Why do people drive up rents?

Muteflute, what you describe is precisely the problem with a lot of well-intentioned initiatives that are supposed to be temporary. Once you create entrenched interests and set a precedent, it becomes impossible to roll things back. Rent controls were originally established during the rationing periods of WWII and were never intended to be permanent--60 years later, they're as strong as ever (at least in NYC). The costs to the rest of us are diffuse, so no one really notices, while the costs to an 85 year old woman of having her stabilized apartment suddenly quintuple in rent would be crushing.

Check out some of these excerpts from this GREAT article in the Economist, or just read the whole thing yourself here: http://www.economist.com/world/na/displayStory.cfm?story_id=1826620

Only one-third of New York City's 2m rental apartments are free of some kind of price restraint.

Technically, new construction is free from these constraints. In fact, a complex system of tax inducements persuades most clever builders “voluntarily” to agree to rent-stabilisation restraints. Not surprisingly under these conditions, building is anaemic; even with the largest surge in construction since the 1960s, the number of building permits issued in the past year will add less than 1% to New York's housing supply. Needless to say, in such a sclerotic system, the poor suffer most.

...there is growing evidence that the transition from a strictly regulated to an unregulated market is less painful than people like Mr Silver make out. The most striking example has been in Cambridge, Massachusetts, where tight restrictions were lifted in 1994 after 23 years. A study by Henry Pollakowski, an economist at the MIT Centre for Real Estate, shows no dire consequences. Instead there has been a huge surge in housing investment, even allowing for the 1990s housing boom.

It is hard to find any economist who supports rent restraints. Price controls, even if laboriously tweaked, inevitably produce inefficiencies, reduce supply and cause bad side-effects. Black markets and bribery thrive. Building maintenance is often ignored. Landlords and tenants find themselves in poisonous relationships, since they are linked by law rather than by voluntarily renewable contracts. Unscrupulous property owners go to dangerous lengths to evict tenants in order to get higher-paying replacements; as a result, tenant-protection laws have been enacted that make it almost impossible to evict even a scoundrel.

Oddly enough, for those landlords adept at navigating the system, returns are likely to be unaffected by price caps, as long as properties were acquired after they had been imposed and the potential for income is understood. Indeed, although the press depicts the fight over price restraints as tenants versus landlords, it is more accurate to see it as tenants paying a below-market rent versus tenants who, in effect, pay the cost of this subsidy.

Who, then, are the lucky tenants? According to another study by Mr Pollakowski, most benefits go to tenants in lower and mid-Manhattan, where the residents are relatively wealthy. The city's poorer folk, most of whom live in the outer boroughs, receive little or nothing.

Ben wrote:
So the OP is right that the frequency at which people move can impact prices but the direction is wrong. Moving more often will LOWER prices for the general population, i.e. those who do not have a regulated unit.

escap wrote:
It's an undisputed and central truism that price floors create surpluses and price ceilings create shortages.

Clearly rent control and rent stabilisation create an artificiality, in which increasing the liquidity of the overall market (moving more often) would decrease prices for those renting at market price.

If the rental market were liquid and efficient, prices would move up and down rapidly in response to supply, demand, changes in fundamentals like costs, wages and local amenities. What effect do changes in liquidity have on prices if the articifiality of rent stabilization were removed? i.e. if it becomes more difficult for renters to find apartments and for landlords to find renters, because people stay put in a free but slow and inefficient market? There's a small effect in the renters' favor due to inflation, as moving less often limits to once a year how often the price can be adjusted. I'm wondering if the asymmetry of the situation affects the prices: a landlord typically has a very limited number of properties to let and is losing money whenever the place is vacant, and wants to find a quality stable tenant to look after their asset, whereas renters can usually cast a wider geographical net and if they're not being evicted or emigrating for work, take extra time without losing money. The flip-side of illiquidity is that some renters face a risk that is less directly financial but more socially severe: not being able to find a place to live in a slow market. It could go both ways, but my suspicion is that lack of liquidity will tend to lower prices people actually pay and keep them more stable, because of the asymmetry of the financial risk, with a social cost to be borne by would-be immigrants to the community and a minority of renters who have more trouble finding another place on short notice when they unexpectedly need to. When rent stabilization is stripped out, the fact that people naturally like to stay put if they can would seem to keep prices more stable and a little lower compared to an efficient liquid market, while creating hardship for some.

Ben wrote:
The question is what would cause this lack of liquidity? I imagine that liquidity will be directly correlated to supply and demand for the particular area. As the supply and demand equation plays out, prices will adjust as will the liquidity of the market. Removing units from controls simply increases the supply that enters the more liquid market (the free market) and therefore sets the price bar for equilibrium lower than it would be without this added supply.

