the gov’t claims ownership and force sales…
I still argue that residential use homes should be banned from purchase by investment groups (looking at Berkshire Hathaway out in my neck of the woods)
A person moving out doesn’t fee up space. That person has to live somewhere. People move around, space doesn’t.
With rent controls the landlords income is fixed. Costs such as property taxes, insurance, utilities continue to rise. The only cost the landlord has some control over is repairs so those don’t get done or get minimized. Overtime the building will fall into disrepair and will likely get demolished and replaced with resale housing. Then your rental stock starts to disappear. No one wants to build new purpose built rentals in a rent control environment.
So then government steps in to “incentivize” the construction of purpose built rentals in an attempt to solve the problem they created at taxpayer expense.
Government should either stay out or take responsibility for everyone’s housing like in Russia.
How that had no upvotes until I did is beyond. What you described is exactly what has happened to NY city for the last what 50 years??
I guess liberals just can’t acknowledge their mistakes. Nor do they ever look in the mirror
NYT Economist. That’s all you had to say, Mike. From this alone, I was able to predict 90% of their word salad deflection argument.
They may have degrees in economics, but may still be living with their parents.
It seems to me there is a size where cities become unaffordable. The average smoo cant make it work. Has to move to say jersey. Then at some point even that wont work Time and income. They may be plenty of jobs but travel cost etc take to much from wages
Rent control is a support of the system. .
Businesses would need to /should increase wages. Or relocate. So rent control can be looked as government support of industry /wealthy/and the city itself and not just helping the workers. Got to have the average joe to smear cream cheese on their bagels/ clean offices etc
Not saying i agree with rent control. I just spent a bunch of years in a ski town watching the working class get pushed out and have to commute from farther away to work. Even the commute town was getting expensive.
The WFH (Work From Home) movement had the potential to change the necessity to live relatively close to where you worked.
But then the city politicians and the corporate CEO’s recognized that the economic models of all cities was based on people coming into massive buildings downtown, which created many service and satellite businesses, which could then be taxed to fund the operation of the city.
This all went out the window with WFH, which is why it has effectively been terminated as a movement.
I agree that rent control is bad, but here’s a thought experiment: How many mom and pop landlords would (fire) sell all their rentals if legislation was passed to freeze rents for a decade? What would that do to home affordability for first time buyers who are currently completely priced out? Mom and pop landlords are estimated to own 11 million rental homes. Add in investors, who are defined as owning ten or more rentals each, and the number approaches 50 million. There are only 130 million total households in the US, so a fire sale of 10 million or so households over the short timespan of just a year or two, or even three, would definitely make a huge dent in affordability levels.
would they sell or just milk them, until they add to the slum supply, then walk away?
(1) They’d make more on the sale rather than having inflation eat away at theier annual payments, especially considering that tax, maintenance, insurance, and arbitrary government “code compliance” edicts will bleed them dry.
(2) More and nore lanlords would be selling over time as they snap out of their slumber and realize they are living through a waking nightmare. So you have constant depreciation costs for every month you hold the property to worry about in addition to inflation cutting into your returns as described in (1).
Yes, better to hand all those problems in (1)&(2) to the person the government is trying to protect from reality. Once they land in reality as a resident owner with no protection from inflation and government, and with no write-offs they will eventually hand the property back to the bank/mortgage holder.As you stated, “tax, maintenance, insurance, and arbitrary government “code compliance” edicts will bleed them(the owner) dry.”
Why should someone be for forced to sell their rental prop so someone else can buy it. If its rented it occupied.
Anyway rent tends to be on par with the cost of a mortgage/ prop taxes and expenses of owning a home.
‘for a decade’ – wink wink, know what I mean?
Carrots and sticks — that’s supposed to be how the game works to create a balanced economy. Unfortunately all the carrots have been for the investor class and all the sticks have been for middle class citizen as corrupt financialization took over, Invasion of the Body Snatcher style.
