Rent Controls

[ravdin]

Rent control is criticized by economists on the left and right. Normally I wouldn't quote Paul Krugman, but I can't resist this one: "That great sacred cow, rent control, is a textbook case of economic stupidity".

http://www.pkarchive.org/column/6700.html

 

[The Don]

The proper way is to build more affordable housing. But there's no money in that.

It's very difficult to build affordable housing in the UK these days. Due to our (IMHO quite correctly) strict planning laws which prevent huge tracts of housing being built on green belt, development land within reasonable commuting distance of major UK cities is in short supply.

Brownfield sites are often prohibitively expensive to make safe (there's a prime site by the Bristol docks that cannot be built on due to heavy metal contamination) and greenfield sites are unavailable.

If the land alone is £100,000 to £200,000 and development costs are in the region of £1000/square metre then even a modest house soon becomes very expensive. I don't know about you but £300,000+ isn't that affordable for me.

Here in the UK we also seem to have a real fondness for individual houses each with its own garden, however small. That means that the number of dwellings is comparatively small. I suppose this is a reaction to the high rise council developments of the 60's.

So the development of affordable housing in cities like London is impossible without subsidies which themselves distort the property market.

Another problem is that so much personal wealth is tied up in housing that a correction in values to something more affordable (say 50-75% of current values) would result in significant economic pain.

Maybe an enormous increase in travel costs will result in a rebalancing of the equation and compel people to either live close to their places of work or work from home (or local office)

 

[Mojo]

Another problem is that so much personal wealth is tied up in housing that a correction in values to something more affordable (say 50-75% of current values) would result in significant economic pain.

Another part of Thatcher's wonderful legacy - it is now politically impossible for the government to do anything that would reduce housing costs (even if it wanted to).

Maybe an enormous increase in travel costs will result in a rebalancing of the equation and compel people to either live close to their places of work or work from home (or local office)

And increase housing costs near those places of work even further.

 

[The Don]

Another part of Thatcher's wonderful legacy - it is now politically impossible for the government to do anything that would reduce housing costs (even if it wanted to).

It's not just a case of blaming Thatcher, she was already tapping into a public demand to own their own homes. The number of new households is growing faster than the number of properties. Unless we have a huge house-building programme (for which capital and land would be required) then the imbalance between supply and demand will persist.

What makes the situation even worse is that necessarily housing is in shortest supply where labour is most in demand.

If we wanted to reduce housing costs we could:

• Lower land costs, but if we want any kind of control over the planning process then land prices will remain high and in places like central London land is simply unavailable unless the gardens of mansions are going to be requisitioned
• Reduce the costs of building housing by lowering wages - I don't want that to happen
• Lower the cost of housing by having less stringent ecological standards and building regulations - I don't want that
• Building houses in new and innovative ways or to new and innovative designs - the conservatism of the British housebuying public seems to be against that. We seem to like our little brick-built boxes
• Lowering the cost of money - it's already at all-time lows and last time we had unfettered lending we got into toruble

If we want affordable housing in cities then we probably need high density housing and I certainly wouldn't want to live in a tower-block unless I could be sure that it was going to be looked after.

And increase housing costs near those places of work even further.

Or persuade those people who can, not to travel to work. I have lowered demand for housing in London by living in Bristol while having a job in London. I have lowered transport costs by working from home 4 days a week.

I know there are many jobs where you can't work from home (plumber, waiter, surgeon) but if enough people like me who can work remotely do so, it may take some of the heat out of the local housing market.

 

[Darat]

...snip...

Here in the UK we also seem to have a real fondness for individual houses each with its own garden, however small. That means that the number of dwellings is comparatively small. I suppose this is a reaction to the high rise council developments of the 60's.

...snip...

But apparently we build the smallest homes in Europe: http://news.bbc.co.uk/1/hi/8201900.stm

 

[lomiller]

Generally speaking I think there is broad agreement among economists that rent controls are not a good thing and do more harm than good.

The possible exception I could see would be to limit very large year over year increases. A few years ago my cousin renting in Calgary had her increase from $700 a month to $1900 a month with no changes to the building. This seems excessive and I could probably support some regulation to prevent things like this.

 

[Darat]

...snip...

