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I came here to read the inevitable second-order effects discussion, that is to say, if cities enact things like vacancy rate they will cause extra unforeseen problems.

But, I've never seen anyone discuss second order effects from hedge funds, or rich developers.

Can someone explain why second order effects are only relevant and as powerful when it is a government entity. Hedge funds and large corporations often seem like they have more power and often much more agility than governments. And, they have impacts far greater as well at times.

Is this a relevant question? What am I missing?

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> But, I've never seen anyone discuss second order effects from hedge funds, or rich developers.

I think we do. We discuss startup culture, unicorns, huge companies with no revenue, the effects of quarterly reporting on long term thinking and many similar topics. These are all in my opinion second order effects of how business is financed nowadays. If you can think of other second order effects which are not widely discussed please do write about it. They are usually all super interesting and more insightful analysis is always welcome.

> Can someone explain why second order effects are only relevant and as powerful when it is a government entity

I don't think that they are only relevant when it is about government. See my previous point, but it is easier to talk about governments in this sense. Our governments in the "free and democratic" world are very transparent. We have freedom of information laws, the laws and policies of our countries are published, and politicians leak info like a sieve. Of course there are secrets, and backroom deals, and honest to goodness conspiracies too. But when you compare how transparent our governments are to how transparent hedge funds are it is day and night. It is much easier to talk about what you can observe, therefore there is more discourse around the second-order effects of transparent government action than the intentionally more opaque hedge funds.

Likewise people discuss more what they can influence. At least in theory we all can influence our governments. I'm not voting on hedge fund managers. They don't really care what I think. They care enough to not anger so many people that they grab pitchforks, but the opaqueness and lack of information helps them there. Curiously the easiest way the average Joe and Jill can affect a hedge fund is by convincing the government to enact and enforce some law. This is another reason why people might be talking about the second-order effects of government action more.

To start, the huge elephant in the room is that it is insane that cities are more expensive when city dwellers consume less resources and incur fewer environmental externalities, and are more productive. If our only hope is continued "suburbanization with li-ion characteristics", as so many people seem to believe, we're fucked as a country.

So this preposterous fact those that all manner of incentives have gone wrong.

For example, we now know rent control isn't bad, just like minimium wage: https://jwmason.org/slackwire/considerations-on-rent-control.... To flip this around, that these neoclassical-economics-defying conclusions are true means the housing market and labor market are terrible markets.

We do need to abolish bad zoning and things, but we also need more public housing. The simple fact is we need to build enough dense housing to "devalue" the existing events in terms of their rent revenue, and the private sector will be loath to do that.

Another thing is public transportation. Public transit is extremely valuable, but the private sector is unable to provide because a) it's a natural monopoly we can't trust the private sector with (except for Japan, where a bunch of things relating to land use are really different). It works best when cars are beaten back (investments in one hampers the utility of the other), see https://pedestrianobservations.com/2019/09/18/cars-and-train.... The private sector is too impatient without the prospect of terrible rent seeking to wait out a transition from cars, and is also powerless to eradicate lanes and do other things that might driving rightfully harder (https://www.youtube.com/watch?v=ORzNZUeUHAM).

So people saying every government intervention has unwanted side effects are just shills for the continued retrenchment for the state. The fact is the market cannot coordinate on a scale needed to "turn the ship". At the same time, the emaciation of the administrative state decades across across the US means we have a weak and incompetent pubic sector that's currently incapable of administrating the necessarily infrastructure we need.

Hard problems all around, but the former is a hard fact, while the latter is fixable.

>the huge elephant in the room is that it is insane that cities are more expensive when city dwellers consume less resources

50% of the world lives in cities yet they consume 70% of the worlds energy.

What are those numbers for American suburbs?

We're not comparing to the third world here, we're comparing across models of living in the developed world.

Is that because the 50% who don’t live in cities spend half their typical day in the nearest city?

I assume it's because people in cities are richer so they tend to consume more.

To enjoy modern standards of living, medium to high density urban arrangements are much less resource intensive than suburban sprawl, which the relevant comparison point.

The figure you quote, aggregated at the global level, entirely results from a comparison of city lifestyle with pre-industrial countryside lifestyles in developing countries. By contrast, living in the countryside or in suburbia in rich nations is much more environmentally damaging than in dense urban areas, which is what gp was referring to.

> The figure you quote, aggregated at the global level, entirely results from a comparison of city lifestyle with pre-industrial countryside lifestyles in developing countries.

Literally pre-industrial [1]. Last numbers I saw from the UN estimated 2 billion subsistence farmers as of 2015, all living without the benefit of modern agriculture except the occasional bag of fertilizer or engineered seeds. The future is very unevenly distributed.

[1] http://www.fao.org/3/i5251e/i5251e.pdf

Also keep in mind that turning nature into agriculture also has huge environmental costs not captured in energy usage.