“Fire sale ” a home? How you do that when people can’t qualify for a loan? Do you seller finance to buyers with questionable credit? Do you sell to people who never owned a home before and have no idea how to maintain it? Will the buyer be able to afford to escrow the money required to pay the taxes and insurance? Guess what, home ownership costs can not be frozen. They go up with inflation. Inflation goes up because the government prints more money to fund public and private debt. When government quits trying to solve everyone’s problems, there will be fewer problems. That just might be deflationary. That means the dollar buys more goods and services. Why work for inflated minimum wages to be able to buy a hamburger at an equally inflated price?
no files will be released
bondi will be investigating under trump’s order until 2028
it’ll end up like the geraldo vault
look out!! Trump’s behind the lamp! He’s coming to get you!!
So let’s see if Mamdani figures this out. I guess doing rent control is easier than taking on the establishment that controls the building / permitting process?
If you’re the mayor, you should be able to install your own people & get these much more important impediments changed rather than concerning yourself with rent control which DOES NOT create equal outcomes.
Sounds like dressed up DEI to me. I wonder what the ratio of minorities to whites will be for those who get rent control & those are denied. Something tells me the minorities will win in a landslide.
Impossible! I have it on good authority from commenters here that Trump has put an end to DEI permanently and irrevocably so that can’t be it.
More jokes. Never any real analysis. Mamdani & all of his liberal supporters love DEI. DEI ain’t dead in NYC that’s for sure.
If it wasn’t for DEI, Mamdani would be selling vacuum cleaners door to door while hocking penny stocks in his free time.
What about California and Illinois? Or blue states and cities for that matter? And if Trump didn’t shut it down for all those cities and states then why claim he’s eliminated DEI as a big win?
Try to think carefully before you fall into another logical trap that’s just been set here 😉 with your response.
Logical trap. ROTFLMAO! Dude, you couldn’t lay a logical trap any more than you can flyoff to SE Asia on this fake exfil you espouse about.
I have said MANY times here on Mishtalk that Trump’s big mouth is his worst enemy. Now, with that said, Trump has put a pretty big hurting on DEI. It’s well on its way out the door in DoW & many other federal agencies. Corporations are really starting to turn away from it.
TACO is the last person that ANYONE should take literally a=to think EVERYTHING that comes out of his mouth has solid truthiness.
Trump shot himself in the foot. Hes ended dei what are they gonna do now. Republicans been beating the dei boogie man/ woman to death. That part of the culture war is over now they will have to focus on policies.
Yes, it’s either admit complete failure if DEI is still active (which it is) resulting in nothing more than a huge waste of time and money or claim it’s ended which will turn out to be easily proven to be a lie and people will ask/question why he Trump didn’t end it if they are campaigning on it.
“Sunset clauses are sunrise clauses.”
In CA, after the 2008 Great Ression, there was a ballot measure to temporarily increase taxes on the rich, to support schools. When the tax was set to expire, there was a ballot measure to make it permanent.
The rise of the GSEs was predicted as a result of the DIDMCA of March 31st 1980. It turned the nonbanks, the thrifts, into banks, directly causing the S&L crisis. This was exacerbated by the H.R.6267 – Garn-St. Germain Depository Institutions Act of 1982.
The economy has been run in reverse for decades. It’s amazing that we have done so well in spite of the American Bankers Association’s efforts to cannibalize savings deposits.
Government intervention in housing should be contrasted to George Bailey’s It’s a Wonderful Life
“The economy has been run in reverse for decades.”
Becoming producer to the world was something that had to reverse, as Europe and Japan recovered from WW2. China has become producer to the world, after coming out of its economic vacuum. That will reverse, also.
With rent controls you bankrupt small landlords because they won’t have enough money to keep buildings up to code. Then you confiscate their buildings, and sell them to big corporations who will keep them “barely up to code”. Mamdani’s proximity to Alex Soros speaks volumes about this.
It’s not socialism. It’s transferring wealth from small landowners to big landowners.
This sounds about right. And does nothing to increase supply of housing. But does support the expansion of barely-maintained properties
50 year mortgages!? Wow.Taking rent your life to new depths.
