High Cost of Rent in U.S. Big Cities Need To Be Solved By Deregulation - Politics Forum.org | PoFo

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#15288224
I know that in the big cities of the United States, high cost of rent has been a problem. This also has had the effect of trapping renters in the rental market to where it is difficult for them to save a down payment on a home. The solution in my opinion is to deregulate the rental market so builders can more easily build more homes to meet demand. I am totally against rent control and view it as bad economic policy. I think deregulating the rental market is the solution for the high cost of rent in big cities. Thoughts anybody?
#15288225
Need more to chew on than deregulation as a principle but what regulations need to be axed? And how will axing them impact building rental properties?

The vagueness is the rhetoric I expect from a politician who might axe some fluff but would also under the vague cover axe things that may be important/valuable that it makes sense to keep.

It emphasizing deregulation it is assume an automatic good because the thought is that with less costs/conditions on property development, there is more supply, the price drops and thus does cost of living and in stronger assertion, homelessness.

It can certainly be readily changed, but I would note that it does not include in its focus other than regulations as to what increases the cost of living which may be subject to question and policy. I only say this that the framing of deregulation need not be the limit to thinking about how to lower costs.
#15288226
Historical protections, zoning and bans on multifamily homes need to go. There is no defensible rationale for single family row houses in Manhattan. Real estate cannot be a retirement plan.

Rent control is necessary to incentive medium and low income housing. Removing rent control will just make housing unaffordable as developers invest in luxury housing.
#15288227
@Wellsy @Fasces

I am not saying just blindly deregulate everything, but there needs to be some deregulation that takes place to make it easier for home builders to build and give them the incentive to build so that we increase the rental home supply and decrease rental costs. However, other regulations which promote public health and safety should not be repealed. Here I quote a part of an authoritative source to support my position:

Ingrid Gould Ellen and Mark A. Willis of howhousingmatters.org wrote:The incentives and economic consequences of rent regulation are important as debate continues in New York, California, and beyond. Even the most aggressive rent regulations exclude new construction to minimize any disincentive for the production of new housing, which is essential to moderating upward pressure on rents. Other subsections of the housing stock, such as single-family homes and smaller multifamily buildings, may also be exempted to minimize the regulatory burden on small landlords.

Recent research suggests that despite these exemptions, the long-term effects of rent regulation may reduce the overall rental housing supply, leading to higher costs for renters. The same study of newly regulated buildings in San Francisco suggests that the city’s rent stabilization law provided incentives for condo conversions, major renovations, and owner occupancy, all of which resulted in deregulation. The study concluded that regulated buildings saw a 15 percent decline in the number of renter residents and a 25 percent decline in those living in the rent-controlled units, which contributed to rent increases across the metropolitan area.

By limiting rental income, rent regulations also risk discouraging owners from maintaining and investing in buildings, leading to gradual deterioration of the rent-regulated housing stock. One response to this issue is to allow for large rent increases at vacancy, but this approach limits the protective effect of rent regulation to the current occupant and makes long-term affordability less likely, particularly in hot housing markets. Allowing rent increases to cover the costs of replacing and upgrading major building systems can combat disinvestment, but administration and enforcement have proven difficult, and the increases do reduce affordability over time.

Vacancy-based rent increases can also create an “incentive to harass,” whereby landlords stand to profit by quickly churning through tenants to raise regulated rents to market levels. This unwelcome by-product of rent regulation can be problematic when vacancy-based rent increases are combined with rules that allow for deregulation above certain rent levels. These perverse incentives also grow in proportion to the gap between regulated and market rents, so it is often the neighborhoods where rent regulation’s protective effects are most needed that experience the most severe and shocking instances of landlord abuse. This kind of tenant harassment is difficult to detect and quantify, but a study that examined rent control in San Francisco found that rent regulation increases the rate of no-fault evictions as rents rise and landlords have an incentive to turn over units to reset their rents to market levels.


https://howhousingmatters.org/articles/ ... ram-design

So, what I highlighted in my above source in bold italics is the reason why I oppose rent control and the repeal of some regulations that disincentivizes home builders from building more.

The trick to lower rental and housing costs while balancing regulations that promote health and safety is determining which are the "bad" regulations and which are the "good" regulations. For example, I think this is a "bad" regulation which increases rental costs unnecessarily and doesn't promote the public good.