If "developed cultured" is fixed by pricing the externalities, it would be absolutely better to pack people in cities, replace subsistence farming with sustainable industrial agriculture (no tilling, no aquifer depletion, etc.) and decrease the portion of land devoted to agriculture.

> it is insane that cities are more expensive when city dwellers consume less resources and incur fewer environmental externalities, and are more productive

If people in the city earn more on average than people elsewhere, then everything will cost more, just supply and demand. Not sure what you can do about that besides put price controls on literally everything.

That and the extra taxes and other business costs. When the hot dog vendor has to pay a million dollars a year for their spot at central park then they're going to have to charge more.

It's not "just supply and demand". Supply can increase to match demand! The production of almost everything in our lives has economies of scale, so it's surprising that this isn't the case for cost of living in cities.

It also use to be true! The main thing that changed is government policies increasingly restricting supply.

Real estate isn’t instantly scalable. It takes years of planning and decades of execution to create a truly scalable city.

With stores, they’re squeezed on both ends: Pressure from online retailers and then exorbitant rents.

It’s not unusual to have monthly rents that go into mid-five figures for a small store at ground level.

Few small businesses can sustain that in the long term.

The amount of land in a given area of a city in largely fixed. You can build upwards to create more usable space, but there are no economies of scale in doing this. The relationship is the opposite —- taller buildings are more expensive per unit of area as you go up. Space is a multi-floor building is not constructed marginally like a widget in a factory. Each floor must support the floor above it.

While this is true, the expectations of the US have also overshot. The US is an outlier in terms of square footage in new homes, American homes are very large. And personally I don't want some 2000 sq ft McMansion because that means all the cooling, heating, cleaning, and maintenance of such a large space that I've only ever seen really used to accumulate lots of stuff.

We don't need to go to extremes (a Parisian studio can go as low as 100 square feet!) but house size in the US has mostly crept up as a function of minimum lot sizes in US zoning.

Those homes aren’t in cities where space is a concern. They’re in sprawling suburbs where land is highly available. The construction costs of those 2000 square foot homes is cheaper than 1000 square foot on the 25th floor of a building.

People in the US have a choice between the two, and they’re largely chosen to put up with a commute from the suburbs in exchange for more space. Those lot sizes aren’t just wasted space. Lower density also translates to more green space, lower noise, fewer shared spaces, etc.

People are choosing suburbs based on costs. The aver person has little ability to choose based on any other reason.

This is why it's incredibly important that we fix this stuff. Rich environmentalists' "sacrifices" achieve nothing. It is also why I am incredibly sad the current infrastructure bill is slated to fund so much stupid suburbanization.

They’re choosing suburbs for value, not cost. There are plenty of apartments available in cities at rents lower than the average suburban mortgage payment.

If we want revitalized cities where people want to live, we don’t just need low cost housing, we need high value housing. The middle class didn’t leave cities on cost alone and they’re not going to move back to cities on cost alone.

But there are many many things you cannot do living in an apartment that you can do with your own home/property. It's not simply a calculation of value in a $/sq-ft sense that people are making.

Yes, that’s part of what I mean by value as opposed to cost.

Cities have amenities that are supposed to allow for those same things. Fancier apartments sometimes do too.

Sure, value not costs.

> There are plenty of apartments available in cities at rents lower than the average suburban mortgage payment.

But what is the floor area? Saying people don't need McMansions is not the same as saying additional bedrooms for kids isn't nice.

> If we want revitalized cities where people want to live, we don’t just need low cost housing, we need high value housing.

It's very easy to tear down walls making bigger units. Focusing on the cost of housing is the key part. Value comes after.

Also remember that suburbs and driving is massively subsidize, even separately from the externalizes. It's not fair to expect cities to compete completely on costs without that being fixed.

Go read https://www.strongtowns.org/ for urbanism for small-scale romantics if big cities still sound "just bad".

I agree with everything here except I’m not sure that value will necessarily result from focusing on cost.

I think if you focus on cost alone, you’re going to build poor neighborhoods and jump start a cycle of poverty.

I think the key is to build diverse neighborhoods. You want poor, rich, and middle income housing all in the same place. The segregation of incomes is how we got into this mess to begin with.

I'm not sure poor neighborhoods are built. Most construction these days is shit quality, with just a few cheap trappings making something "luxury".

Other than physical dividers like highways, I don't really think segregation is built?

One big exception is we certainly want the public housing to not be congregated in ghettos. That was another terrible NYCHA (and others) practice.

The congregation of public housing into one place is an example of what I’m referring to as “building poor neighborhoods”. In contrast, you can build rich neighborhoods depending on the structure and how the land-use is controlled.

The trick is to not really do anything at all and let the magic of agglomeration do its thing.

Zoning is a very recent phenomenon. Cities were economically vibrant long before that. Even if there is zoning it doesn't need to be as exceedingly specific as American zoning tends to be.