If we want affordable housing in cities then we probably need high density housing and I certainly wouldn't want to live in a tower-block unless I could be sure that it was going to be looked after.
...snip...

That's the problem - traditionally in the UK the lower cost and social high density housing has been appalling.

 

[The Don]

But apparently we build the smallest homes in Europe: http://news.bbc.co.uk/1/hi/8201900.stm

I wonder if this is in part due to the fact that we love single family buildings so much. We all want our own little detached, semi-detached or terraced house so much that the land gets used up in gardens and so forth.

There simply isn't enough available land to build properties like this in central London. Then again, if recruitment and retention of staff becomes too much of a problem due to housing costs, perhaps companies won't be so obsessed with being based in London.

 

[geni]

I wonder if this is in part due to the fact that we love single family buildings so much. We all want our own little detached, semi-detached or terraced house so much that the land gets used up in gardens and so forth.

There simply isn't enough available land to build properties like this in central London.

Central London is one of the few places where people actualy have started building reasonable quality flats on any scale.

 

[WildCat]

There simply isn't enough available land to build properties like this in central London. Then again, if recruitment and retention of staff becomes too much of a problem due to housing costs, perhaps companies won't be so obsessed with being based in London.

High rise residential buildings, shops at ground level.

Sensible cities did this a century ago.

 

[citizenzen]

Modern capitalist economies require people at different levels on the income scale in order to function. It therefor facilitates the smooth running of the economy if those in lower paying jobs are able to live within a reasonable distance of their workplace.

There is also the issue of those that work in public utilities such as the police and fire service.

^^^ In a nutshell. ^^^

 

[The Don]

Central London is one of the few places where people actualy have started building reasonable quality flats on any scale.

Well that's a good start. Now let's see if a typical family can actually afford to live in these flats. When I worked in Canary Wharf there were plenty of high quality flats available in the immediate area but they were too expensive for working families and were geared more towards professional couples.

Anyway, I apologise for using London as an example. London is not typical of the rest of the UK and its size and wealth distorts the UK economy.

 

[The Don]

High rise residential buildings, shops at ground level.

Sensible cities did this a century ago.

Too right ! For some reason we Brits seem to like our little boxes.

 

[The Don]

^^^ In a nutshell. ^^^

Agreed, but how ?

If the market rate for rents in an area is X and the amount that a key worker can afford is Y (which is less than X) then who provides the X-Y ?

If it is in the form of a housing benefit then the state is effectively subsidising the employer who doesn't pay key workers enough to afford to pay X (and the state is one of those employers).

If it is in the form of rent control then the state is penalising private landlords and reducing the amount of property available (if I can't get a reasonable rental return then I may not rent my property).

If it's by providing subsidised social housing then it distorts the rental market, subsidising badly paying employers and introduces a range of unintended consequences including:

• Long waiting lists for social housing which results in people not moving when their job moves. It's not unheard of for someone to live in social housing in one town and commuting to another town
• Misuse of the social housing stock. I know a retired couple living in a 5 bedroom social house that costs them next to mothing. They were assigned the house 40 years ago when they had children. Now it's just the two of them they refuse to move, because it's "their house" and it's so cheap that there's no financial incentive for them to move
• Either having people on good salaries living in subsidised public housing (so having the less well off subsidise the better off) or if you move these knod of people on, creating "ghettoes" of social housing inhabited by problem families

 

[WildCat]

There's really no way to build affordable housing in an area lots of people wish to live at. Land prices alone in such areas are unaffordable, never mind the housing to be built on it.

Chicago has an idiotic set-aside provision, whereby large developments have to include a certain number of "affordable" units. What happens, of course, is people buy the affordable units and then flip them for full price after a year or so for a fat profit. Entirely predictable to anyone who understands the basics of economics, but completely lost on politicians.

 

[Darat]

There's really no way to build affordable housing in an area lots of people wish to live at. Land prices alone in such areas are unaffordable, never mind the housing to be built on it. ...snip...

Of course there is. Perhaps you meant to add a conditional along the lines of "if you want the free market to build and price housing" to that?

 

[WildCat]

Of course there is. Perhaps you meant to add a conditional along the lines of "if you want the free market to build and price housing" to that?