Regulations and Housing Development: What We Know by Michael H. Schill University of California, Los Angeles; p. 7 wrote:In some instances,residents of a town will be concerned with the disamenities that could arguably arise from close proximity with people who are different from themselves. In other instances, residents may be motivated by racist or classist impulses.


https://www.huduser.gov/periodicals/cit ... m1/ch1.pdf
#15288230
Fasces wrote:Historical protections, zoning and bans on multifamily homes need to go. There is no defensible rationale for single family row houses in Manhattan. Real estate cannot be a retirement plan.

Rent control is necessary to incentive medium and low income housing. Removing rent control will just make housing unaffordable as developers invest in luxury housing.


I would add to this that no one should be allowed to own more than one property.
#15288234
@Rancid

Fundamentally, the problem with the high cost of rent and housing is that there isn't enough housing and apartments to go around for everybody. It's like people are playing a game of musical chairs and somebody is apt to be without a chair when the music stops. Therefore, the solution is to increase the supply of houses and apartments without endangering public safety and health. Rent control is bad economic policy to solve this problem. Essentially it boils down to the basic economic principles of supply and demand. Some regulation is necessary, such as that regulation which promotes public safety and health. But good economic policy is also needed too in order to solve the problem of high cost of rent and housing.
Last edited by Politics_Observer on 24 Sep 2023 01:30, edited 1 time in total.
#15288236
Neo wrote:@Rancid

Fundamentally, the problem with the high cost of rent and housing is that there isn't enough housing and apartments to go around for everybody. It's like people are playing a game of musical chairs and somebody is apt to be without a chair. Therefore, the solution is to increase the supply of houses and apartments without endangering public safety and health. Rent control is bad economic policy to solve this problem. Essentially it boils down to the basic economic principles of supply and demand. Some regulation is necessary, such as that regulation which promotes public safety and health. But good economic policy is also needed too in order to solve the problem of high cost of rent and housing.


I say all of the above. Build more, and we should also turn housing into a shit investment. Hoses are for living, not parking money.
#15288237
@Rancid

To some extent, yes, but people have to have an incentive to take on the headaches of being a landlord. That means, their needs to be a profit motive regarding renting. Unnecessary regulation and rent control kills incentive for people to take on the headaches of being a landlord. And all that will do in the long term is decrease the supply of apartments and increase costs.
#15288242
@Rancid @Fasces

See another thing I think is good public policy is to help minorities and historically economically disadvantaged groups who are interested in becoming landlords and getting into the real estate renting market to become landlords themselves. That way they have some opportunity to make money in this market and perhaps maybe they will enjoy the real estate rental business. It is important that minorities and historically disadvantaged groups have economic opportunity too in this sector of the economy.
#15288271
Fasces wrote:Historical protections, zoning and bans on multifamily homes need to go. There is no defensible rationale for single family row houses in Manhattan. Real estate cannot be a retirement plan.


Indeed, zoning regulation needs to be written for housing people and ensuring cities develop safely, not as a retirement alternative.

Fasces wrote:Rent control is necessary to incentive medium and low income housing. Removing rent control will just make housing unaffordable as developers invest in luxury housing.


It's the other way around, actually. Developers will stop investing in rent-controlled housing if rents are set at a too low level, be they new units or updating current ones.

Yes, they will obviously prioritize luxury units but if zoning is reformed they'll move to multifamily complexes too. They're cheaper, yes, but the higher density can make them quite attractive since that allows them to benefit from economies of scale.

One of the reasons why developers end up favoring luxury units is precisely zoning.
#15288280
wat0n wrote: It's the other way around, actually. Developers will stop investing in rent-controlled housing if rents are set at a too low level, be they new units or updating current ones.


You're presenting a false dilemma - that all rent control is by definition "too low".

A cap on the rents of new units encourages the development of affordable housing by developers within an unaffordable market. In most cities around the West, setting this cap around 1k per month per 100m2 would be sufficient for both landlords to profit and to be affordable, especially in conjunction with other reforms (property taxes in the US for residences are absurdly high in many cities, for example).

If every new unit built is too expensive for the average person to rent, having developers build more units doesn't solve anything and we're looking at a market failure.