I'm worried that cars, given subsidies, are too much of an anti-agglomerator, and thus active measures must be taken.

It is as if we used to have clumps of matter bound together by gravity, enforced by magic that new matter must be spread out (zoning) but also charged the matter (cars). Merely stopping the magic doesn't meant gravity will overpower electromagnetism.

Zoning and car culture achieved dominance in tandem, and so I am quit skeptical of any certainty that fixing one alone is sufficient to roll back the clock.

There could be other sorts of hystersis too that make this challenging. Really we should be very careful and vigilant and not rely on one tactic to eradicate the scourge of suburbanization.

The costs are out of whack. Environmental externalities are paid for by everybody instead of the person creating them. We need carbon taxes to fix that problem.

This is on top how much zoning craziness distorts the market.

I think that discussion about "suburbs" tend not to accomplish much because the word isn't really defined. I mean, in common parlance, but also in the US government I believe that things like the census divide everything into urban and rural.

I live within city limits, in a multifamily building. But the edge of the city outside of which is presumably "suburban" is literally a few dozen feet away. Also, my neighborhood has a layout and look that I think a lot of people would consider suburban. No businesses, mostly no sidewalks, mostly a cookie cutter development. On the other hand, it's super quick to go from where I live (by car that is) into the middle of the city where I work, which is kind of against the stereotype of suburbs. It's also much cheaper than the "actual" suburbs, probably because it's part of the city school district.

A suburb is where people's work aren't tied to the land (agriculture, logging, etc.) And virtually all transport is done by car.

There, did it.

Sounds like your place has some nice benefits, but since you drive everywhere (you mentioned work, and stores not being in the neighborhood, so that's a safe assumption, right?), It's suburban.

I'm within easy walking distance of a bus stop. However, the bus goes mostly east and west, rather than north to where I work.

I could also technically walk to a convenience store or perhaps a supermarket. It doesn't take that long to walk a mile or two.

Point is though, it's clearly not rural, and it's within a recognized city, so any time people are talking about "urban" it includes this sort of setting. It doesn't matter if you think it should be classified as urban, the fact that it is, means that's where the statistics show up indirectly.

There is a distinct separation in property value between my neighborhood and surrounding suburbs with single-family housing at double or quadruple the price.

Furthermore, as a matter of geometry, any city that is more or less a roundish blob, is going to have more space near the edges than the center. So it seems plausible to me that it's more representative of a city lifestyle. The very center in several cities I've been in is almost completely commercial.

> I'm within easy walking distance of a bus stop. However, the bus goes mostly east and west, rather than north to where I work.

This is the US? I'll happily grant you that the bus system is terrible.

> I could also technically walk to a convenience store or perhaps a supermarket. It doesn't take that long to walk a mile or two.

That's way too far. Don't beat yourself for not walking.

> The fact that it is, means that's where the statistics show up indirectly.

Sure. That's a bummer. Hopefully we can fix that someday.

> Furthermore, as a matter of geometry, any city that is more or less a roundish blob, is going to have more space near the edges than the center. So it seems plausible to me that it's more representative of a city lifestyle. The very center in several cities I've been in is almost completely commercial.

This pattern: (big towers?) commerical monoculture in the center, gradual peetering off, is very (North) American. A lot of other places have stricter transitions at the city boundary, and less division within the city.

> People are choosing suburbs based on costs. The aver person has little ability to choose based on any other reason.

That's quite a wide unsubstantiated generalization.

Tons of people have no interest in living in a tiny apartment in a tall building and will happily pay extra to move to the suburbs to avoid that.

In hot housing markets there is nowhere near enough supply to meet demand.

The price per square foot is reflective of what the market will pay, first and foremost. The large cost premium in hot cities suggest that the unmet supply of apartment is much larger in percentage terms than the unmet supply of single family housing. In my area rents are already recovered from their COVID slump and still rising.

> there are no economies of scale in doing this

False. Yes, taller buildings are more expensive per floor. But the benefits they bring in far exceed those costs.

You have to account for the whole system, or track your externalities if it's not closed. And if our current economic systems don't do that, they need to be fixed.

I was responding to the parent comment about the economies of production specifically.

OK, fair enough. I read "production" to not just be about the production of housing in isolation, but it is ambiguous.

I think you're (and Ericson2314) confusing/conflating two different ideas.

Big cities obviously have economies of scale, so, say, the chicken lo mein is fresher and hotter due to higher volume. Or, the first time I had a cup of plain coffee at a random cafe in NYC, it was stunningly good. Any reasonably successful business has much higher volume than in a less populated area and is pressured by competition more too. They can and must do better.

But people make more money on average in a big city, and that means they spend more. If the exact grade of hamburger available everywhere is 20% cheaper, that doesn't in any way prevent your meals from being much more expensive. The whole point of being in a city is so you can get stuff you can't otherwise.