Of course there's ways to do it, I was going under the conditions set forth in this thread. High rises are out, for example. And that's a tried and proven method of making more housing available on any given space. But apparently London doesn't want to do that.

So now you have an absurd situation where 5 million households want to live in an area with only 100,000 units of housing (I'm using a bit of hyperbole here to prove a point, I have no idea the actual numbers). There is no free market way to make that affordable, that's for sure.

So perhaps you wish the government to buy the land and build the housing in order to make it affordable. Which they could certainly do, but that does nothing to alleviate the shortage. You still have 5 million households chasing 100,000 units of housing, presumably there will be a lottery of some sort to decide who the few lucky ones are. End result is there's still no place for the vast majority of low-skilled workers to live in the places they're most need to work, and they're still resigned to a long commute from the outskirts housing they can afford.

By building high rise residential buildings you increase the supply of housing in the central area, which takes the pressure off housing prices. And while the low-skilled workers might still be unable to afford it they should at least be able to afford to live nearby. If high rise construction enables 100,000 more people to live near where they work that's 100,000 less commuters clogging the streets, trains, and buses every day.

Basically, any solution that doesn't include a long-term plan to encourage high rise construction is doomed to failure, whether it's public or private housing. Yes, it will drastically change the way London looks but it would make it a much better place to live. And the construction boom would last for decades. And no, it wouldn't have to look like Hong Kong!

 

[The Don]

For most British people to see the advantages of high-rise living:

• The quality of the high rises would have to be high
• Significant money would have to be spent on upkeep - that would result in a high maintenance charge
• We'd need to re-educated into the benefits of high rise living and learn to love communal outside space
• We'd need to banish the memories of 60's high rise social housing (the first two points may help in this regard)

 

[The Don]

What happens, of course, is people buy the affordable units and then flip them for full price after a year or so for a fat profit. Entirely predictable to anyone who understands the basics of economics, but completely lost on politicians.

One of the problems in rural UK is that locals who typically are on low wages can no longer afford properties which are being snapped-up by city dwellers as second homes.

I was talking to a friend about this and although he is disadvantaged by this he is not sympathetic. His opinion was that if locals wouldn't sell to people who want properties as second homes then there wouldn't be an issue. It's a little bit hypocritical to complain that your children can't afford to live locally when you've sold the cottages on your farm to London holiday makers.

 

[daenku32]

Of course there's ways to do it, I was going under the conditions set forth in this thread. High rises are out, for example. And that's a tried and proven method of making more housing available on any given space. But apparently London doesn't want to do that.

So now you have an absurd situation where 5 million households want to live in an area with only 100,000 units of housing (I'm using a bit of hyperbole here to prove a point, I have no idea the actual numbers). There is no free market way to make that affordable, that's for sure.

So perhaps you wish the government to buy the land and build the housing in order to make it affordable. Which they could certainly do, but that does nothing to alleviate the shortage. You still have 5 million households chasing 100,000 units of housing, presumably there will be a lottery of some sort to decide who the few lucky ones are. End result is there's still no place for the vast majority of low-skilled workers to live in the places they're most need to work, and they're still resigned to a long commute from the outskirts housing they can afford.

By building high rise residential buildings you increase the supply of housing in the central area, which takes the pressure off housing prices. And while the low-skilled workers might still be unable to afford it they should at least be able to afford to live nearby. If high rise construction enables 100,000 more people to live near where they work that's 100,000 less commuters clogging the streets, trains, and buses every day.

Basically, any solution that doesn't include a long-term plan to encourage high rise construction is doomed to failure, whether it's public or private housing. Yes, it will drastically change the way London looks but it would make it a much better place to live. And the construction boom would last for decades. And no, it wouldn't have to look like Hong Kong!

I've been a bit of an advocate for high-rise residential building in both Indy and now in Ft Wayne, here in Indiana. But the problem is that the high-rises appear to need those luxury apartments to make them feasible in the free-market. Of course the people who need them the most are the working poor, just like you said. So for those areas (unlike Chicago), the social demand is there but money is not. The only way I see around that is through a public investment, where the subsidy is merely a transfer from road or similar infrastructure funds that would otherwise be used to maintain corridors for longer commutes, or utility expansion in the suburbs.