Introducing reasonable caps on maximum rents in any new development to maintain affordability forces developers to prioritize developing affordable housing rather than the current hermit crab mindset that does not work.

Reducing zoning alone is not enough because this does nothing to address inefficient housing within already existing cities - and pushing poor people into multi hour commutes to the city center isn't a solution either.
#15288299
We're talking about two seperate issues. Your study looks at maintenence long-term of old properties, versus the investment into new properties. New supply theories in the US are based on the hermit crab theory.

Rotjan et. al wrote:When a hermit crab discovers an empty but oversized shell, it waits nearby rather than simply walking away. Once a small group gathers, crabs begin piggybacking by holding onto the shell of a larger crab and riding along. Such waiting and piggybacking behaviors seem to increase the chances that a synchronous vacancy chain will happen. "They spend hours queuing up, and then the chain fires off in seconds, just like a line of dominoes," says Rotjan. Computer models populated with virtual hermit crabs and shells confirmed that synchronous vacancy chains depend not only on crab density, but also on how long crabs are programmed to wait near an unsuitable shell.


An observed behavior in hermit crabs is that when a crab discovers a new, better shell, it will wait before taking residence. When a queue has been formed, the largest hermit crab will take the largest shell, leaving theirs vacant. The next largest takes the new vacated shell, leaving their own vacant, and so on. This social behavior leads to all crabs having a new, better fitting home.

This truism is applied to the rental market in the US.

When a new developer builds luxury housing, it is assumed that the richest individuals will move to the newer housing - leading to their old housing becoming available for middle or low income earners.

This theory is emperically false - and it is a restatement of the same trickle down nonsense that ruined our financial markets.

What actually occurs is different. A new developer builds brand new luxury housing, and because it is brand new, attaches a premium to the price of the housing above local market rates. This makes sense and is observed.

What the theory expects, then, is that the older luxury housing will become, in effect, middle income housing, as the old vacant housing reduces rents to fill vacancies.

This does not happen. Landlords do not reduce rents. Once they've recieve $2500 a month for a property, they will very very rarely devalue that price, and this is made worse by tons of commercial software available that enables landlords to collude on rental prices (see link). Now, some this is sort of necessary in the US because of the way property tax valuations occur, but this remains true in countries without property tax. Landlords do not reduce rents.

What occurs is a gradual shift upwards in price. As the new luxury condominiums are built, they charge a higher market rate. The other landords, left with vacant housing, at best keep their rents at the same level. This is observable. Landlords prefer to leave housing vacant to "maintain market rates" than to reduce rent. Maintenences is discourage when landlords cannot increase rent in an environment where property taxes remain based on prior valuations - but this is not the sole reason. Owners emotionally are reluctant to charge less for rent than they used to.

By incentivizing increased supply at the top end, we just gradually increase average rents in a city as time goes on, because new developers prioritize top-end, not affordable, housing.

We need to incentive supply at lower and middle income stratas. This means a rent cap/rent control on new developments. By capping the amount of rent a developer or investor landlord can charge on new housing, we effectively outlaw the building of new luxury developments and increase supply in the stratums that need it most - the ones most affected by the current crisis.

A profit can be made at 1,000 dollars per 100m2 (1/2 bedroom flats) in the vast majority of cities around the world (and of course, local conditions apply and should be considered!). But this only occurs if you build housing designed to service that market, which requires government stepping in to make sure that only that sort of new development is incentivized.

I'm a complete hypocrite here. My startup is designed around buying affordable apartments and renting them exclusively to international students from East Asia, and especially China, at about 30-50% above market rates.

@Rancid argued that you should ban folks from owning multiple properties - this is a good idea, if you disregard those people that need rental properties. In my case, its international students, or medium-term stays by folks working for a foreign multinational sent to a specific office that need housing for a year or two and don't want to outright buy it. Rental properties are necessary to create fluidity of human capital within the system. But they absolutely should be regulated, because landlords, governed by a pure profit motive, do not act in a way that helps low and medium income renters. Why would a developer build apartments for the poor unless they had no choice? Their profit margin is much lesser.