If you are living and working in NYC, are you going to just have the same fast food you could get in Albany, that's incrementally better?

Don't mix up "city dwellers use less resources for a unit of a given thing" with "city dwellers use less resources period".

For green house gas emissions, at least, it is absolute. See https://coolclimate.org/maps.

True rural and true urban (with public transit predominating) is good. But the suburbs where most people live are absolute trash.

>the suburbs where most people live

I'm inclined to think that carbon emissions (or consumption in general) are primarily a product of wealth.

It would be possible in principle to normalize that map for household income, and I wonder if it would show the same pattern.

The dominant factor making US cities expensive to live in is that they ban housing construction.

Legalizing a healthy housing supply would improve this country more than anything I can think of.

Then we should repeal the majority of Dodd-Frank.

Repealing zoning is the more common answer :)

What in Dodd-Frank stops housing construction?

It makes financing single family homes near impossible for speculative builders. Builders need to find a buyer to do the financing before construction can start.

Actually it makes private financing difficult for all builders, but then it created easier programs through hud to finance section 8 multi family apartments. Which is why you see crappy apartments being built at a faster rate than cookie cutter homes were being built in 2007.

Zoning is part of it as well, but zoning on its own does nothing if people can't get financing to build. And a large majority of the population will only buy what's already built, and won't finance new construction on their own.

Thanks. Hadn't heard about that before.

> Which is why you see crappy apartments being built at a faster rate than cookie cutter homes were being built in 2007.

I wish this were true!

from Wikipedia --

In 2017, Federal Reserve Chairwoman Janet Yellen stated that "the balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth." Some critics have argued that the law had a negative impact on economic growth and small banks,[8] or failed to provide adequate regulation to the financial industry.[9] Many Republicans have called for the partial or total repeal of the law.[10][11][12]

There are enough houses to house everyone in the US. The problem is that half of them are for rent which enriches one person off the dime of another.

We don’t need more houses unless we want to continue wrecking the environment. Better to block renting and use what we have.

Homeownership is stupid speculation which makes things unaffordable. Single family homes also prevent density. We could have a "condo economy" but there's no good reason to.

More broadly, the problem isn't rent, but landlords. Rent is fine, it's when rent feeds into rentiers that the bad extraction happens. The solution is to make it "rent all the way up".

For example, do a maximal land value tax where the "tax" is so high it eats up the value of the land...and thus becomes rent. The rent goes to the state, and much of it is distributed as a dividend back to the people. That completes the loop, rent all the way around. All flows, no stocks.

> Why this reminds me of treating workers as caged hen? Dense in the sense of building complexes of decent size family homes? That I could support, but building blocks of shoebox flats, should really be eliminated.

Affordability is the ratio of income to prices. Nobody is saying city prices should never be higher in absolute terms, they simply shouldn't keep up with the higher incomes.

> The simple fact is we need to build enough dense housing to "devalue" the existing events in terms of their rent revenue, and the private sector will be loath to do that.

Why this reminds me of treating workers as caged hen? Dense in the sense of building complexes of decent size family homes? That I could support, but building blocks of shoebox flats, should really be eliminated.

The supply of residential housing should be at a level, where buying or renting from a private sector could be considered an option, not a necessity. Local governments should be allowed to rent houses from private investors, but pricing should be strictly regulated, so that residential property is not viewed as an investment, but rather as a way of getting maintenance money for idle properties.

Residential property investment should be treated as carts and horses of economy and become the past.

It's not families living in San Francisco. It's single, urban professionals and engineers. I don't like that people aren't really having families anymore, but just pretending that it's still the 70s doesn't exactly work either.

Actually, many of your points are good, just not your first one

> The supply of residential housing should be at a level, where buying or renting from a private sector could be considered an option, not a necessity.

That's actually good.

> Local governments should be allowed to rent houses from private investors

Nah, there's no value for the private sector to add, and huge risk of regulatory capture here.

We avoid NYCHA failures be saying public housing != low income housing. Allow the average rent to meet costs so public housing is self sufficient. Having average rent not meet costs is moronic politics, basically committing seppuku for the right.

> So that residential property is not viewed as an investment, but rather as a way of getting maintenance money for idle properties.

Also true!

-------

Saying density means less space for people is dead wrong! Less land space too, but taller buildings can mean bigger units.

Back yards don't scale. Ensure people city and natural park access (which the Bay Area has lots of), and then build the buildings as big as possible to give people humane floor space.

Ultimately it's single family homes that make people caged hens....in tents.

> we now know rent control isn't bad

Huge ask that we all accept that conclusion from the speech you linked.

Yeah. One has only to look at the housing market in Berlin to see that it can be bad. Of course that is one extreme and there are many different ways to implement rent control. Overall I think this is a whole other can of worms in itself though

Ideally we should build enough public housing that rent control isn't needed, just as ideally we should have strong enough unions that minimum wages aren't needed.