The one thing I know for sure is that despite all the rhetoric about people leaving New York because of Mamdani or any other New York policy, it never seems to happen. The link below has a collage of pundits claiming millionaires will leave New York city for the past decade….
https://www.youtube.com/shorts/aPIkEOvJLe4
I’m against rent controls but if rent controls have existed for 80 years and hampered investors then why are they still there?
It seems there are 2 issues conflated here.
1. will the wealthy move out
2. will rent controls make investors leave
As far as investors someone has to own the properties. A better question is
1. are investors maintaining and improving properties?
2. are they investing in new buildings
Since serious rent control started in 1969 new york housing stock is up about 19% close to zero annual average growth over 56 years.
Nationally housing stock has roughly doubled. There is clearly an impact here.
I’m not sure what specific policies the montage in your video references, but we have adequate evidence for things like wealth taxes on behavior.
To argue this isn’t going to be impactful is arguing against supply and demand. When its more expensive to be a millionaire in NY the demand for residency declines. The exact amount is subject to elasticity, but the proponents of these idiot policies seem to think elasticity is zero.
“To argue this isn’t going to be impactful…”
That’s the point. NYC has had all sorts of crazy stuff happen to it: 9/11. Covid, endless tax regimes, Rudy Giuliani, and other disasters.
But through it all, it keeps ticking on and even if people leave, they are quickly replaced by others moving in. NYC is still the most populous city in the USA and has been no matter what crazy politicians or tax policy are implemented. There is a 400 year history record there.
Same is true for California.
I get it, people here don’t like NYC policies but the narrative that “everyone’s leaving” is a joke.
So is the narrative that nobody is leaving. CA specifically has been seeing net domestic out migration for awhile now. The narrative that this idiocy is harmless and not causing people to leave is also a joke as you surely know.
Edit: I’ll also add NYC population is believed to have declined since the 2020 census.
You can compare all the states and cities at the link below. Overall the movements are trivial. Red states lose as much as blue states on a percentage basis overall.
https://worldpopulationreview.com/states
But you’ll believe whatever you want despite the data.
Its almost as if you are illiterate.
I never disputed these places have large populations, they do.
I asserted people are leaving, they are.
Some actual data related to my assertion. Note NY and CA
https://www.newsweek.com/states-where-americans-moving-map-2090494
NYC has gained population past few years. lots left during covid years, but more returned in past 3 years. a fact.
Great point. Chicago and Tuscola are in the same color state. Nobody is driving a horse and buggy down The Dan Ryan, either.
NY is losing higher income folks and gaining migrants that have no or minimum wage jobs and pay no taxes and get free everything.
But yeah, act like that has no real effect on NYers
rounding errors of humans leaving NYS or CA in past 25 years.
Bring back The Squeegee Men.
correct. littleknown fact. manhattan population topped out when the brooklyn bridge was completed. that’s a long time ago kids. 1800s.
Rent control is not bad, it makes the property value drop which is welcome. The government can also build new supply and rent it out, ban Air B&B unless the entire building is designed as an hotel, and tax any unused apartments with the full value of what the rent could bring. Transactions on the NY Stock exchange can be taxed to ensure no borrowing is needed.
So basically, theft.
Taxation is not theft. Just as you tax to have the world’s largest military in the world, you can also tax to have affordable health care and housing. Just try to target the top strata in society when doing so to avoid placing more burden on the middle class.
No one likes actual solutions to problems. Solutions are “threatening”.
This is so damn stupid it sounds like sarcasm
sad to say but I bet it is not sarcasm. Just the typical American educated 30 something year old that maybe grew up in an upper middle class home.
I’ve seen a lot of those
The word nazi includes ‘socialist’ in its moniker. Whether you go too far to the right or too far to the left, the same fascist bottom of the circle is reached with an authoritarian government seeking absolute power (accompanied with absolute corruption) as the recipient universal winner. The German fascists introduced price controls in 1934 with violations a few years later punishable by death.
The Fed has a reverse price control scheme broadly termed QE, causing (usually) controlled asset and entity price inflation (including rentals and health and all insurances) which is the needed sine qua non in a debt dependent system. Here the big banks, too big to fail, are the universal ultimate winners.