Leaving aside the price controls, as we agree that's counter to liquidity and fair pricing. On a level playing field, low supply and low demand might have about the same price per square foot as high supply and high demand, just lower turnover. A decrease in liquidity might be caused by a change in demographics or culture. Adults younger than 30 make and break relationships and thus move around more often than those 50-60, so an ageing population in an area could decrease liquidity. Some cultures or religious communities might be very static or attached to a particular area and establish themselves in a place. A general downturn in the economy and oil at $1000/barrel could make it more expensive relatively for everyone everywhere to move around. The dominant culture could become more conservative such that settling down and bearing children early and often again became the norm, or more xenophobic and inward looking so that people didn't feel safe moving to the next village, or less trusting so there were more regulatory hoops to jump through like a dna report not just a credit report. Economic or legal changes might create more owner-occupiers, shrinking rental supply and demand. Bearing in mind that our neighborhood is extremely liquid, inhomogeneous and in rapid flux by historical and present day geographical standards. You can find a niche to inhabit here at market price just about no matter who you are, faster and with fewer hurdles than just about anywhere anytime else on the planet. Which I'm personally very grateful for.

What would happen to prices if more people, for whatever reason, in the absence of price controls, decided to behave as Bleeds wanted them to, and became more static, reducing both supply and demand equally? I'm suggesting that because of the asymmetry between owners and renters, when there's less turnover renters would pay slightly less on average, at the cost of a higher risk of having to go without at some stage.

armchair_warrior wrote: i'm gonna get flame for this.

I doubt it -- most of us seem to agree with you. Although the stablized places might not rise so quickly as the market places fall, as it will take landlords a while to save up the capital and get around to fixing that trashed kitchen or bathroom that was never going to be economically viable to invest in fixing before.

but this way its going to be fair to everyone. yes the guy who cant afford it probably would have to leave some of the areas and move to places that they can live within their means. but the guy who is paying a ton more would live alot easier cuase they now can pay less.

WhyFi wrote: And the Troll of the Week Award goes to...
[quote=bleeds]Quite simply. You raise rents, you push people out, (mainly black people). Many of my friends no longer live here. They were 'movers' too, only they didn't have money, support, and institutional racism made sure they were kept out of the high paying jobs they deserved.

First they were pushed back into two-fare zones in bad neighborhoods, with horrible aesthetics. Then they had to travel two hours each way to go to jobs they felt were beneath them. And these were college educated black folks with at least one degree.

Eventually they moved out of NY all together. Many live in NJ, PA, and GA. De-control rent, and a lot of you white folks will follow them.

Holy smokes. This is one of the better plays of the race card I have ever seen. Well met.

bleeds wrote: You raise rents, you push people out, (mainly black people).

But, sweet tea, this line certainly sounds like some kind of accusation, although possibly bleeds meant "you" in the sense of "one" rather than in the sense of "all you terrible people who populate this website."

Bleeds probably does need another read-through of THE RULES (as now conveniently linked at the top of the page) but she's making a prediction, not a generalization, when she says that white people will eventually be priced out, too. Though I don't see what's so terrible about PA.

bleeds wrote: Emily, nce again you are paranoid. I'm not out to get you or white people. I believe in honest conversations.

I'm not sure what you mean when you keep calling me "paranoid." I am trying to encourage you to follow the rules so that you can continue posting your honest ideas without other users accusing you of being a troll, which will cause them to not converse with you.

bleeds wrote: WhyFi, I know it's easier to accuse me of being racist than to actually listen to what I have to say. If you really think so, you are entitled to your opinion.

Why do I bother? No ill will, bleeds, but you're a lost cause. I will wish you the best of luck on your quest for excuses. Whatever makes it easier to get through an also-ran life, eh?

bleeds wrote: Quite simply. You raise rents, you push people out, (mainly black people). Many of my friends no longer live here. They were 'movers' too, only they didn't have money, support, and institutional racism made sure they were kept out of the high paying jobs they deserved.

First they were pushed back into two-fare zones in bad neighborhoods, with horrible aesthetics. Then they had to travel two hours each way to go to jobs they felt were beneath them. And these were college educated black folks with at least one degree.

Eventually they moved out of NY all together. Many live in NJ, PA, and GA. De-control rent, and a lot of you white folks will follow them.

them evil white folks. i know me and my parents near coney island for a long time. commute was hell. takes about a hr to get to work in manhattan.

oh wait it had nothing to do with race. they couldnt afford the nice area's so they move where they can afford. plus when we came here the down town areas of brooklyn were like super bad. my grand father use to own a store in the down town area. he had to sell it cause he gotten mugged and beaten too many times in the 80's.

doctorj wrote: [quote=bleeds] Black people have been pushed out of traditionally black neighborhoods all over this nation

Traditionally, eh? Traditionally black neighborhoods that were traditionally Italian that were traditionally Irish that were traditionally German that were traditionally Anglo-Saxon that were traditionally Dutch that were traditionally Native American, and no doubt will be traditionally Hispanic in years to come, or maybe just traditionally mongrel.

I've tried living in places that were traditionally one thing for the last 5000 years and I've tried living in places that were traditionally one thing for a decade or two at a time, and there's more economic and cultural space for the likes of us in the latter, irrespective of who our ancestors may have been, let me tell you.dang just read this part lol. i stated the same thing in my last post doh!!!!! oh wells .