But we fail miserably on both those counts, and denying the next best thing does not strike me as useful accelerationism.

What Prop 13 does for owners, rent control does for renters. Both gives huge advantages to current residents at the expense of future residents. It's obvious why current residents would vote for such a change. This allows current residents to ignore problems as they occur, so these problems grow out of control.

We can't keep giving benefits to certain populations of people. You need to work out the negative externalities and tax it. You need to work out the positive externalities and subsidize it. Anything else leads to perverse incentives. If you happen to have a surplus as a result of taxing negative externalities, you should take the tax money and give it back to your residents as a dividend.

If you want to have parking minimums, if you want to have certain setbacks and limited building height, if you want to disallow building train-tracks through your backyard, that's fine. But those are externalities on the community and they should ultimately show in the Land Value and that needs to be taxed. When it is not taxed it is incentivized, and those perverse incentives only lead to more bad policies. A Land Value Tax would instantly turn most NIMBY voters into YIMBY voters. Fixing all of these follow-on symptoms would go from an up-hill battle to a downhill breeze. Focus on the disease, tax negative externalities.

Rent control doesn't just benefit current residents, any sane rent control policy carries forwards when tenants change. Those that don't are ineffective on purpose.

Beyond that, lowering rents benefits even future residents and homeowners-to-be as they lower property values and dampen speculation.

> What Prop 13 does for owners, rent control does for renters.

Economically trap them in their home/apartment forever, thus achieving segregation with extra steps? I agree.

Right. There are measured lock in effects of both laws and both laws should go.

Please.

This is from an actual economist, not some political hack, and links have been added to the underlying studies. Disparaging this for being originally a speech is intellectually lazy.

There are actual economists who think rent control doesn't hurt supply. And there are actual economists who think the opposite. Given that, saying "we now know rent control isn't bad" is quite a stretch.

Personally, I don't understand how rent couldn't hurt housing supply. I do understand that there is empirical evidence suggesting it doesn't but I'll remain skeptical until there's some theory explaining how that could be that I can understand.

We know, empirically, that rent control, when it satisfies some key constraints, is effective.

Unless you are one of those that thinks that economics isn't subject to the scientific method, reality trumps theory. And it's false that we have no theory of why rent control is effective, we absolutely do.

You and the above poster are overstating your case. Your post boils down to "don't u believe in science lol?"

I agree with this comment: https://jwmason.org/slackwire/considerations-on-rent-control...

I think that if rent control doesn't hurt housing supply, it's because of various regulations that are distorting the market. Enacting rent control instead of reforming those regulations seems silly to me.

It's on you to show an example of a city where these various regulations are absent and where rent control hurt housing supply. Good luck.

I'm being serious here, if you think that a vague, purely theoretical argument, from theories that we already know are very far from complete, is a match for empirical evidence, then you are not treating economics as a science.

There's nothing vague about the argument against rent control. Further, I don't agree with your view of science. Empirical evidence matters but the pure empiricism that you're advocating is not convincing to me.

I think we would be better off reforming regulations that are preventing people from building than enacting rent control. That seems like a very reasonable opinion with plenty of support from economists. I find your posts in this thread overly dismissive and aggressive.

No, the argument is indeed vague. There are plenty of situations where intervening in the market actually increases efficiency - for example, patents, state monopolies on utilities, minimum wages, etc...

Simply pointing to "supply and demand" and operating by maximalist principle is a vague argument. You have to actually engage with the fact that housing can never be an ideal markets and that inelasticities are indeed great.

Again, if you think that these regulations are both more effective and exclusive to rent control, you can find empirical evidence.

I'm not being a pure empiricist. A basic theory made an empirical prediction - that rent control would decrease supply - and the theory is wrong. You can't then use the same theory that made an already incorrect prediction to make a second prediction that is this time almost impossible to evaluate empirically. Find another theory and make an original prediction, without ex-post-facto retconning, and we can judge that theory on the merits.

As it is, we already know that simple neoclassical market theory does not apply to markets with significant price in-elasticity and friction, and the housing market is and will always be like that.

It's theory that is often wrong, that is wrong here again, you can't rely on it over the empirical evidence by retconning your predictions after the fact. That's just bad science. In another field that would get you laughed out of the room.

> Simply pointing to "supply and demand" and operating by maximalist principle is a vague argument. You have to actually engage with the fact that housing can never be an ideal markets and that inelasticities are indeed great.

I never made a maximalist argument of any kind. I never said there can be an ideal market. I merely think that we should move towards an ideal market (which we will never reach) rather than on rent control (which is at best a band-aid).

> I'm not being a pure empiricist. A basic theory made an empirical prediction - that rent control would decrease supply - and the theory is wrong. You can't then use the same theory that made an already incorrect prediction to make a second prediction that is this time almost impossible to evaluate empirically. Find another theory and make an original prediction, without ex-post-facto retconning, and we can judge that theory on the merits.