The Fed’s recent 4 year anomalous 150 billion spike injection into SOFR market over the last 2 and 1/2 weeks is the canary in the coal mine showing that the banking industry is having a dSCP/dt2 Serious Collective Problem with its short term debt obligations. There are cockroaches everywhere.
Asset Crash devaluation this week following a 28 Oct 2025 to 20-21 Nov 3/7/7-8/5-4 day 4-phase fractal decay pattern?
To deceive Germans into entering the tent show.
Please use a minimum of 2 dimensions when thinking about and discussing political labels. The fact that people have to say things like your 2nd sentence should be a clue that 1 dimension does not capture enough information.
Socialists differ from fascists in the way wealth is shared or not. Authoritarians differ from anarchists in the way power is centralised or not.
I, for one, prefer socialism and more anarchy than we have now. Concrete examples of changes I’d make? “No” to rent control, minimum wage laws, and micromanagement generally. “Yes” to exponential wealth tax rates (to end oligarchy) and UBI.
What we have now is too much centralization of power, in the hands of oligarchs, their political appointees, and their secret police.
And yet Mrs. Vanessa Wingardh says in her video (title: Billionaires Owning Everything Just Got Worse…) at https://www.youtube.com/watch?v=-VSvaiXeNI8
at time point 11:51, that Sweden has a higher wealth inequality than the USA per the UBS recent report.
I think it’s time for the Disneyland paradigms of Scandinavian happy hobbit villages to end. Yes, there is a lot of power in the hands of few wealthy people, and in communism there’s all the power (not just “a lot”, but all of it) in the hands of the party leadership.
But I remember you guys celebrating the “liberal and cool” Silicon Valley overlords 10-15 years ago because they appeared so casually dressed and relaxed…
I remember that back then, the ultimate in Deep American Political & Cultural Thinking was “how you dressed and how relaxed and liberal” you looked.
Construction workers and car mechanics were the barbarians back then, the deplorables. The Silicon Valley millionaires were the good guys. How does it look now? Changed your mind?
How do you plan to enforce that socialism in an anarchist environment or is the anarchy only for looting Target for big screen TV’s and such?
A. UBI. We already have UBI. It’s called food stamps, checks to pay childcare, health insurance subsidies, and so many other provisions, that ended up, according to Mr. Alexander (PA commissioner of welfare) in a “Welfare Cliff”. You should read the report. Workers refusing promotions, because the small increase in salary meant they would lose all those benefits. Who in his right mind, especially young people who value their free time a lot more than work, would start earning more money than the limit over which they would lose the UBI?
B. Wealth Tax. President Francois Hollande tried it France, and cancelled it almost immediately. Because the wealthy started leaving he country or selling properties. What happens when you keep selling an asset class (or a stock)? Its price decreases, yeah? And it decreases even faster when nobody wants to buy it anymore (due to the taxes).
There was a thought that the government would “confiscate wealth” and sell it to give the money to the poor. Ok, but sell it to whom? The minute they start selling, the price of the asset will go down. And the buyer will say “I won’t buy it, if you are planning to confiscate it in the future“. So the asset remains in the government balance sheet with a corresponding liability on the other side (basic accounting).
You guys have all graduated high school, right? Because this is high school knowledge.
… Or a 1929 fractal self similarity fractal pattern ? akin to the 12 August 1929 to 13 Nov 1929 daily conjoined final peak growth and initial nonlinear crash decay sequential fractal series patterns: 5/11/(8) days; the (8) day 3rd Fractal of this series contains the 3 Sept 1929 peak and a(conjoined) (8)/19/16/12 day 4 phase crash fractal series decay pattern. Starting 10 Oct 2025 a possible self similarity fractal pattern to this 1929 edition is : a 3/6/(4) day growth series and a conjoined (4)/10/8 of 8/1 of 6 day 4-phase fractal crash decay pattern ending with a transient nadir on 25 November 2025 with the peak valuation on 29 October 2025 contained in the 10 day 2nd fractal of this crash fractal series.