We can talk about revolutionary changes, but if we're looking at practical, short-term solutions designed to work wtihin the current system... you need to ignore existing housing almost entirely... and you need to cap prices that new developers can charge so that they are incentivized to actually newly supply the populations in need.\

Subsidies or grants for developers cost local governments money. Rent caps do not, while incentivizing a desired behavior.
#15288306
Fasces wrote:You're presenting a false dilemma - that all rent control is by definition "too low".

A cap on the rents of new units encourages the development of affordable housing by developers within an unaffordable market. In most cities around the West, setting this cap around 1k per month per 100m2 would be sufficient for both landlords to profit and to be affordable, especially in conjunction with other reforms (property taxes in the US for residences are absurdly high in many cities, for example).

If every new unit built is too expensive for the average person to rent, having developers build more units doesn't solve anything and we're looking at a market failure.

Introducing reasonable caps on maximum rents in any new development to maintain affordability forces developers to prioritize developing affordable housing rather than the current hermit crab mindset that does not work.


How long would rent in these new units be capped for? As @Neo's sources show, this discourages investing in existing units, which is definitely a bad thing. So the cap shouldn't be permanent, should it?

I think "high density" and "luxury" don't mix up well, maybe I'm wrong but one of the things that defines a "luxury" project is that they aren't dense - you won't have too many neighbors around, with the loss in qualify of life that entails.

If zoning forces developers build low density projects, of course prioritizing luxury units will make sense to them. But what happens if they can choose between those projects and high density ones? I can imagine they'd find the latter very appealing, and those who are willing and able to spend in luxury apartments would probably not find living in a high density complex appealing at all. That's where segmentation would be quite clear, even if these projects are in the same Census block.

I would think dense projects would be particularly unappealing in the US, Canada or Australia where the average dwelling size is quite large (meaning there is a clear preference for rather large homes).

As for property taxes, I think there could be a 10-year break for new buildings followed by a 3-5 year period of gradual increases to the current statutory rates but I would not lower them.

Fasces wrote:Reducing zoning alone is not enough because this does nothing to address inefficient housing within already existing cities - and pushing poor people into multi hour commutes to the city center isn't a solution either.


I would say that's a zoning issue as well. There could be zones (in all parts of a city) where developers are allowed to build more dense projects (i.e. with a higher FAR) in exchange for including some cheaper units as it happens in some US cities (e.g. Chicago). I think this would be a much better approach, particularly if those cheaper units are cheaper because their costs are lowered by letting developers take advantage of economies of scale (they are smaller).
#15288314
wat0n wrote:How long would rent in these new units be capped for? As @Neo's sources show, this discourages investing in existing units, which is definitely a bad thing. So the cap shouldn't be permanent, should it?


Until rent prices stabilize and supply either meets or exceeds demand.

This requires a shift in paradigm - housing shouldn't be a retirement plan.

wat0n wrote: I think "high density" and "luxury" don't mix up well, maybe I'm wrong


You are. Look up the way new developers describe their new projects in American cities. "Luxury condos" is a mainstay - in the US, in Spain, and in China.

The rest of your post about "luxury vs high density" simply isn't reflective of the modern urban real estate trends or the concerns of modern urban developers because...

wat0n wrote: I would think dense projects would be particularly unappealing in the US, Canada or Australia


... Fundamentally few people want to work AND commute three hours from their house. National density doesn't factor into urban density and we aren't talking about rents in bumfuck Arkansas.

This thread is about urban development, not suburban, rural or exurb development.
#15288317
Fasces wrote:You are. Look up the way new developers describe their new projects in American cities. "Luxury condos" is a mainstay - in the US, in Spain, and in China.

The rest of your post about "luxury vs high density" simply isn't reflective of the modern urban real estate trends or the concerns of modern urban developers because...


How large are units in these condos?
#15288319
The average size of a luxury condo in NYC, Chicago, or LA is 150 to 290 m2. Part of the cost is size, part of the cost is land price/taxes, and part of the cost is in onsite services/facilities.

Capping the price of rent keeps the housing in city centers affordable for nuclear families at the cost of all three.

I suggested other reforms as well. I said before - there is no justifiable reason for single family rowhouse blocks that house 200 individuals in central Manhattan or Chicago, or luxury apartments that house a few hundred more, instead of high density residential towers that can provide housing for several thousands on the same footprint.

Turn this into this... not this. Capping rents per unit in US big cities (the topic of this thread) incentivizes that.
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