The idea that some studies have falsified supply and demand is bizarre. You're assuming "inelasticities" and regulations are fixed for some reason.

Ease zoning restrictons and watch supply increase. Then enact rent control and watch supply decrease.

There is evidence that in San Francisco rent control decreased the supply of housing

https://web.stanford.edu/~diamondr/DMQ.pdf

Actually, the paper doesn't make any claims on the supply of housing, it makes claims on the rental supply. There is an important distinction.

That rent control makes renting less profitable and that landlords sell some properties is absolutely expected. The question is whether that actually increases rents, which the article does not establish, it instead makes the leap that less rental units means higher rents even if the total supply of housing stays the same, while assuming that rent control doesn't actually lower prices.

All in all, the article doesn't actually make the claim or even suggestion that rent control decreased the supply of housing. The article doesn't provide evidence that rents would have increased faster without rent control, as it doesn't quantify the rent depressing effect of rent control at all.

By the way, I don't actually like the SF implementation of rent control and I believe that the actual implementation details of rent control are critical. I wouldn't be surprised if SF's rent control wasn't effective at all. It's just that the article you linked doesn't actually makes such a claim.

> All in all, the article doesn't actually make the claim or even suggestion that rent control decreased the supply of housing

But right there if you even read to the end of the abstract:

"Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law."

Probably now you're going split hairs on rental supply vs. supply. Ok.

But at least we can firmly state that the original claim "we now know rent control isn't bad" was bunk.

No, it's not a claim that market rents increased in the long run, it's a suggestion. I can assure you I've read the entire article, and if you re-read my reply you're going to notice that I specifically talked about claims vs suggestions.

If the article had made an actual claim that market rents increased in the long run, it wouldn't have passed peer review.

That's because there is no empirical evidence that market rents increased in the long run, and no actual analysis, that would have to take into account factors like displacement of ethnic minorities and it's impact on rents, the change in homeownership rates, the tendency for rents to compound over time thus giving an outsized effect to the initial suppression of rents, etc..., which wouldn't come to a solid conclusion without additional data.

As a result, we cannot say that it's incorrect that rent control isn't bad. The evidence you've provided falls way short of the argument.

the more compelling critique of rent control is that it's a tiny patch on a heavily distorted market--just enough bone to keep the riff-raff distracted from the naked engorgement of capital on real estate. if we had highly dynamic, fair, and transparent real estate markets, we'd have no need for rent control, because a high-functioning market keeps prices just above the cost to create/provide, that is, a fair market price.

> public transportation

I have spent some time in the San Francisco bay area and a lot of time in New York City.

Looking at BART and Caltrain schedules - the last Caltrain train leaving San Francisco is three minutes after midnight. The last BART train leaving San Francisco leaves at 1041PM! The BART website says they will add slightly later trains next month, but still - it was like this before Covid too.

In New York City, PATH and subway trains run all night. Metro-North, LIRR and New Jersey transit trains run fairly late as well. It's a larger city, but many people commute 40 miles or more every day, and it's no big thing - get on a train in Bay Shore, Suffolk, New York in the morning, and in a little less than an hour you walk out of Penn Station, over 40 miles away. If you want a faster commute, then live 35, or 30, or 25 miles away - still plenty of room for one family homes and lawns if that is your thing.

I have taken the BART from SFO into the city during the day, and that worked well enough when I did it, but expanding BART, Caltrain etc. could solve a lot of the Bay's problems of insane rent for a small place in a neighborhood that is not that great.

NYC is better, but there is still to much sprawl there too.

The A train is < 40 miles, and Manhanttan is roughly in the middle, so subways commutes are less long.

There is nothing wrong with long regional rail commutes per-se, but the the problem is US "commuter rail" is set up so the richest surburbanites in the biggest homes drive for the rest of their lives (and are the worse green house gas emitters in the country), and just take transit to get to their 9-5 midtown office jobs.

This is bad for the environment, and regressive. Transit should serve all classes, and be paired with dense development around stations (think more flushings) so people living far out might have more room for kids, but need not rely on cars to any greater extent.

See https://pedestrianobservations.com/2021/03/09/the-hempstead-... and linked posts for plans about this sort of thing.

NYC metropolitan region was what I was calling sprawl, to be clear. But yes, NYC proper isn't dense enough in parts either.

Last BART train going to the East Bay left Civic Center after midnight, not sure if this got dialed back for Covid, but I used to take this all the time.

Indeed. The pre-COVID schedule was that all active lines had their last train leave from the end of their line at midnight. The last SF to East Bay would be the SFO train, which would hit Civic Center around 12:30 am.

> In a setting where the supply of new housing is already limited by other factors – whether land-use policy or the capacity of existing infrastructure or sheer physical limits on construction – rent regulation will have little or no additional effect on housing supply.

I find this sentence to be crucial. So 3/4 of the way into his speech it seems like he mentions perhaps the most important assumption he is making: he is assuming a situation where the supply and demand of housing is already largely fixed regardless of whether there is or there is no rent control.

That's a bit funny, if that the case then it's almost by definition, the rent control is not going to have much effect in this case...

Even if he is right about what he is pitching for under these assumptions, the discussion seems incomplete unless he also treats the situation where the supply of housing is flexible enough.

What happens then? Does rent control has effect on supply in this case?

Maybe the problem is actually too much regulation to begin with. Which then leads to very reduced flexibility in the market response. So he is not arguing about policies to reach global optimum, just policies to adjust for a local optimum under heavily regulated market assumption.

Keep in reading, including the comments such as the author's in https://jwmason.org/slackwire/considerations-on-rent-control... :

> I’m not entirely unsympathatic to your point of view. If we could do more to boost the supply of affordable housing, there would be less need for rent control, that is true.

> But, first, less need is not no need. I don’t think it’s even physically possible to get a perfectly elastic housing supply at the local level, so when local demand rises some people are still going to face displacement from rising rents. And I think they deserve protection from that. Second, and more important, I am not at all sympathetic to the idea that we should remove protections that people very much need today, because they would need them less in a quite different world that we may reach someday.

I'd say what you are talked about is exactly addressed. Sure, it would have been good to include in the article this audience, but that wasn't the audience of the original speech.

Actually, that is not his position. He includes economic constraints to construction, ie, the price of the land being too high.

It's definitely a matter of what the commenters view as "right". Obviously everything affects everything else, to infinite degrees. But assuming an American perspective, hedge funds and developers are both dealing in their own private assets, that being their reserves of capital and valuable labor. So whatever they do with those things is... primarily their business. Of course most reasonable people accept some small intrusions to this situation, but the overall perspective remains the same.

Whereas land use regulations and the like are a public commons, and everyone is entitled to a say and should have their needs meet. So all the ramifications of any public policy like this are of great significance and the affected feel they have a right to be heard.

Private actors with very strong claims on things like their labor and capital can just do what they will, and the second order effects aren't discussed because they are not relevant to the stakeholders. Everyone is a stakeholder of public policies like this.

> Hedge funds and large corporations often seem like they have more power and often much more agility than governments.

They don’t. Hedge funds and corporations don’t have powers like eminent domain and men with guns authorized to use violence to enforce them.

The vacancy rates actually are a second order effect of the banking industry. You’d think landlords would reduce rents because some income is better than none. However commercial property is valued as a function of the rent, so reducing rents 20% could reduce the value of the property 20% too, potentially leaving the commercial mortgage underwater. But leaving it empty with a rent the market can’t bear keeps that from happening.

Therefore the correct solution is changing banking regulations to eliminate that perverse incentive, not to try an ad hoc fix at the city level which probably won’t work as intended.

That provision is because commercial property is often valued by reference to a cap rate (essentially a net-operating-income multiplier to get to the property value). This is not a property of the banking system but of the market for commercial property.

The banking angle is to ensure that loans on property aren't durably underwater, such that the bank has a high likelihood of ending up owning underwater property. (The bank is in the money business; anytime they get into the real estate business with a REO, someone screwed up.)

Preventing banks from doing this is likely to lead to a lot more bank-owned properties (REOs), which is generally a bad sign for a real estate market.

You seems to be understanding this better than I do.

I understand that if a commercial property gets rented out at 80% of its previous rent that causes a reduction in the valuation of the property. What I don't understand, shouldn't not-renting it out cause an even bigger dip?

An 80% reduced property brings in 20% less income to the owner, but if the property is empty that means the owner has to pay for maintenance out of their pocket. (maintaining the roof, keeping the squatters away etc. However cheap these expenses are, it is clearly not zero dollar.) The property becomes from an asset to a liability. (in the colloquial sense at least, as you can hear I'm not well versed in economics.) How does that not decimate the valuation like crazy?

Commercial property as a category has some characteristic vacancy rate. (For office and retail, this can be around 10% under typical market conditions. It's not at all weird for "good" property to sit vacant for 18 months at a stretch.)

The valuation is based* on looking forward multiple decades. If you think COVID (or recession or other short-term event) is a blip in the future prospects, you aren't overly concerned if a property sits vacant for a year or two, when you're looking at the overall income over the next 30 years.

On the other hand, if you drop the rents 20% because you're feeling an urgent need to fill the property now, your fixed costs don't change (property tax may eventually go down slightly), you have 20% less income to cover them and leave a profit, and your next 10 years' of rental income outlook is now nerfed by about 20% (and profit by perhaps 30% or more).

It's the reason that rent rebates are a thing. You don't drop the monthly rental rate; you instead credit free months of rent over the initial period of the lease, give larger allowances for landlord-paid improvements, or other "one time" credits.

* - every market participant does something slightly different, of course, but they're all more or less looking over a multi-decade period to judge what the property is worth now.

As you say, it means the bank’s underwriting process failed. It makes more sense to me that they eat the loss caused by their error and auction off the property at a price the rental market will bear. Papering over bad underwriting with dishonest valuations doesn’t strike me as worth sacrificing cities’ commercial vibrancy for.

That's the thing the bank is (sort of) "trying to do" and the landlord is seeking to prevent them doing. If the landlord lowers the rent such that the property would now be in violation of the loan covenants, the bank has the option to foreclose on the loan and auction the property off. If the landlord does not lower the rent, they can avoid being in violation of the loan covenants and the bank does not have the right to foreclose and force an auction (provided the landlord keeps making the loan payments, of course).

If the bank has a loan on the books that’s being paid-as-agreed and is in compliance with the agreed ratios, it's not at all clear to me that there's been an underwriting mistake and consequently I don't think that giving them the power to foreclose is in the public or borrower’s interests. (Giving them the option is technically always in the bank’s interests, but if the loan’s being paid, they’re not likely to exercise the option anyway.)

> I f the bank has a loan on the books that’s being paid-as-agreed and is in compliance with the agreed ratios, it's not at all clear to me that there's been an underwriting mistake and consequently I don't think that giving them the power to foreclose is in the public or borrower’s interests.

This view is implicitly premised on the notion that banks exist purely to make a profit. I take the view that banking licenses are issued by the government representing the public and that licensees should act in a way that benefits the community in which they are licensed to operate. Using a dishonest valuation scheme that blights urban commercial districts violates that public purpose. I have no strong opinion on how the lender and borrower ought to work out the costs of accepting reality, and I acknowledge that it probably needs to be handled with finer granularity than some blanket policy.

The question remains "how [and when] do we determine that this specific property is being valued dishonestly?"

If commercial property commonly has 2 year vacancies (as a matter of the inherent friction in finding a user who needs exactly that amount/mix/configuration of space), how does one determine that 123 Commercial St that's been vacant for 9, 12, 15, or even 30 months is being incorrectly valued or valued at less than the bank's note?

It sounds to me like you're perhaps pulling on the wrong rope. If your concern is encouraging occupancy, go directly to policies that encourage occupancy rather than concluding that this is banking problem at its root. Maybe it is; maybe it isn't, but rather than trying to puppeteer an outcome by tweaking something in banking, there might be more direct policy frameworks that would help more.

This is circular reasoning. These multi-year vacancies exist precisely because the present regime encourages it. One determines the appropriate vacancy rate and then tunes the regulatory framework to remove barriers to achieving that public purpose.

The most direct policy framework would be wielding the sledgehammer that is eminent domain. However, I think government should use the lightest touch possible to achieve the public purpose, so I’d prefer setting the rules in a way that maximizes freedom while still achieving the public purpose of having non-blighted commercial districts.

It’s not just banking ratios that cause this behavior, though, but rather in part the owners of commercial property, often let out for 5 year terms with 2 5-year renewal options, who don’t want to be too quick to lower their rental base for possibly 15 years for a 1-2 year recession.

Property with no bank note on it would behave the same way. (It’s just exceedingly rare, especially in an easy-borrowing, money-printing presses running environment.

> But, I've never seen anyone discuss second order effects from hedge funds, or rich developers.

There is a huge body of research on it. When private entities do it the term used is an "externality".

There is only one thing that distinguishes the difference between government and all other social entities:

A monopoly on the use of force.

A government is also accountable to the citizens while a private company is only accountable to its shareholders. That's a pretty big difference.

Companies are dominated by the major shareholders, basically the rich.

Guess what the us government is dominated by?

Private companies and governments can both exist without accountability.

There is literally no government in the world that isn't somewhat accountable to citizens.

Meanwhile, there are many multinationals that are not accountable at all to the citizens of countries they operate in.

> There is literally no government in the world that isn't somewhat accountable to citizens.

Actually, there might only be a few government that are accountable to citizens. Maybe most governments care for their citizens, but accountable? I don't think so.

Every government is afraid of rebellion or strikes, or otherwise accountable to public opinion. The power that the average person has is considerable, and revolutions and revolts are not so uncommon.

Orders of magnitude less common than customers switching brands.

Sufficiently wealthy private entities can buy access to that force, which makes it more of an oligopoly than a monopoly. Not to mention there are private security services who are also granted force.

I expect that companies create larger second order effects than governments. However governments last longer than private companies so they are a more reliable target for criticism. When a company messes up it can morph it's constituent parts into something else.

Regulatory capture is like boiling a frog. Hedge funds and developers make us warm wet and happy until it's too late.

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